American Companies See Faster Growth Fueled by Trump Administration Agenda
While the media may be focused on recent political developments, economic optimism supported by President Trump’s pro-business agenda continues to rise. In fact, according to PwC’s latest Trendsetter Barometer survey — which measures private company economic sentiment, a one-year leading indicator of US GDP growth — private company leaders are more optimistic than they’ve been in over a year. Many believe that the US economy will continue to pick up speed over the next 12 months.
Private and middle-market companies are optimistic; small businesses grow wary
At the end of Q1 2017, the National Center for the Middle Market recently stated that economic confidence reached a new high, similar to our Trendsetter findings. Bolstered by the latest positive economic data -– including the lowest unemployment rate since 2007 and the Fed signaling a stronger US economy with further interest rate hikes in 2017 -– many private company leaders welcome President Trump’s agenda because they believe lower business taxes, fewer regulations, and infrastructure spending will benefit their businesses. And even though the Administration is just getting started, nearly half of private companies say its policy positions and efforts already have helped their businesses.
At the same time, small business optimism is slowly translating into action as firms add workers. As the American Health Care Act awaits Senate approval, it remains to be seen whether and what sort of final health care reform bill will reach the president’s desk later this year. Many also worry about the timetable in enacting tax reform, although Treasury, the tax-writing committees, and their staffs continue laying the groundwork for legislative action by the House and Senate.
Revenue growth outlook remains conservative
Nearly all Trendsetter firms anticipate revenue growth. However, that growth is expected to be more modest than what we generally see among these companies, resulting in fewer planned business initiatives, less money earmarked for capital expenditures, and flattening wages for Trendsetter employees, which is a leading indicator of payroll movement in the broader economy.
Private companies’ 12-month forecasts for revenue growth in their business are behind the pace of a year ago, at only six percent compared to seven percent in early 2016 -– a conservative view in uncertain times. The top perceived barrier to growth over the next 12 months continues to be lack of demand, although the number of firms concerned about this headwind hasn’t changed much since PwC’s last survey.
Uncertainty about profitability is up from a year ago, as is concern about foreign competition. One-third of private companies also are concerned about lack of qualified workers and wage pressure, very similar to the concerns of small businesses. Notably fewer private companies are planning new business initiatives, a sign of a cautious approach.
Legislative and regulatory concerns
Concern about legislative and regulatory pressures, however, was 12 points higher than a year ago (flagged by 53 percent of firms). And, we’re seeing globalization concerns increase.
Uncertainty around the direction of US trade policy is likely a factor in business leader confidence for the global economy over the next 12 months. The United States is a major trading partner and historically an advocate for free trade and investment flows. President Trump withdrew from the Trans-Pacific Partnership in January and more recently indicated the renegotiation of NAFTA will begin no later than August 16th, challenging this position.
However, business leaders will become increasingly concerned if Congressional action on President Trump’s legislative agenda slows. Many of the businesses I work with are eager to see the details of the tax reform proposal, particularly the treatment of small businesses and pass-through entities. Tax reform is perhaps the Administration’s greatest opportunity to achieve a landmark legislative victory. Only time will tell if this optimism proves warranted.