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Optimism About Economy Declines Among U.S. Businesses

October 24, 2012, 06:28 AM
Filed Under: Economic Commentary

U.S. businesses are facing a crisis of confidence in the country’s economy during the next year, with optimism falling to 19 percent in the third quarter compared to 50 percent the second quarter of this year, according to the latest Grant Thornton International Business Report (IBR). The report features information from interviews with 3,500 private and public companies around the world.

Though the decline in the U.S. was significant, the report shows that optimism in the U.S. is still greater than in the rest of the world, with global optimism falling to just 8 percent. Optimism in some of the world’s largest economic powers also showed a decline from quarter to quarter. For example, in China confidence decreased from 33 percent to 11 percent. Even Germany experienced a drop in optimism from 40 percent in the second quarter to 28 percent in the third quarter.

“Businesses in the U.S. are experiencing uncertainty about how the economy will perform in the next 12 months,” said Stephen Chipman, chief executive officer of Grant Thornton LLP, the U.S. member firm of Grant Thornton International. “Much of this is likely due to the overall uncertainty in the country right now—from the outcome of the presidential election to the fiscal cliff. Even so, U.S. business executives are showing some signs of optimism about their revenues and profitability.”

In the next 12 months, 58 percent of business leaders in the U.S. expect revenue to increase. Specifically, 71 percent of respondents from the West expect revenue to increase, along with 63 percent of Northeast business owners, 58 percent of those in the Midwest, 53 percent of Mid-Atlantic/Southeast respondents, and 49 percent of those in the Central part of the U.S.

In the area of employment, a top-of-mind topic for many Americans, more than one-third of businesses (34 percent) reported that employment would increase during the next year. Though some businesses are planning to hire, others are playing it cautiously, with 57 percent of respondents saying they expect employment to remain the same.

While businesses are planning to hire, employers are cautious in the raises that they expect to give to their employees. The findings show that 67 percent of businesses plan to give employees a raise that aligns with the cost of inflation. This is most common among those in the Northeast (72 percent), followed by the Midwest (71 percent), West (69 percent), Mid-Atlantic/Southeast, and Central (63 percent).

Along similar lines, nearly half of U.S. respondents (49 percent) believe there will be no change in accessibility to financing for their business, something that is further evident in the different regions: 64 percent of those in Midwest, 57 percent in Mid-Atlantic/Southeast, 55 percent in the Northeast, 53 percent in the West, and 44 percent in the Central states. Similarly, 90 percent of those surveyed said they believe their lender is supportive toward their business. In fact, businesses surveyed believe the biggest constraint to growing their business is regulation and red tape, with 32 percent identifying it as such.

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