The latest IHS Markit Business Outlook survey signals that U.S. private sector firms are less optimistic towards the outlook for business activity over the coming 12 months than in June.
According to economists, the net balance of firms expecting a rise in output has dropped from +16% in June to +10% in October and is the lowest for three years. The net balance of firms forecasting growth is also below the global (+14%) and developed market (+12%) averages.
Both manufacturing and service sector firms expressed a lower level of positive sentiment towards future output than earlier in the year.
Confidence is generally linked to new export opportunities, with some companies planning on expanding their reach following ongoing trade tensions. At the same time, some private sector firms are suggesting that they have attracted new clients as more customers switch to domestically-produced goods.
Unleashing Inventory
Companies are also predicting that greater marketing activity and the release of new products and services will boost sales over the next 12 months.
That said, several key factors are expected to weigh on growth. As has been highlighted in previous survey periods, the ongoing impact of tariffs and higher operational costs are seen as threats to the outlook, with many also stating that uncertainty surrounding future trade policy is likely to limit client demand.
Meanwhile, difficulties in finding skilled and reliable staff and the upcoming election are also cited as factors that may weigh on performance over the next year.
“U.S. private sector firms were expressing a more cautious level of optimism towards output over the coming year lst October, with the net balance of companies predicting growth dropping to a three-year low,” says IHS Markit economist, Siân Jones.
He adds that global trade tensions, an upcoming election and tight labor market conditions weighed heavy on business confidence.
“Reflecting weaker forecasts for overall activity, firms are less optimistic regarding future job creation, with many noting that a shortage of skilled labor was reducing the ability to fill long-held vacancies, says Jones.
Meanwhile, inflation expectations at private sector companies remain subdued, with smaller proportions of firms predicting increases in cost burdens and selling prices.
“That said, manufacturers are more confident of raising their output charges, with the respective net balance picking up for the first time in a year,” concludes Jones.
OK Boomer
Supply chain managers may also expect corporate overlords to insist they “do more with less,” thereby shedding older workers earning premium salaries and benefits.
Alongside a weaker degree of optimism towards output, the net balance of U.S. private sector firms who foresee a rise in hiring over the next year has slipped to the lowest since February 2016 (+5%), according to IHS Markit.
At the same time, the reduced proportion of firms predicting an increase in employment is reportedly due to difficulties in finding skilled staff amid tight labor market conditions.
In line with weaker job creation expectations, U.S. private sector firms are also less confident of a rise in capital spending over the next year. The net balance of companies who forecast an increase in investment (+6%) fell from that seen in June (+10%) but is in line with the developed market average.
Manufacturers and service providers revised down their expectations regarding future rises in both staff and non-staff costs last October, despite ongoing reports of higher operational costs due to tariffs. The net balance of firms forecasting a rise in non-staff costs (+4%) is the lowest since February 2017.
“Manufacturing and service sector firms both expect to raise their selling prices over the next year, albeit to varying degrees,” reports IHS Markit.
The net balance of manufacturers predicting a rise in output charges in October (+17%) picked up from that seen in June (+14%), whereas service providers have become less confident of an increase in selling prices (net balance of +3%).
Profitability forecasts among U.S. private sector firms are notably lower than those seen a year ago, with the net balance of companies expecting a rise in profits (+8%) having fallen steadily over the course of 2019 from +31% in October 2018.
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