US Business Confidence Remains Strong

July 09, 2012 /

Business confidence in the US remains one of the highest globally in June, according to the latest Markit Business Outlook Survey.

Greater client demand and new product lines are expected to support an increase in output over the coming year. However, uncertainty over the upcoming presidential election and the ongoing euro crisis acted as a dampener on overall optimism from the previous outlook period in February.

June’s survey suggests confidence among US businesses remains strong, with firms in both the manufacturing and service sectors expecting higher levels of activity over the coming year. Although current expectations are weaker than the surveyhigh reported in February, they are nonetheless greater than the levels registered in the mid-to-late 2011.

Across the US private sector overall, +57 percent of companies on balance predict activity growth over
the next 12 months. Although down from +69 percent in February, which was the highest reading since data collection began in October 2009, it is the second-strongest in a year and only marginally below the series average of +59 percent. Moreover, confidence towards the one-year business outlook is the second-highest globally, behind only Brazil.

Although private sector firms are optimistic towards new business volumes over the coming year, expectations have eased from the previous outlook period. Concurrently, company forecasts for growth of business revenues and profitability have been revised downwards.

Confidence regarding future employment trends is broadly unchanged from February. Weaker hiring expectations at service providers offset the strongest forecast for manufacturing job creation since February 2011.

Firms anticipate the rate of input price inflation to slow over the next year, with the net balance falling
to its joint-lowest level since data collection began in October 2009. A weaker rise in output charges is
also forecast, as companies expect stronger competitive pressures.

Capital expenditure is predicted to increase over the next 12 months, with positive sentiment the highest in the outlook survey history.

Meanwhile, weaker business confidence is also apparent at the global level. Growth of activity is expected by +37 percent of private sector firms on balance, down from +44 percent in February.

However, sentiment remains above that recorded in late-2011. Alongside the US, some of the strongest growth expectations continue to be found in the BRIC economies. Confidence across the BRICs is robust overall, although differences are evident at the national level, with Brazilian and Indian companies notably more bullish than those in China and Russia.

Across Europe, however, sentiment has dropped markedly since February, with a notable slump in confidence in Germany and deteriorating outlooks in Italy, Spain and the UK. Companies expect weaker growth of activity, new business and revenues compared with the situation in February.

Employment is set to be largely stagnant, while minimal changes in investment are anticipated. Firms around the world report lower expectations regarding input cost inflation, following recent price falls for many commodities. Output charges are set to rise at a weaker pace accordingly.

Mark Wingham, Economist at survey compilers Markit, said: “The latest Business Outlook survey suggests that
the US will continue to be a bright spot in the global economy over the coming year, with firms’ optimism
towards future growth the second-highest worldwide. Only Brazilian companies reported a more positive outlook in June.

“That said, the mood among US businesses is less upbeat compared with the previous outlook period in February. Uncertainty in the run-up to the presidential election and the ongoing crisis in Europe have knocked confidence somewhat from the start of 2012.”


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