PwC: Optimism dropping in the private sector

A new survey by global consulting firm PricewaterhouseCoopers (PwC) finds that “economic optimism” among private sector executives is plummeting rapidly both inside and outside the U.S. as a number of issues are fueling an unsteady outlook for the world’s markets

A new survey by global consulting firm PricewaterhouseCoopers (PwC) finds that “economic optimism” among private sector executives is plummeting rapidly both inside and outside the U.S. as a number of issues are fueling an unsteady outlook for the world’s markets.

PwC’s quarterly Private Company Trendsetter Barometer found that on 43% of executives say they’re optimistic about the outlook for the U.S. economy over the next 12 months – a whopping decrease of 21 points from the first quarter’s optimism level of 64%. Meanwhile, uncertainty about the U.S. economy rose to 42%, up 13 points from the first quarter as well.

Rising uncertainty is also evident among those marketing abroad, PwC added, as the majority (52%) of international private companies polled by the firm are now uncertain about the outlook for the world economy, with only 38% of those executives expressing optimism, down 16 points from the second quarter.

“The decline in optimism reflects growing unease about a range of issues,” noted Ken Esch, a partner with PwC’s Private Company Services practice. “Those issues include debt crises at home and abroad, stock market volatility around the globe, high commodity prices, and rising political and social tensions in a growing number of countries.”

Revenue forecasts by those executives polled by PwC also dipped this past quarter, although they remain well above levels of a year ago. The firm added that private companies’ forecasted average revenue growth rate dropped to 9.5%, down from 10.2% the previous quarter but up from a year earlier, when it was 9.1%.

Yet costs and prices continued their upward trend in the second quarter of 2011. Among those companies surveyed by PwC, costs increased for 27% of them and only decreased for 8%, resulting in a net increase of 19%. Prices rose for 19% of those surveyed and fell for 9%, with a net increase of 10%.

Overall, gross margins were flat in the second quarter among those companies polled with 21% reporting higher margins, and 20% reporting lower margins, for a net positive 1%, said Esch.

“Downward pressure on margins for private companies that sell in emerging markets reflects not only high oil and energy prices, which drive up transportation costs, but also signals increasing labor costs in those markets,” he noted. “While it’s too early to say whether this downward pressure will continue, we’ll be watching the numbers closely.”

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