Businesses Lose Confidence and Optimism for Economy in 2013

Businesses in the third quarter of 2012 experienced a sharp drop in optimism as they look ahead to the next twelve months. Optimism fell from 50 percent in the second quarter of the year down to 19 percent according to the Grant Thornton International Business Report. Despite the steep confidence drop, U.S. businesses remain more optimistic than the rest of the world where the average global percentage level of optimism is down to the high single digits.

Many of the larger world economies have all experienced rapidly declining optimism from quarter to quarter. Confidence in China fell 22 points down to 11 percent from Q2 to Q3 where Germany saw optimism fall from 40 percent in Q2 to 28 percent in Q3. Over the next year, 58 percent of U.S. businesses expect revenue increases. Regionally, 71 percent of businesses in the West expect a revenue increase compared to 63 percent in the Northeast, 58 percent in the Midwest, 53 percent in the Mid-Atlantic/Southeast, and 49 percent in Central.

“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.”

Most businesses still plan to hire more staff, but are cautious regarded pay raises. About two-thirds of businesses plan to give raises to only match inflation, especially in the Northeast (72 percent), but also prevalent in the Midwest (71 percent), West (69 percent), Mid-Atlantic/Southeast, and Central (63 percent).