Despite rising interest rates, trade policy uncertainty, and various other potential headwinds, expectations for economic growth in America continue to improve. For example, economists surveyed this month by the Wall Street Journal on average see U.S. gross domestic product (GDP) expanding by 3.0 percent in 2018. That is an increase from 2.9 percent in July and up markedly from 2.4 percent in the August 2017 poll. Surveyed economists also forecast the unemployment rate ending the year at 3.6 percent, which if turns out to be true would be the lowest rate of joblessness seen in the country in nearly half a century. Looking beyond 2018, expectations for economic growth start to cool slightly, but some of the concerns are related to completely avoidable risks. Diane Swonk, chief economist of Grant Thornton, for instance, told the Wall Street Journal that “If we avoid a trade war, and remove the threats of a trade war, we could see more much-needed business investment in the economy.” Business leaders in general appear to share such sentiment, as evidenced by the Business Roundtable’s CEO economic outlook index ending the second quarter of 2018 at 111.1.
That is the 2nd-highest reading since 2011 but also the first quarterly decline in roughly two years. The somewhat less optimistic outlook was largely due to “increased uncertainty surrounding government policies, particularly the direction of U.S. trade policy,” according to the report. Around nine in ten surveyed business leaders who commented on this specific issue said that worsening trade relations pose a “moderate or serious risk” of lower exports, higher import prices for consumers, higher input costs for businesses, and lower economic growth. Most CEOs in this survey, though, run giant multinational companies that generate a lot of revenue overseas. Smaller firms on the other hand typically derive the bulk of their profits domestically and therefore have significantly less direct exposure to a trade war. Unsurprisingly, recent surveys of small business owners in America continue to reflect rising levels of confidence. Just look at the latest sentiment gauge from Wells Fargo and Gallup, which jumped to an all-time high this quarter. More than three-quarters (78 percent) of surveyed small business owners rated their company’s financial situation as “very good or somewhat good,” and 37 percent cited plans to increase capital spending.
A record 35 percent of owners also said that they intend to add staff during the coming year, but that could prove to be difficult because a side-effect of a strong economy is a tight labor market. Indeed, the report’s authors found that “attracting and retaining the workers businesses need to provide quality service or to grow their operations remains by far the greatest challenge for small business owners.” That is supported by recent NFIB small business owner surveys, but competing for talent is starting to become a problem for companies of all sizes. In such an environment, businesses must not only keep up with industry wage growth trends but also provide the benefits that quality workers are increasingly demanding. This includes 401(k) retirement plans, the tax-advantaged savings vehicles that a Transamerica poll showed are highly-valued by Americans searching for a job, as well as those considering switching employers. Fortunately, many businesses appear aware of the evolving labor market, as evidenced by the two-thirds of senior executives surveyed by Prudential and CFO Research who said that they expect to boost worker compensation this year. To further improve the acquisition and retention of talent, more than half (57 percent) of respondents also said that they expect to increase the matching contributions for employees’ 401(k) plans.
Sources: Wall Street Journal, Business Roundtable, Wells Fargo, Gallup, National Federation of Independent Business, Transamerica, Benefits Pro, Prudential, CFO Research
Post author: Charles Couch