Businesses expect growth over the next year

Companies indicate solid economic conditions in a new survey.

More U.S. businesses are reporting profits and increased hiring, with greater confidence in their ability to grow over the next 12 months, according to a report from Dun & Bradstreet and Pepperdine Graziadio School of Business and Management. However, demand for financing is trending down.

The third-quarter results indicate that businesses are showing signs of more confidence that they will grow this year compared to a year ago. In the third quarter of 2017, 87% said they are extremely or somewhat confident their business will grow this year compared to 80% a year ago. In addition, businesses are increasingly optimistic that revenue growth will occur in the next 12 months, reporting a positive revenue expectation incline from 8.3% in the third quarter of 2016 to 9.2% the current year.

Gadi Lachman, CEO of TriNetX, whose products help make clinical trials faster and less costly, said times are quite good. “People are cautious about spending, but for the right thing they will.”

Lachman said demand for his products “is strong,” as is his sense of the general economy.

In the just-passed third quarter, 63% of all businesses said they were profitable, up from 56%, a 12% year-over-year increase. Seventy-five percent of small businesses (those with revenues between $500,000 and $5 million) reported positive operating profits. While more small businesses are reporting profits, they are also indicating that the current financing environment is restricting growth opportunity—43% said the current business environment is restricting growth compared to 32% of midsized businesses.

Financing demand is down

Demand for financing is down across the board among businesses of all sizes. Financing for planned growth or expansion, including acquisitions not yet realized, was down from 66% in the second quarter to 62% in the third quarter.

"U.S. businesses are doing well, but these results suggest they are planning for an uncertain future by lowering their debt levels," said Craig Everett, director of the Pepperdine Private Capital Markets Project. "Slowing revenue growth is the cause for uncertainty but other business fundamentals are strong."

Hiring continues to be strong. Some 66% of businesses said they plan to hire in the next six months, up 10% compared to a year ago. Among companies that said they would not hire in the next six months, 21% named "economic uncertainty," 16% said "ability to find employees" and 14% said "government regulations and taxes" as reasons.

"U.S. businesses are showing more faith in the economy and have modest expectations for their prosperity in 2017," said Bodhi Ganguli, lead economist at Dun & Bradstreet. "Looking ahead, businesses will focus on how to fully enjoy a generally positive turn in the business cycle. When businesses hire employees, they are making a significant commitment to their future. When business owners have greater confidence in the economy, hiring will accelerate."