The results of Consulting's annual Executive Outlook are in—and while the numbers still look pretty good overall, we're starting to see some signs that things are slowing down after nearly a decade-long rocket ride for the economy. Firms—and clients—are starting to show signs of slowing down a little bit as clients grow cautious amid rampant uncertainty. While the economy still has a strong foundation beneath it, consulting firms are beginning to experience, at least according to our survey results, a bit of a pull-back as they report strong—but not bursting—pipelines heading in into 2019. Is it time to pump the brakes? It seems to be the appropriate question to ask for 2019 based on the results of Consulting magazine's annual Executive Outlook Survey, but it sure doesn't look like the wheels are about to fall off anytime soon—despite the stock market's shaky performance at the end of the year.
It's worth noting that the survey was conducted in November and the early part of December, before the full-blown market volatility kicked into high gear, which could further spook clients and impact their spending habits. In all, more than 100 Managing Directors, Partners and Vice Presidents weighed in when we asked them about their business over the last 12 months, as well as what they're expecting in 2019.
Continued positive economic momentum combined with a massive corporate tax cut led to a pretty solid 2018 as clients continued to open their wallets and spend—at least for the majority of 2018. However, we haven't come across the current level of economic and political uncertainty in quite some time, and the markets' late-December performance certainly reflected that. Of course, a partial government shutdown does nothing to boost confidence, not to mention grinding to a halt almost all Federal spending in the public sector.
As dysfunctional as Washington can be, there's seems to be an appetite for additional healthcare spending and, most agree, both the White House and lawmakers are eager for increased infrastructure spending.
Globally, things aren't much better. Global trade wars, mounting Eurozone troubles and Brexit loom large now and going forward. But, as we've seen plenty of times before, what we think will happen probably won't. The Mueller Investigation, growing global unrest, immigration reform, domestic dissatisfaction and pending inflation could be wet blankets over an already fragile economy.
The results of our survey may just be a tad overly optimistic as most economists point out that we're most likely still in a relatively slow growth mode and the global economy will continue to have to settle for slow growth. The same will also be true of the U.S. economy, despite President Trump's promises to the contrary. And fears of recession have a way of becoming self-fulfilling prophecies since so much of economic performance is based on consumer confidence.
Comparing last year's projections with this year's reality is a good place to start. For the year that just ended, a very solid 94 percent of executives said they experienced real revenue growth, a bit down from the staggering 97 percent that predicted it in last year's survey. And 70 percent said that the growth was higher than 10 percent, two percentage points lower than the 72 percent who had forecast double-digit growth for 2017. So, in reality, things were about what firm leaders had forecasted for 2018 at the end of 2017.
As far as forecasting 2019, those numbers look pretty good, too. However, they do dip a bit from the perhaps unsustainable highs we saw last year. Some 95 percent of executives are forecasting growth with 85 percent saying that growth will exceed 6 percent. Solid numbers by any measure, but down from the ridiculous 98 percent and 94 percent figures last year. So, do those forecasts and projections of top-line growth make it to the bottom line?
In 2019, an eye-popping 93 percent of firm leaders anticipate net profits will improve, while only 2 percent say they'll be down this year. The other 5 percent say they anticipate no change in net profits. And 59 percent, down from 62 percent last year, say net profits will be up more than 10 percent in 2019.
As part of the survey, we asked participants to rate how concerned they are about certain internal and external issues. There, the survey showed continued positive momentum as new client business development and client retention continue to top the list. However, pricing pressures and sales cycles are starting to creep back up as concerns, which often happens when belts begin to tighten.
Meanwhile, internally, the biggest concerns in 2018 are keeping staff morale and retention of employees, indicating a circling the wagons mentality as firms perhaps begin to hunker down for what they anticipate could be a rough stretch. Setting new strategic goals/direction, resetting compensation expectation were also on that list of priorities.
Whether the consulting profession continues to outpace the economy and race along at breakneck speed in 2019 remains to be seen. One thing we're sure of, based on the results of our survey, is that firms are being realistic about how fast, and for how long, they can continue at the current pace. Pumping the brakes a bit, even despite the external economic reality, might not be a bad idea given the internal operating metrics happening these days at most firms.
As always, it'll be fascinating to watch as it all unfolds.
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