Wells Fargo 2017 International Business Indicator
|International Business Indicator Jumps to All-Time High
Wells Fargo has been compiling its International Business Indicator (IBI) since 2014. The IBI is a composite indicator that measures the importance of the international component of a company’s business as well as its intentions to increase or decrease international activity. The data that were used in the construction of the 2017 index were collected between November 14 and January 24 from 281 U.S.-based businesses that are active internationally. Thus, all the data were collected after the U.S. elections on November 8, 2016.
The index can range from a value of zero, which indicates an absolute negative outlook, to 100, indicating an absolute positive outlook. The IBI shot up from 65 in 2016 to 74 in 2017, which is the highest level recorded in the four-year history of the index (Figure 1). At its current level of 74, the IBI suggests that businesses generally have a sanguine view of overall business conditions over the next 12 months. Indeed, 84 percent of the respondents replied that the overall business outlook over the next 12 months was either “much better” or “somewhat better.” Only 50 percent of respondents answered similarly in 2016.
The increase in the overall business outlook was attributable in part to more positive views about foreign economies with 72 percent of the survey participants saying that the international business outlook over the next 12 months would be either “much better” or “somewhat better.” This increased optimism about the international business outlook is consistent with recent data that show acceleration in global economic activity in recent months. Global industrial production (IP) was up 3.3 percent in December, the strongest year-over-year rate of global IP growth in more than 5 years (Figure 2). Economic activity in China has been decelerating over the past few years, but growth in the world’s second largest economy appears to have stabilized in recent quarters. The Eurozone appears to be picking up some steam, and real GDP growth in Canada, America’s most important trading partner, has strengthened in recent quarters.
Not only did respondents have more optimistic views of the international business outlook but 81 percent also replied that the international component of their business would become either “much more important” or “somewhat more important” to their company’s financial success. Only 54 percent answered similarly last year. A sizeable majority (63 percent) said that the share of their company’s profits stemming from international business activity would increase over the next 12 months, and 59 percent look to source more products from overseas. Forty-one percent said that their company’s international acquisitions would increase, up sharply from only 18 percent last year. More than 90 percent of the participants either strongly agree or somewhat agree with the statement that “for long-term revenue growth, U.S. companies should consider expanding internationally.” There was nearly unanimous agreement that emerging markets
represent the greatest opportunity for revenue growth.
Survey participants also had a more optimistic view of the domestic economy with 85 percent replying that U.S. business outlook was either “much better” or “somewhat better.” Incoming data show that the U.S. economy generally remains resilient more than seven years after the last recession ended in June 2009. The level of U.S. real GDP at the end of 2016 stood more than 12 percent above its pre-recession peak, and the nation’s unemployment rate has fallen to a 9-year low. The Federal Reserve feels confident enough in the economic outlook that it hiked rates in December and again in March. Most analysts look for it to tighten policy further this year. The results of the recent elections may also be playing a role in boosting sentiment. Eighty-eight percent of the respondents in this survey said that the level of political stability in the United States would have a “very positive” or “somewhat positive” effect on their international business plans, up sharply from only 32 percent last year. The outlook for the regulatory environment in the United States also appears to have lifted spirits as 91 percent said that it would have a “very positive” or “somewhat positive” effect on their international business plans. Last year, only 26 percent responded similarly.
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