Seventy percent of Trendsetter CEOs remained positive about the U.S. economy's prospects for the next twelve months, off from 76 percent in the second quarter and a high of 84 percent in 4Q03. This quarter's change came mainly from the service sector, slipping 11 points to 68 percent, while the product sector held steady at 72 percent. Uncertainty rose to 28 percent, and pessimism was virtually absent at two percent.

While domestic optimism declined, two-thirds of international marketers (66 percent) reported optimism about the world economy, up from 62 percent in the prior quarter and a marked increase from 54 percent a year ago.

Concern about demand is up: 63 percent cite weak market demand as a potential roadblock to growth over the next 12 months, a jump of ten points from the prior quarter.

Comparatively fewer CEOs appear worried about other prospective barriers. Lack of qualified workers was cited by 33 percent; profitability by 32 percent; legislative and regulatory pressures, 32 percent; pressure for increased wages, 27 percent; lack of capital for investment, 25 percent; own ability to manage/reorganize 24 percent; and increased taxation, 21 percent.

"Weak demand is by far the greatest and fastest growing concern among ‘Trendsetter' CEOs," said Jay Mattie, PricewaterhouseCoopers' U.S. Private Company Services Assurance Services Leader. "Certainly, abnormally high energy prices are a contributor, draining cash and creating a hesitation to make purchase decisions."

Despite their concerns about the domestic economy and possible weak demand, Trendsetter CEOs held their revenue growth targets steady for the next 12 months, at 20.7 percent, similar to the 21.0 percent estimated in the prior quarter.

Service companies have loftier targets, 22.6 percent growth, compared to 18.2 percent for product companies. Technology companies expect higher revenue growth than non-techs—22.3 percent and 18.9 percent, respectively.

"These CEOs see their own company as having both the potential and the momentum to trump concerns about the economy and market demand in the year ahead," said Mattie.

Trendsetter CEOs are also holding steady in their plans for new investments of capital: 44 percent are planning major new investments over the next 12 months, at an average spending level of 11.7 percent of revenues. This represents a continuity of the prior quarter's estimate: 45 percent planning, at an average 11.1 percent spending level.

Viewed separately, 47 percent in the service sector are expecting to make major new investments over the next 12 months, spending 11.2 percent of revenues; versus 40 percent for the product sector, at 12.4 percent of revenues. Of technology businesses, 47 percent plan major new investments, versus 41 percent for non-techs.

Most expect increased budgeting in four key areas: information technology (cited by 46 percent); new product development (39 percent); sales promotion (39 percent); and advertising (30 percent). In addition, those planning increased R&D spending rose sharply to 23 percent (from 18 percent).

"It is telling that ‘Trendsetter' CEOs are holding firm with their revenue growth targets and plans for major new investments," said Mattie. "They expect their company will perform as planned, despite ripples in the economy."

Plans for new hiring over the next 12 months dipped from the prior quarter's estimate, but remained high. Seventy-six percent of Trendsetter CEOs now plan net workforce gains, down from 78 percent in the prior quarter. They now project a net workforce addition of 9.5 percent over the next 12 months, nearly two points lower than in the prior quarter, but well ahead of their 8.1 percent projection of a year ago.

Service businesses lead in hiring plans: 83 percent (off four points) expect to hire, compared to 66 percent of product businesses (off one point). Technology companies lead non-techs: 83 percent versus 68 percent, respectively.

Trendsetter companies planning to hire expect revenue growth of 24.3 percent over the next 12 months, versus 9.7 percent for those not planning to increase their workforce.

"These business leaders will be taking a cautious approach to new hiring, metering new workers into the mix only when absolutely needed," said Mattie.

Comparisons between 3Q04 and 3Q03 reveal a greatly improved business climate and notably higher expected revenue growth for surveyed companies.