NEW YORK, July 28, 2015 /PRNewswire/ -- The majority of private companies have voiced optimism about the U.S. economy for nine consecutive quarters, with 70 percent currently expressing a positive outlook – up from 59 percent in 2Q 2014. This sustained level of confidence is resulting in more companies planning major investments, including new capital projects and hiring, reports PwC US's latest Trendsetter Barometer®.
The quarterly report, which tracks the economic sentiments and business outlook of America's leading privately held companies, shows this optimism being mirrored by private-company performance, with 34 percent reporting improved gross margins, the highest number in more than a decade. Roughly five out of six (87 percent) private companies expect their revenue to grow in the next 12 months, nosing back toward pre-recession levels.
Increased spending and cautious expansion into new markets prevails
In the second quarter of this year, 36 percent of companies said they planned to spend on new capital projects in the next 12 months (up from 29% the prior quarter). Information technology is the top area where private companies plan to increase investment (31 percent), followed by marketing and sales promotion (22 percent). However, there is some growing concern among private-company leaders about higher interest rates (18 percent, up from 8 percent a year ago) and about a stronger dollar (19 percent, up from 8 percent a year ago). And with their current operating capacity at the highest level since 2007 (92 percent say they have reached at least three-quarters operating capacity), private companies' appetite to spend may be curbed somewhat until greater capacity opens up.
Caution is also prevailing when it comes to expansion through acquisition and entering new markets abroad. Only 11 percent plan to buy another company in the next year – the lowest figure in 20 years (since Trendsetter Barometer began). Meanwhile, just 9 percent are contemplating joint ventures and 8 percent planning to expand into new markets outside the U.S. But sales abroad as a percentage of overall revenue for international marketers has held steady at approximately one-fifth of total sales (one-third for companies selling in emerging markets), with roughly one-quarter of companies also continuing to report an increase in international sales. And these international marketers are outspending their domestic-only peers across a variety of areas, including capital investments (42% of international companies vs 31% domestic-only) and increased spending on new products and services (26% vs 14%). Recent developments in Greece and China notwithstanding, international Trendsetter companies are clearly staying the course.
"While we've seen high post-recession optimism levels among private companies before, only in the past couple of years have those levels been sustainable. This is an encouraging indicator for a long-term U.S. economic revival, with the private sector and the American consumer firmly at its core," says Ken Esch, a partner in PwC's Private Company Services practice. "Despite increased optimism, it's encouraging to see private companies making prudent business decisions about their capital plans. They're investing more, but they are doing it carefully. While we saw a slowdown into new markets this past quarter, international expansion will remain a firm part of any long-term strategy."
Hiring remains a top priority, but high-quality talent is scarce
The overall U.S. jobs picture has continued to brighten, and this is reflected by current private-company hiring attitudes. At 64 percent, the number of private companies planning to employ fulltime workers in the next 12 months is now higher than it has been at any time since the recession. However, these companies plan to add just 2.6 percent to their staff headcount in the next year. One reason is that they're having trouble finding the right job candidates, with 37 percent of private companies citing a lack of qualified workers as a critical barrier to growth.
Technology and engineering professionals remain highest in demand, with 28 percent of private companies wanting to add such employees to their workforce. In this tightening labor market, however, private companies are budgeting for hourly-wage increases of only 2.97 percent, on average, over the next year, despite growing wage pressure.
"While the hiring picture is certainly brighter, companies are still struggling to find the right talent to move their businesses forward. Companies need new employees with specific skills in engineering and technology, and they're having difficulty finding them here in the States," says Margaret Young, a partner in PwC's Private Company Services practice. "There are longer-term solutions to be had in education or immigration reform, but that won't help companies that are wrestling with this issue right now."
About PwC's Private Company Trendsetter Barometer
Each quarter, PwC's Trendsetter Barometer® tracks the views of top executive officers at privately held US businesses and the trends these reveal. This quarter's report reflects conversations with 225 private-company leaders, including 127 from companies in the product sector and 98 in the service sector, with average enterprise revenues of $427 million. The interviews took place between April 3, 2015 and July 7, 2015.
About PwC's Private Company Services Practice
Located in all major US markets, PwC's Private Company Services (PCS) is a national practice comprised of more than 170 partners who provide customized tax, audit and advisory services to private companies, their owners and high net worth individuals. The majority of America's largest private companies are PwC clients.* They span a broad scope of sectors and industries ranging from manufacturing to retail to industrial to professional services.
A hallmark of PCS is a robust thought leadership program that provides clients with timely, thought-provoking information to help manage and grow their businesses and wealth.
Visit us online at pwc.com/us/pcs.
* Forbes 2014 List of America's Largest Private Companies
About PwC US
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© 2015 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
SOURCE PwC US