Private companies have voiced optimism about the U.S. economy for nine consecutive quarters, with 70 percent currently expressing a positive outlook, according to the latest PwC US’s Trendsetter Barometer®. This represents an increase of 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.
“This report coincides with the increase in capital investment in manufacturing projects,” said Brian Gallagher, Director of Marketing for O’Neal, Inc., an integrated design and construction firm specializing in industrial and chemical projects. “Most of our clients are privately-held firms and we’ve certainly experienced an increase in capital investment activity.”
The PwC 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 2015, 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.
“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
“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.”
