NEW YORK (PRNewswire) — In the first quarter of 2013, private-company executives' optimism about the 12-month prospects for the US economy rose eight points, according to PwC US's Private Company Trendsetter Barometer . Fifty percent of executives expressed optimism, while only 11 percent were pessimistic, down from 18 percent the prior quarter. Optimism about the world economy also climbed, up 12 points to 37 percent, reaching its highest level since the second quarter of 2011 as the gap between pessimists and optimists widened.
The following graphic shows the trajectory of private-company optimism over time. Optimism about the US and world economies trended closely together in recent years but diverged in 2012, when concerns about the world economy weighed more heavily. The gap has begun to close again.
The following chart shows a further breakout of private companies' economic sentiments and growth projections for the next 12 months, alongside data from the prior quarter and from this time last year.
US Private-Company Economic Sentiments: US Economy, 12-Month Outlook
US International Private-Company Economic Sentiments:
World Economy, 12-Month Outlook
Another positive indicator is that for the second consecutive quarter, private companies reported an increase in planned total composite workforce hiring ― 3.4 percent, up from 2.8 percent in the prior quarter and well above a year ago when it was 1.8 percent. This quarter's planned composite workforce increase is the highest since the third quarter of 2008.
Overall, fifty-two percent of private companies plan to hire in the next 12 months. Of those companies, 33 percent are looking primarily for trained professionals in areas such as technology/engineering, business/finance, and sales/marketing, and nearly as many (28%) say that a lack of qualified workers is a potential barrier to growth.
"Private companies are fueling the job creation that is needed to create a positive force in the economy," says Ken Esch, a partner with PwC's Private Company Services practice. "It's encouraging to see their commitment to increasing headcount as they scale their businesses for further growth. Significant time out of the workforce has eroded skillsets for some workers, so it's understandable that private companies see a lack of qualified talent as a significant headwind. An increasing number of them are addressing this issue by retraining new employees to bring them up to speed."
Revenue Forecasts Dip But Still Outpace Projected GDP Growth Rate
Private companies' forecasted revenue growth rate dipped to 6 percent (down from 7 percent the prior quarter) while nonetheless remaining at least twice as high as projections for US GDP growth for 2013. Three in four private companies (75 percent) expect positive revenue growth over the next 12 months (down five points from the prior quarter), and one in four (25 percent) forecast double-digit growth.
International companies' lower 12-month revenue forecasts were the main contributor to the dip in private-company projected growth rates. They forecasted a 6.9 percent 12-month revenue growth this past quarter compared with 9.3 percent in the prior quarter. Domestic companies' revenue forecasts remained fairly steady at 5.3 percent, up from 5.1 percent the previous quarter.
"As companies continue to grow, post-recession, it can be difficult to maintain the same high growth rates because they are no longer benefitting from low comparables," says Esch. "While we're seeing a slight flattening of private-company growth projections, they continue to outpace the US GDP growth forecasts, and from a profitability standpoint, we're still seeing healthy margins."
Capital Investment Plans Hold Steady
Thirty-two percent of private companies are planning major new investments of capital over the next 12 months, down just one point from the prior quarter. Spending levels remain high at 7.5 percent of sales, up slightly from 7.3 percent the previous quarter.
The percentage of companies planning increases in their current level of operational spending over the next 12 months was 58 percent, down from the prior quarter's 67 percent. Twenty-five percent of companies plan to increase spending for new product and services, 24 percent for information technology, 20 percent for marketing and sales, and 20 percent for facilities expansion.
"Over the past few years, we've seen private companies make wise decisions to invest their capital and resources in areas that made an immediate impact on the bottom line. Many of those businesses have chosen to maintain that posture due to concern about future lack of demand for their products and services."
Fully two-thirds (66 percent) of private companies cited lack of demand as an expected barrier to growth over the next 12 months.
Bank Loan Activity Continues
Increased banking activity was reported in the first quarter of 2013, with 18 percent of private companies reporting financing activity (up four points). Most of those companies (15 percent) reported new bank loans, three points higher than the prior quarter. More international companies than domestic-only companies obtained loans.
"We're in a record-low interest rate environment," says Esch. "As private-company executives look to invest in growth initiatives like acquisitions, expansion, technology, and R&D capacity, the current environment provides good opportunities for them to access capital."
About PwC's Private Company Trendsetter Barometer
PwC's Private Company Trendsetter Barometer tracks the business issues and best practices of privately held US growth businesses. This quarter's report incorporates the views of 225 C-suite officers (CEOs/CFOs): 129 from companies in the product sector and 96 in the service sector, averaging $315 million in enterprise revenue/sales, and including large, $500M-plus private companies.