IMGCAP(1)]The PricewaterhouseCoopers Trendsetter Barometer has been taking the measure of private company leaders for 20 years.
The results have shown, with uncanny accuracy, the direction of the economy as a whole as well as the position of private companies and their industries. That’s because, as Ken Esch says, “As U.S. private companies go, so goes the nation.”
This year’s first-quarter survey shows growing concern about both the global and domestic economies, according to Esch, Private Company Services partner at PwC. The
“Obviously, the optimism level got our attention,” said Esch. “It’s as if the ‘Check Engine’ light went on—but does that mean we’re due for a 60,000 mile checkup, or that the engine blew a valve?”
The answer is more likely that we’re due for a checkup, according to Esch. “The vast majority of companies are still expecting to grow around 7 percent, and they are still planning to invest in capital expenditures—that’s remained stable.”
The percentage of those companies that say they will increase operational spending remains steady at 71 percent. “Companies are continuing to hire, consistent with last year, but it’s not overwhelming,” said Esch. “Even though optimism levels have dropped over the past year, I don’t think it’s the same as the situation in 2007 leading up to the recession. Firms are doing a number of things that indicate they’re still confident and expect positive revenue growth.”
The companies surveyed are larger private companies, averaging about 1,000 employees with revenue in the $350 to $400 million range, according to Esch. “We wanted to increase the size of companies we surveyed to gain better insight into the types of activities they are conducting, and to gain a better understanding from an industry perspective as well as a geographic perspective,” he said.
The drop in optimism follows three quarters of declines and puts it at its lowest since late 2012, also a time of slowing growth, according to the survey. The biggest growth barriers in the 12 months ahead are lack of demand, cited by 59 percent of companies surveyed (up from 58 percent in the last quarter), and legislative and regulatory pressures, which was cited by 41 percent of companies surveyed (up from 36 percent in the last quarter).
“There a number of participants that expressed concern about legislative and regulatory pressures,” Esch indicated. “I would expect that’s probably going to increase. As we move from the end of the political primary cycle and into the conventions, it will get more attention from the electorate. Moreover, there is the concern of the President about his legacy. The only way he can create it is through some sort of regulatory type of change. We’ve seen a little of that in the tax and immigration arenas. It’s a cause for some concern among voters.”
There’s clearly increased pressure on the economy, Esch observed, “but we’re not ready to call an inflection point yet. Yes, Trendsetter executives are voicing concern, but we don’t see them substantially scaling back spending or other growth activities. This signals that private companies remain pretty confident about what the rest of 2016 holds for their businesses.”
