Private Companies Reassess Economy
Fewer private companies are expecting to increase headcount or revenues in the near future, according to a new survey by PricewaterhouseCoopers.
PwC's Q3 Trendsetter Barometer found that 39 percent of private companies plan to increase headcount, down from the 56 percent planning that a year ago. Most of the private company executives surveyed (83 percent) anticipate revenue growth, but that's down from the prior quarter’s high of 91 percent.
“Private companies are continuing to invest in their business in spite of a continued challenging economy out there,” said PwC Trendsetter Barometer leader and partner Ken Esch. “Seventy-five percent of the companies were planning to increase their operational spending. That’s higher than last year. They’re continuing to invest in new products and services. They see that as a pathway to growing the business. Sales and marketing and information technology are other areas of continued focus. Companies are also planning to increase their capital expenditures. It's a little bit higher than last year at 28 percent in the current survey, but again it's an area of continued investment for private companies. Even though they see a slow growth economy, they do see opportunities to expand their business, and they’re putting their investment dollars behind their beliefs.”
The report also found that 38 percent of the private company executives surveyed feel optimistic about the U.S. economy, approximately the same as the 39 percent in the second quarter. In addition, 41 percent of private companies selling in China plan new capital spending, up from 29 percent in the second quarter of the year.
“We normally see that companies in those high-growth markets like China and India are spending a little bit more with their business, both on operational and capital expenditures,” said Esch. “They tend to invest a little bit more in their businesses. We saw that as a continued focus. Even though a lot of reports coming out of China show a slowing economy there, I think the private companies take a long view on their investments and feel that China is an area of the world with a very large group of potential customers that warrants continued investment.”
Still, private companies are tempering their hiring expectations and revenue growth projections as the uncertain election approaches.
“We're seeing that fewer companies are planning to increase their headcount,” said Esch. “It's a fairly dramatic drop from a year ago. We're down about 39 percent versus 56 percent a year ago. I guess the good news in there is that very few companies are planning to reduce their headcount. They feel like they're probably adequately staffed at this time. Those that are planning to add people really aren't expected to make dramatic increases in their headcount. They're only expected to increase about 1.2 percent, and that's down from a year ago as well.”
Wage growth is also slowing down a bit in the latest survey. “The last piece on the hiring front is the increased wages,” said Esch. “That’s ticked a little backwards so the expected increase over the next year is slightly below 2 percent. We really struggled to get a reading above 3 percent since the recession. This is just a little lower than what we've seen in the past, but not dramatically lower.”
Revenue expectations are also slowing down from all-time highs in the second quarter on the PwC Trendsetter Barometer survey.
“Those were record high readings at 91 percent so the fact that it pulls back a little bit isn’t a big surprise to us,” said Esch. “The piece that I looked at was the fact that they pulled back their revenue growth expectations to 5.4 percent. That's down from a year ago as well, and just shows they're seeing some challenges in the economy out there, and continuing to grow that top line is going to be a struggle.”