Growing confidence in the U.S. economy is driving plans for expansion among the CEOs of privately held companies, according to a new survey by PricewaterhouseCoopers.

PwC US's latest Private Company Trendsetter Barometer found that 60 percent of private company CEOs are optimistic about the 12-month outlook for the U.S. economy, marking a year in which the majority of CEOs surveyed by PwC have consistently voiced this sentiment, the longest optimism streak since the recession. Previously, the longest stretch of sustained optimism since 2008 was the six-month period spanning 4Q 2010 and the 1Q 2011. 

“One of the things that jumped out for us in this Trendsetter report was the level of optimism from the CEOs who participated,” said Ken Esch, a partner in PwC's Private Company Services practice, in an interview Tuesday. “They were very optimistic about the U.S. economy.”

A 52 percent majority of companies are planning some sort of business expansion initiative this year, up 10 points from a year ago. Sixty-three percent of private companies plan to hire workers in 2014.

The gap between expectations for the U.S. and global economies is widening, according to those surveyed. Private companies are much more optimistic about the U.S. economy than the global economy, with just 39 percent of those surveyed expressing optimism about prospects abroad. Fifty-three percent remain uncertain, amid concerns about the Eurozone GDP forecast and mounting tensions in Ukraine and Venezuela.

“We have seen dramatic peaks and valleys in economic optimism over the past several years,” Rich Stovsky, leader of PwC US’s Private Company Services practice, said in a statement. “Many private-company CEOs put significant initiatives on hold as they waited for signs of a sustained recovery. The consistent economic optimism we’ve seen from a majority of private-company leaders for a full year now is an important signal and suggests this latest uptick in confidence will be lasting.”

Optimism is evident in private-company leaders’ plans to expand through acquisitions, strategic alliances and joint ventures in the coming year, with 52 percent planning some sort of business expansion initiative. That is 10 points higher than a year ago. In the next 12 months, 24 percent say they plan to enter into a new strategic alliance (up from 17 percent a year ago); 20 percent intend to do a joint venture (up from 14 percent); and 19 percent plan to acquire another business (up from 11 percent).

According to a subset of respondents who answered additional questions about expansion plans, 72 percent plan to pursue some form of expansion in the next two years. More than three-quarters (77 percent) are pursuing opportunities in areas where their competitors already have a presence. Companies pursuing these strategies expect 10.4 percent growth over the next year, compared with just 4 percent expected growth for companies taking a more conservative approach.

Certain companies may be more conservative due to pressures to keep costs down or a belief that there is insufficient funding available, with 22 percent of respondents saying that lack of capital for investment is a concern. However, private-company leaders overall say that concern about other potential barriers to growth is waning. Trendsetter companies are less worried about the impact of government intervention, with only 28 percent expressing concern about increased taxation (down 10 points from a year ago). Fewer companies are citing apprehension about legislative and regulatory pressures, at 44 percent, compared with 52 percent a year ago. Lack of demand as a barrier to growth has also decreased significantly, with 53 percent of respondents citing it as a concern, down from 66 percent a year ago and the lowest level since early 2007.

Three-Year High in Hiring
Hiring continues to be a priority for private companies, with two-thirds of those surveyed planning to add new employees within the next 12 months, 11 points higher than a year ago and the highest in three years.

“A lot of the companies, more than 63 percent, tell us that they’re going to be hiring this year,” said Esch. “Two or 3 percent say they’re going to be reducing headcount. I think that’s a further confirmation that businesses feel comfortable with where they are economically and are making some investments in people.”

Companies remain highly targeted in their hiring plans. They expect to increase their composite workforce average by only 2 percent this year. A barrier continues to be the skills gap, with 28 percent of private companies citing lack of qualified workers as a growth impediment. “The composite workforce addition is only about 2 percent,” said Esch. “They’re not hiring people just to have additional people on the payroll. They’re looking for return on their investment, probably measured in months, as opposed to years, so they’re looking at targeted hiring that’s going to help them expand their business.”

The workers that are especially in high demand are technology workers (cited by 28 percent of companies) and blue collar workers (25 percent), including both semi-skilled and unskilled workers and those with specialized skills. Sales and marketing professionals are also highly sought after (22 percent), since such employees are critical to driving growth and new business for companies in expansion mode, which many of our Trendsetter companies are.

“First and foremost, in the IT area, everybody is trying to streamline processes and get as much information as possible out of the data that they have about their customers to try to increase sales and improve profitability,” Esch added. “Another area is in the research and development space, trying to refine those products and services out there for the customer base, again with an eye toward increasing sales. They’re looking in the sales and marketing space, trying to find that catalyst hire out there that can maybe help them access a new customer or a new geography. Then a lot of companies are having trouble finding qualified labor, and that’s still a barrier to growth. For a lot of our Trendsetter survey participants, the upper 20s percentile tell us that finding qualified workers is a challenge. Part of that is because many of the skilled labor jobs went away as companies offshored their manufacturing. Now as the manufacturing sector is rebounding, the people aren’t there that have the relevant skill sets. You’ve either got to train them or you’ve got to look to trade schools or community colleges that maybe are designing a curriculum to help people get the relevant skill sets to walk in and work in a manufacturing environment, which is dramatically different from what it was 20 years ago. These guys are running around with laptops and monitoring new processes, as opposed to using a wrench or a screwdriver.”

The survey also found that more than three-quarters (81 percent) of private businesses anticipate increased sales over the next 12 months. Companies selling abroad expect notably higher revenue growth than their domestic-only peers—10 percent versus 7 percent.  Nearly one-fifth of Trendsetter companies initiated new borrowing in the past two quarters.

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