[IMGCAP(1)]As U.S. private companies go, so goes the nation, according to Ken Esch, Private Company Services partner at PwC.

“And, as it happens, we’ve got the data to back it up—20 years’ worth,” he said. “That’s how long we’ve been interviewing private-company leaders for our quarterly Trendsetter Barometer survey.”

A reason for this is that private companies are not, as a whole, a niche group, Esch indicated. There are far more of them than there are public companies. 

“And so their collective intelligence—their intuition about where things are heading—matters as much as what public companies are thinking. Because what private companies do or don’t do based on that intuition has a real impact on the economy,” he said.

For example, the recent recession was visible in the Trendsetter tea leaves a year beforehand, Esch noted, as was the economy’s subsequent upturn.

PwC’s recently released Q3 survey shows that fewer private companies were feeling optimistic about the economy in 3Q. “That’s translating into less-aggressive forecasts, tempered hiring, and a pullback in capex [capital expenditures]. Meanwhile, international sales are softening and so is the pricing power companies were enjoying earlier this year,” Esch said.

Specifically, economic optimism for the year ahead dropped from 71 percent in early 2015 to 64 percent in the third quarter. Companies still plan to invest and foresee growth, but volatility in the macro economy— especially China—has been a reality check, Esch observed.

Although 86 percent of private companies say their revenue will grow over the next 12 months, they see a slowdown in the rate of growth. And only 56 percent plan to add jobs, a significant drop from 64 percent in Q2. However, companies are intending to raise wages to 3.08 percent, up from 3 percent or less, which has been the norm.

[IMGCAP(2)]The average size of companies in the survey was about 1,000 employees, with enterprise revenue between $350 and $400 million, Esch said. “These are larger private companies. 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.”

“Clearly, the devaluation of China’s currency in August was a very significant event,” he added. “It roiled the capital markets, and impacted dramatically the views of the survey participants. It will be interesting to see in the fourth quarter what will happen, because markets are more stabilized now.”

There is a lot of attention around hiring and wages, he noted. There was a slight dip in the number of companies expecting to hire, but an increase in expected wages. “We think that the expected wage increase of about 3 percent for the first time since 2008 is significant coming out of the recession,” said Esch.

Meanwhile, other studies reinforce the largely gloomy outlook of the Trendsetter survey. A Citi study released earlier this week predicts a 65 percent probability that the U.S. will go into a recession next year. And the AICPA Economic Outlook survey, also released earlier this week, shows that business executives have sharply reined in their expectations for profit and revenue in the coming year, with anticipated growth for those two key performance indicators now at their lowest ebb since the end of 2012. The survey polls chief executive officers, chief financial officers, controllers and other CPAs in U.S. companies who hold executive and senior management accounting roles.

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