There’s yet another survey highlighting the still-increasing optimism amongst American CEOs in light of ongoing improvements in domestic and international affairs.
Private-company CEOs’ optimism as they enter 2014 is fueling growth and hiring plans for the year ahead, PwC’s latest Private Company Trendsetter Barometer suggests.
Even better, their optimism about the U.S. and world economies has risen significantly since a year ago, particularly regarding the world economy. Consequently, 43 percent of private-company CEOs say they are confident about the global economy, the highest level since the first quarter of 2011.
Likewise, 8.5 percent growth is projected for the next 12 months, up from 7 percent this time last year, according to the analysis, roughly tripling the consensus forecasted U.S. GDP growth, the report says.
And 57 percent of private companies plan to hire in the months to come.
“The optimism expressed by private-company CEO’s at the end of 2013 for 2014 is an encouraging sign that our economy continues to strengthen, especially compared with this time a year ago, says Ken Esch, a partner in PwC’s Private Company Services practice.
But concerns remain, the report suggests. Economic uncertainties linger, as do worries about a lack of demand. And legislative and regulatory pressures, increased taxation, and continued talent shortages – particularly in manufacturing – remain, as always, a significant barrier.
“When I look at the report, I think that it shows that its participants have a continuously improving outlook in terms of the economy, although the results may not really be spectacular,” Esch tells Leo Rommel of Industry Today.
“But these uncertainties are not deterring activity,” he adds. “I’d say the pessimism side of this equation is really low. And that has translated into some action, finally, by companies in a number of categories.”
He breaks it down for us.
WHAT TYPE OF GROWTH IS PLANNED?
While 51 percent of respondents remain uncertain about the world economy, their ambivalence, as Esch says, is not deterring business activity.
Private companies believe markets are strong enough to support their corporate agendas, both in the U.S. and abroad, according to the Barometer. Almost one-third of respondents are planning major new capital investments in 2014, and “fueled by healthy cash reserves and credit available at good rates,” roughly one in five are looking to acquire new businesses, compared with just 11 percent a year ago, the report says.
“Recognizing that innovation is one of their best guarantees for organic growth and sustainable success, these companies are investing in growth enablers such as technology and new products/services,” the report says. “And they expect to spend more on marketing, sales, and advertising, too.”
Meanwhile, over one-third of respondents say they expect double-digit revenue growth while nearly one-quarter reported new bank loans in the final quarter of 2013, up 10 points from a year prior.
“We see that our clients are looking past economic and legislative uncertainty to move ahead with critical decisions, such as making new capital investments and expanding their businesses,” says Rich Stovsky, leader of PwC US’s Private Company Services practice adds.
“Clearly, private-company leaders recognize that the external environment needn’t stall plans indefinitely, and so we encourage companies to keep considering a range of actions they might take to fuel sustained, long-term growth,” Stovsky adds.
And these thumbs-up forecasted figures and sunny outlook for 2014 materialized even after the partial, albeit temporary, shutdown of the U.S. federal government last October.
“Companies took this speed bump in stride,” the report says.
Here’s proof: Respondents, according to the analysis, lowered their revenue projections slightly, from 9 percent to 8.5 percent, between the third and fourth quarters, a far-from-dramatic decline.
“This is all further indication that companies believe that the worst is behind them,” Esch says. “While there are impediments to future growth and uncertainty, the companies have also said, ‘We cannot just sit around and wait for things to happen.’ They have to implement a growth strategy – and they are.”
One of those strategies, he adds, is increasing hiring. More than half of respondents are looking to take on more employees, increasing their composite average workforce by 1.9 percent.
That’s where some of the survey’s more glaring concerns begin.
THE TYPES OF HIRES NEEDED
The number of companies expected to reduce headcount has continued to decline which each passing Barometer report. It did so again this time around – and that’s good news, of course.
“If companies want to meet ambitious revenue goals, they’ll need to have the right – and best – talent in place to sustain momentum,” the report says.
But that’s where frustration lingers. Just 45 percent of respondents say they’re operating at full capacity. Over one-quarters of respondents cite this difficulty as a barrier to growth, the survey says.
They want to hire. They even want to increase median hourly wages by 2.7 percent in the next year, the report claims. But they can’t find the right people, even for more-competitive pay.
“First off, the respondents are focused on maintaining the qualified workers that they have,” Esch says. “Now is certainly not the time to see your qualified workers walk out of the door because it’s very difficult to replace them.”
This is especially true in U.S. manufacturing sector, he adds, where experienced workers with technology and engineering skills are in high demand.
“More service companies than product companies (35 percent vs. 24 percent) cite the need for technology aptitude, although the latter companies – including manufacturers – are likely to increasingly need workers possessing STEM (science, technology, engineering, and mathematics) abilities,” the report specifies.
The Barometer also says one-quarter of the product companies surveyed stress that they need blue-collar workers with specialized skills. Employees that can do more-basic jobs, like welding, are also in demand.
“Many companies realize that they may not find the perfect fit for the position they’re trying to fill,” Esch says. “But more are trying to find workers with a solid, general skill set, a strong work ethic, and a demonstrative history of achievement and success, then provide them with the right training internally.”
It’s a gamble, he admits. These workers tend to be far younger, inexperienced, and in general, may not contribute as quickly as their older, more knowledgeable peers. But it’s a chance worth taking, he adds, especially as a bulk of U.S. manufacturing’s workforce begins to enter or inch near retirement.
“Every company is looking for a return on their investment, in this case, these new but inexperienced workers,” Esch adds. “But by establishing the right internal training program, they can accelerate the productivity of the new hires and speed up that return on investment.”
And there’s another common, well-talked about method manufacturers are utilizing to attract talent: working with local technical schools, community colleges, universities, and high schools to develop a curriculum for the type of worker they need.
Think internships, fellowships, and open-plant tours to stir interest among the younger generations that will power tomorrow’s workforce and technological growth.
“These methods also allow companies to identify potential future candidates with an overall good skill set, ones that they can include in their recruiting process later down the road,” Esch says.
Of course, this skill gap is nothing new. It’s been persistent for years. Publications of all kinds, including this one, have reported on it extensively. But there’s no immediate end in sight, and it’s quite concerning.
“The talent gap may become even more of a problem for private companies – and society at large – if they don’t find more creative ways of addressing the challenge,” Esch says.
OTHER POTENTIAL OBSTACLES LOOM
The Barometer’s findings, of course, support Esch’s claims that pessimism among top executives of all industries is noticeably down.
Last year, according to the report, pessimism was reported at 18 percent. It plummeted to a mere 6 percent in this latest quarterly analysis.
So, optimism is high, and growth is on the agenda for most companies. A lack of highly-skilled workers remains a nagging worry. We’ve covered all that now.
But what other barriers hang over the survey’s participants’ heads? Lack of demand, regulatory pressures, and increased taxation, that’s what, Esch says.
“One of the things you’re seeing in the report is that the barriers to growth category consistently show lack of demand for products and services at or near the top of the list,” he explains.
But there was one particularly noticeable change this time around.
“The number of companies that cited lack of demand fell 10 percent,” he says, from 70 percent this time last year to 60 percent today. “It’s still at the top of list, but it’s coming down a bit, and that’s a good sign.”
In fact, a number of concerns showed a decrease. Legislation and regulatory concerns are one, dropping from 49 percent to 46 percent. Profitability and decreasing margins are another, falling from 32 percent to 26 percent.
Taxation concerns dropped the most, by 15 percent, from 42 percent this time last year to 27 percent today.
“Last year, there were a lot of concerns around taxation, and what the plans were going to be for taxes,” Esch says. “The changes that were implemented have seemingly brought those concerns down.”
Other concerns, according to the survey, include oil and energy prices, pressure for increased wages, lack of capital for investment, the strength of the U.S. dollar, mounting competition from foreign markets, and higher interest rates.
Only a lack of capital for investment and, of course, lack of qualified workers, grew in percentage points between the two said timeframes, by 2 percent and 1 percent, respectively.
“Concerns, overall, are down a bit, and optimism is up,” Esch says. “It’s been progressing this way for quite some time now, and we expect it to continue.”
About PwC’s Private Company Trendsetter Barometer
Each quarter, PwC’s Private Company Trendsetter Barometer tracks the business issues and best practices of America’s leading privately held businesses. This quarter’s report incorporates the views of 208 C-suite officers (CEOs/CFOs): 119 from companies in the product sector and 89 in the service sector, averaging $348.1 million in enterprise revenue/sales, and including large, $500M-plus private companies.
About PwC’s Private Company Services Practice
Located in all major US markets, PwC’s Private Company Services (PCS) is a national practice comprised of more than 170 partners who provide customized tax, audit and advisory services to private companies, their owners and high net worth individuals. More than 60 percent of America’s largest private companies are PCS clients.(1) They span a broad scope of sectors and industries ranging from manufacturing to retail to industrial to professional services.
A hallmark of PCS is a robust thought leadership program that provides clients with timely, thought-provoking information to help manage and grow their businesses and wealth.