There’s more evidence that CEOs are feeling pretty good nowadays about their company’s immediate future and the U.S. economy overall, even if they’re having some trouble putting together the workforce they need.

Chief executive officers of U.S. private companies who participated in PwC’s recent U.S. Trendsetter Barometer raised their 12-month revenue forecasts 15 percent in the third quarter. This sunny forecast comes in the face of turbulent U.S. fiscal-policy issues still ongoing nationwide.

Also, optimism in regards to the U.S. economy’s 12-month prospects held relatively strong, with 55 percent of CEOs surveyed reporting optimism – just four points below the prior quarter’s reading. Pessimism was at a low 9 percent.

U.S.-based international companies’ planned capital investments outpaced their domestic-only peers despite scaled-back plans for expansion to new markets abroad.

And banking activity saw an uptick in the third quarter, with 17 percent of private companies reporting new financing activity, up three points from the prior quarter, and 15 percent reporting new bank loans, up four points, due to borrowing capacity and active lenders. Even better, hiring plans remained steady.

But wage pressure continues to be a pressing issue. So, too, does finding skilled and qualified workers.

And according to Ken Esch, a partner in PwC’s Private Company Services practice, this skills gap is more prevalent in manufacturing than it is in the service sector.

“It’s one of the questions we ask in regards to barriers to growth and the ability to find qualified workers consistently ranks high. The companies are certainly reporting it as a factor,” Esch tells Leo Rommel of Industry Today. “It’s in the high 20 percentile. It’s been as high as 30 over the last couple of years. It’s consistently high.”

PwC says the last time private companies’ revenue growth rates reached this high was back in the first quarter of 2012, when they projected a 9.5 percent growth rate.

Among private companies overall, those selling exclusively in the U.S. reported a sharply higher revenue growth rate of 10.4 percent compared with their international peers, which forecast a more moderate 7.3 percent increase.

And private companies’ projected revenue growth continues to well-outpace current and forecasted U.S. GDP growth rates, which remain in the low single digits.

This has helped stabilize optimism, the report says. More than half of the CEOs surveyed – 55 percent, to be exact- reported optimism, just four points below the prior quarter. Pessimism, meanwhile, was at a low 9 percent.

In addition, two-thirds of chief executives said they believed the nation’s economy was growing, while only 4 percent viewed it as declining.

But questions about the world economy revealed different points of view. Uncertainty remained the dominant sentiment, voiced by 54 percent of private companies, a 13-point increase from the second quarter. About 35 percent said they were optimistic, down from 39 percent the prior quarter.

“The main thing that I’m reading into it is there’s just a continuing comfort level that perhaps the worst is behind from a domestic economic perspective,” Esch says. “This particular report shows that there’s some convergence of growth rates between U.S. activity and international activity. That’s a little bit different than what we’ve seen in the past because normally we see the companies operating internationally expecting higher growth rates than their domestic-only peers.”

You can thank the continued recession in Europe and a slowdown in a variety of emerging markets for that.

“What I found interesting is that it doesn’t really impact companies’ investment plans, those that are operating internationally. You might think that the slower economic growth in emerging markets might translate into lower investment by firms, but that’s not what we’re seeing. The view is that economic growth over the long term is likely to occur in those emerging markets. If you’re not participating there today nor have plans to get there, you’re falling behind.”

Still, merger-and-acquisition volume is tepid, regardless of the improving economy and companies’ cash reserves. Looking at the next 12 months, 44 percent of companies expect to participate in various new business initiatives such as business acquisitions, strategic alliances, and joint ventures, down nine points from the second quarter.

While private companies’ plans for net new hiring over the next 12 months were well above what they’d been a year ago, when 1.6 percent workforce growth was projected, the third-quarter projection of 2.2 percent is markedly below the prior quarter’s 3.2 percent.

A key reason for the dip was that larger private companies scaled back their hiring plans. However, the overall percentage of private companies planning new hiring remained steady at 57 percent, and just 4 percent of companies expected to reduce headcount.

“Looking at it at a headcount basis, we looked at how many companies are planning to hire versus reduce their head count, and again we found that the companies planning to hire in the 50 percentile,” Esch explains. “That’s pretty consistent with post-recession periods.”

He adds: “What’s maybe a new, continuing trend is that the number of companies planning to reduce head count is as low as single digits. Fewer and fewer companies are planning to reduce headcount, which is a sign that worst is behind us.”

Average increases in hourly wages, however, rose to 2.89 percent – up 12 percent from a year ago and the highest planned increase in five years – reflecting companies’ ongoing difficulty finding qualified workers.

“We’re seeing companies searching for people to fill white-collar roles, jobs like as controllers and chief financial officers,” Esch says.

In fact, 27 percent of private companies cited this difficulty as a potential barrier to growth, Esch says, with another 19 percent citing pressure for increased wages. Overall, lack of demand, at 63 percent, and legislative and regulatory pressures, at 52 percent, was cited as the No. 1 and No. 2 potential growth barriers.

“A lack of skilled labor is a significant headwind for private companies, compounded by the rapidly retiring workforce,” he explains. “Among our domestic-only manufacturing clients in particular, we see challenges in finding sufficiently skilled blue-collar workers.”

Think welders, engineers, and machine operators, Esch says, advanced manufacturing jobs that require analytical abilities and a wealth of know-how and experience.

“Many are saying, ‘I need a technology person. I need an R&D person.’ They are streamlining processes on the floor,” ESCH says. “They need people who can run the machines, and they can’t find them.”

Here’s why, he says: the U.S. dropped millions of manufacturing jobs over a 20-year period, offshoring jobs to foreign, low-wage nations like China to reduce costs and manufacture closer to emerging markets. As a result, the U.S. lost a generation of possible manufacturing workers.

But now that the cost advantages of sending jobs faraway have vanished, jobs are returning.

“We’ve seen a drop in the labor arbitrage rate, meaning U.S. labor rates are maybe coming down, and those in Asia are coming up,” he explains. It’s now more expensive to ship products back to the U.S., he says. It takes more time too. “You don’t see the huge cost savings for a labor intensive manufacturing process that you once saw, and manufacturers are trying to figure out how they’ll fill those jobs. It’s a bit of a conundrum.”

How to go about filling these jobs? Manufacturers need to be proactive, he says. Attract and train more workers, he explains, then retain them.

“We’ve seen more partnerships and internships between companies and community colleges, technical schools, universities, and high schools,” he says. “We’ve seen more effort to develop a curriculum that gives individuals the skill sets that they need to fill these positions. It’s not one thing that manufacturers are doing. It’s a combination of multiple strategies to accelerate the process.”


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