Private Companies Are Spreading Economic Cheer

Private Companies Are Spreading Economic Cheer

PwC Study: Executives are optimistic, paying employees more and investing in growth.

By Eve Tahmincioglu

A robust economic turnaround that started a year ago is gaining traction among privately held companies, with plans for rising investments in everything from employees to new technologies.

Those are the findings of PwC’s latest "Trendsetter Barometer" that surveys CEOs and CFOs at private companies about their economic outlooks.

“Record numbers of companies are expecting to grow, and almost none are expecting to see revenue shortfalls; which is pretty rare,” says Ken Esch, PwC’s Trendsetter Barometer leader and a partner in the firm’s private company services.

Indeed, 83% of those surveyed said they were optimistic about the nation’s growth in the coming year. That high a confidence number has only happened twice in the Trendsetter report’s 21-year history. (Q4 2003 and Q1 2000)

“If you look at the history of the report, you can see there’s a build in some of these positive readings around revenue growth and hiring. It’s starting to build a bit more in the last year,” Esch explains. “When we came out of the recession there was slow growth, and a kind of stagnation, and we really didn’t see the uptick coming out of recession as we did in other recessions. But it seems to be accelerating over the last year or so.”

Among executives polled in the first quarter, 85% said they plan to increase expenditures over the next 12 months, and that includes hiring more staff and paying existing workers more.

In fact, 54% say their workforces will expand over the next 12 months, which is little changed since the fourth quarter.

The report also included an analysis of the Tax Cut and Jobs Act.

“One of questions that was on our minds,” Esch says, “was what are companies going to devote more of their savings to, things like dividends, paying down debt? But we found they are really going to be spreading it around – 56% said they are going to pay their existing workers more. We thought that was encouraging for overall economy.”

The tax analysis found:

• 80% say they expect to realize some benefit; panelists estimate tax savings on average of 5.16%.

• However, it appears that cash planning is at an early stage based on the executives surveyed. For example, while 26% are planning to use freed-up cash to reduce debt, another 26% are uncertain whether to do so.

• Planned allocations thus far are diverse, with employee pay and investments in equipment upgrades and software among the notable beneficiaries.

• 31% of panelists expect to distribute more cash to shareholders/owners while another 34% are uncertain.

Other highlights of the report include:

• Demand for industrial workers is on the rise – 38% of businesses are looking to fill “blue collar” jobs up from 26% at the same time last year.  The need for “professionals” remains largely consistent, with 39% of companies looking to fill those positions, up from 32% in first quarter 2017.

• Cash planning is at an early stage – 80% of businesses are projecting tax savings on average of 5.16%.  Many executives are still assessing how they will deploy anticipated windfalls. Of those with firm plans, early indications are savings will be spent on increased wages, investments in equipment upgrades and software among the top beneficiaries.

• Labor supply could be a significant drag – Nearly half surveyed believe a lack of qualified workers represents a barrier to their business growth over the next year, up from 40% in Q4 2017.