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This past quarter, only 45 percent of the nation's leading private company executives surveyed for PricewaterhouseCoopers' Private Company Trendsetter Barometer report voiced optimism about US economic growth over the next 12 months, six points below the previous quarter's 51 percent, but still 11 points higher than a year ago.
The Private Company Trendsetter Barometer tracks the business issues and standard industry practices of leading, privately held US businesses. It incorporates the views of 250 chief executive officers (CEOs/CFOs): 143 from companies in the product sector and 107 in the service sector, averaging $290.8 million in enterprise revenue/sales, and including large, $300 million-plus private companies
Private companies with international operations remained slightly more optimistic about US economic growth than their domestic-only counterparts, 46 percent and 44 percent, respectively. As for optimism about the global economy, international marketers' confidence dropped to 37 percent, down 10 points from last quarter's 47 percent but above last year's 30 percent.
Despite an increased sense of uncertainty, more than three quarters (76 percent) of leading private companies expect positive revenue growth for their businesses over the next 12 months, with 38 percent anticipating double-digit growth and 38 percent expecting single-digit growth.
Only 12 percent forecast negative revenue growth, while just 14 percent forecast zero growth. Trendsetter CEOs are now forecasting an average 9.1 percent growth for their own companies' revenue over the next 12 months, down a point from last quarter's 10 percent forecast.
"Although we continue to emerge from the downturn, political and economic uncertainty may linger for some time," said Ken Esch, a partner with PwC's Private Company Services practice. "That uncertainty isn't keeping Trendsetter CEOs from pursuing growth opportunities, but it does reinforce the need to carefully manage against ongoing market and regulatory risks."
Taxes, Regulations Weigh
In keeping with increased uncertainty in the market, concern about lack of demand continues to be the main potential barrier to growth — cited by 78 percent of respondents (up four points from the previous quarter).
Concerns over increased taxation (52 percent, up seven points from the previous quarter) and legislative/regulatory pressures (50 percent, up two points from the previous quarter) were cited by more Trendsetter CEOs this quarter, in line with increased uncertainty about global and US economic performance and governmental policies.
"Private company CEOs are keeping a close eye on how state, federal, and foreign governments continue to deal with the downturn," Esch noted. "As various new tax and economic policies begin to play out here and around the globe, US companies will be trying to gauge how those are affecting the markets and, in turn, impacting new business prospects."
Gross Margins Up
Gross margins continued to improve in the second quarter, with 30 percent of survey panelists reporting higher margins, and 22 percent reporting lower margins, for a net of plus 8 percent (up four points from the previous quarter). Costs and prices were stable. While costs decreased for net 1 percent of Trendsetter CEOs, prices also decreased for net 2 percent of respondents.
"Trendsetter CEOs continue to experience a challenging pricing environment for goods and services due to economic pressure at home and abroad," said Esch. "However, private companies are clearly doing a good job of managing costs to maintain profitability. That should give them a solid platform as they continue working to grow revenue."
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Looking ahead, 54 percent of survey panelists plan to add employees to their workforce over the next 12 months. This is similar to the previous quarter's 53 percent and well above last year's 34 percent. Only 2 percent plan to reduce their workforce, and 44 percent will keep their hiring levels relatively the same.
An overall increase of 1.8 percent is planned for the panel's composite workforce, up slightly from 1.5 percent last quarter and up from 1.4 percent a year ago. Most of the increase in prospective hiring is among small private businesses, which added 5.8 percent to their composite workforce versus 1.5 percent for large private businesses.
"We're seeing a lot of mixed analysis on jobs data," said Esch, "but what most people agree on is that the smaller private companies will lead the way in new hiring. Where these businesses had been making personnel cuts in recent years, they are now starting to spend again."
For instance, Esch said, in a downturn, sales and marketing departments typically undergo spending reductions, while this latest Trendsetter data suggest that private company CEOs are now increasingly looking to hire in this area. "This reconfirms that there's a real hunt for revenue in the marketplace,"Esch said.
Capital Investments versus Operational Spending
The number of private companies planning major capital investments over the next 12 months fell to 29 percent in the second quarter of 2010, down from last quarter's 32 percent. However, marketers doing business abroad — especially the 30 percent that are selling in China, India and Brazil — remain ahead of their domestic-only peers in prospective spending over the next 12 months (50 percent).
Overall, 31 percent of international marketers and 26 percent of domestic-only companies plan to increase capital spending. Operational spending plans for the next 12 months remain high at 58 percent, led by new product or service introductions (25 percent) and information technology (26 percent).
The breakout of spending by international versus domestic-only marketers is shown below:
International Marketers | Domestic-Only Peers | Marketing In China/ | |||||
Plans over the Next 12 months: | 2Q10 | 1Q10 | 2Q10 | 1Q10 | 2Q10 | 1Q10 | |
Major Capital Investments | 31% | 44% | 26% | 22% | 50% | 58% | |
Expansion to New Markets Abroad | 27% | 23% | 2% | 1% | 44% | 46% | |
Increased Operational Spending (net) | 68% | 70% | 50% | 50% | 89% | 82% | |
New Products/Services | 36% | 38% | 15% | 15% | 47% | 42% | |
Information Technology | 28% | 18% | 25% | 22% | 36% | 15% | |
Sales Promotion | 19% | 24% | 12% | 17% | 17% | 33% | |
R&D | 17% | 20% | 8% | 5% | 25% | 21% | |
Business Acquisitions | 24% | 14% | 10% | 10% | 39% | 30% | |
"The big picture we're seeing," said Esch, "is an overall increase in market complexities, both domestically and internationally, which is contributing to the rising uncertainty among Trendsetter CEOs. Continued investment in their businesses, however, signals that private company executives want to ensure they're poised to take advantage of opportunities once the economic, regulatory and legislative scenarios come into better focus."
More information on PwC's Barometer surveys is available here.
