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Business Owners Optimistic on Economy Despite Hiring Challenges

Three-fifths of private companies plan to add full-time equivalent employees in the coming year, but net hiring continues to shrink, reports PwC US's latest Private Company Trendsetter Barometer. Despite the most optimistic outlook for the US economy ...

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Three-fifths of private companies plan to add full-time equivalent employees in the coming year, but net hiring continues to shrink, reports PwC US’s latest Private Company Trendsetter Barometer. Despite the most optimistic outlook for the US economy since 2006, employment growth at private companies remains modest due to difficulty in finding qualified workers, among other factors.

Trendsetter companies surveyed in the fourth quarter expect their full-time equivalent employment to inch up by 1.6 percent in 2015 – below 2014’s overall increase of 1.7 percent –even though these companies report economic confidence, stronger revenue forecasts, and significant gains in profitability over the past 12 months.

Fully one-third of survey respondents said they were unable to fill open positions over the past year, but if they had, their yearly full-time equivalent hiring might have reached 2.6 percent in 2014 instead of 1.7 percent. Technology and engineering professionals are most in demand. Blue collar workers are less sought after, with many of them having been out of the workforce since the recession and needing new skills to reenter it now.

“When businesses can’t find qualified job applicants, certain work just doesn’t get done,” says Rich Stovsky, US leader of PwC’s Private Company Services practice. “Companies have already squeezed employees as much as they can productivity-wise, and when jobs remain unfilled, businesses can’t grow as robustly or as quickly as they’d like. Private companies are trying to be part of the solution, partnering with community colleges and offering on-the-job training to create the skilled workforce they need right now and in the future.”

Spending Holds Steady, Even with Misgivings about World Economy

Despite hiring challenges, 2014 proved a good year for private companies, particularly with respect to domestic activity. Revenues forecasts climbed, capital spending held strong, and profitability reached its highest level in nearly a decade.

In fact, when asked about the US economy, 73 percent of Trendsetter companies described it as growing – the largest share in years, and double that of about two years ago. This may owe in part, to the fall of energy prices, which has led to reduced cost pressure and more disposable income for many consumers.

However, the gap between private companies’ increasingly positive view of the economy and their misgivings about the global economy continues to widen. This past quarter, only 31 percent described the world economy as expanding. Weakness abroad means increased pressure on exporters, requiring US companies that sell internationally to keep an eye on evolving conditions in foreign economies.

“Although businesses are enjoying positive market conditions at home, they are more cautious about spending than they were in the pre-recession years, even as the US economy steadily improves and private-company optimism stays high,” says Ken Esch, a partner in PwC’s Private Company Services practice. “This caution extends to the international arena – while private companies are staying the course in markets abroad, they’re avoiding overly ambitious expansion plans for the moment.”

Growth Opportunities for the Year Ahead

But private-company growth prospects remain buoyant with five-of-six Trendsetter executives (83 percent) forecasting positive growth in 2015. Moreover, former impediments to growth hit new lows: fewer companies expressed concerns about foreign competition, regulatory pressures, energy prices, and the strength of the dollar than last quarter.

“The latest findings indicate that, as the economy continues to expand, private firms see fewer barriers to growth,” notes Esch. “In the fourth quarter, only half of Trendsetter companies mentioned lack of demand as a potential obstacle, the lowest percentage since before the recession.”

One clear danger persists: the steady increase in the number of companies that worry about finding qualified workers. Thirty-seven percent are now voicing this concern, up nearly 10 points from a year ago and at its highest since the first quarter of 2008, when 40 percent of companies fretted about the skills gap.

Additional Survey Findings

On average, private companies are looking forward to 9.2 percent revenue growth in the next 12 months – the highest rate since early 2012. Almost two-thirds of private company leaders said, before year-end 2014, they would hit or exceed their full-year revenue targets, and another one-quarter said they would catch up to their sales targets by mid-2015. On average, companies are budgeting 2.76 percent in hourly wage increases for the next year, compared with 2.69 percent during the fourth quarter of 2013.

Each quarter, PwC’s Trendsetter Barometer tracks the views of top executive officers at privately held US businesses and the trends these reveal. This quarter’s report reflects conversations with 220 private-company leaders, including 121 from companies in the product sector and 99 in the service sector, with average enterprise revenues of $504 million. The interviews took place between October 2, 2014 and January 5, 2015.