What a difference a year can make. Top executives of privately held U.S. companies, interviewed during the first quarter, were decidedly more upbeat about the business environment than they had been just 12 months earlier.
As a group, they grew markedly more buoyant in their expectations for the U.S. economy. Among a panel of 300 CFOs and CEOs at private companies who spoke with PricewaterhouseCoopers, 84% said they were optimistic about the domestic economic outlook for the following 12 months.
When largely the same panelists were interviewed during last year’s first quarter, significantly fewer (66%) were optimistic. The 18-point gain since then put the executives’ optimism level at its third-highest peak in the 21 years PwC has conducted its quarterly “Trendsetter barometer” survey of private companies.
(The only more-optimistic quarters were Q1 2000 and Q4 2003. Thinking about the earlier of those two happy times, for purposes of interpreting this year’s rosy outlook it may be useful to remember that it was near the end of that very quarter when the dot-com bust began its assault on the economy.)
Contrasting the leap in optimism for the U.S. economy, views on prospects for the world economy stayed about where they were a year ago — that is to say, they remained dismal. Among a 138-company subset of the participating companies that do business internationally, just 25% recently said they were optimistic about global economic fortunes over the next year. That was a marginal advancement from 22% in 1Q 2017.
“We’re a bit surprised by that,” says Ken Esch, a private company services partner at PwC. “Economies are doing well, and not just in the United States. There aren’t any disasters right now. It’s more of a green light.”
But the full extent of recent, positive change in some attitudes of private-company executives was also hard to explain. For one, where in early 2017 a majority (57%) of the executives cited “lack of demand” as an expected barrier to growth, this year only 17% of executives said that.
“That one really got my attention,” says Esch. “Historically, lack of demand tops the chart of barriers to growth. There’s been a slow build since the recession that’s gained momentum, with more people having money in their pocket to spend and participating in the recovery. But it’s a surprising change [in just one year’s time]. That 17% is a historically low figure.”
This year, it’s the lack of qualified workers that tops the list of expected growth barriers, given the current, extremely low unemployment rate. Exactly 50% of participants cited that concern in the recent survey, way up from just 33% a year earlier.
“Companies are trying to hire more people, and there are more companies,” Esch notes. “The people that are qualified and available are probably in the work force already. Now companies are getting down to people who have been out of the work force for a good period of time and have diminished or aged skill sets that need a complete refresh. They’re even trying to pull people off the bench who might not need to work.”
Also registering as greater threats to growth than lack of demand this year are legislative and regulatory pressures, competition from foreign markets, pressure for increased wages, and oil/energy prices.
Perhaps counterintuitively, given the economic optimism and the tax savings many companies will reap as a result of the Tax Cuts and Jobs Act, is a drop in expectations for new investments. In early 2017, survey panelists reported that an average 6.6% of sales was earmarked for new investments. In this year’s first quarter, the average fell to 4.3%.
It’s too early to call that one a trend, according to Esch. In a separate recent PwC study, a “significant group” of companies said they were planning major new investments, in many cases for equipment and software upgrades.