We're definitely in an economic recovery, but just how sustainable is a question that's been top of mind for some time.
Valuations for late-stage tech companies appear to be coming down, in a potentially worrisome sign that air may be coming out of the Silicon Valley bubble. Global growth prospects are pretty weak as some of the largest economies outside of the U.S. try to beat recessions. And at home, small business owners want the log-jammed Congress to get busy and start passing legislation that's meaningful to them and will help them do business better.
PricewaterhouseCoopers' "Trendsetter Barometer Business Outlook" for the third quarter of 2014, released on Thursday, shows that while private company owners are generally optimistic about their prospects in the next 12 months, that doesn't translate into very much that's actionable. And that could prolong economic malaise.
First, here's the good news from the survey: When it comes to the economy, 63 percent of respondents said they were optimistic about the year ahead, compared to 59 percent in the second quarter, and the highest reading for the Barometer since 2011. Private companies expect an average revenue growth rate of 9 percent over the next year, up nearly a full percentage point from the second quarter.
And more private companies are reporting higher profitability now than at any time since 2006. Thirty percent of the surveyed companies reported increasing gross profits, compared to 13 percent that saw decreases in the third quarter. The net 17 percent that saw increases compares to 18 percent in 2006.
"Companies are seeing higher productivity now that technology investments have begun to pay off," the report says. "They’re also seeing lower energy costs as a result of the domestic energy boom."
And more companies are planning to increase spending, if only minimally, in areas you'd assume they would. Thirty-three percent said they planned to spend on information technology, compared to 29 percent in the third quarter a year ago. Thirty percent will spend on new products and services, a two percentage point increase compared to a year ago, and twenty percen said they planned to increase outlays for geographical expansion, up three percentage points from the same quarter in 2013.
But none of these positive trend lines, it seems, will actually translate into many more jobs. While 60 percent of companies surveyed said they plan to hire in the next 12 months, they plan to increase their head counts by a meager net 1.6 percent, one of the lowest readings in years, PwC reports. And for the existing hourly worker, they can expect pay increases of about 2.75 percent.
A lack of qualified employees, both skilled blue collar and tech workers, was a top barrier to growth for 34 percent of companies, up 7 percentage points compared to the same quarter a year ago.
And the Not So Ugly
The leading growth triggers noted by more than half of the companies surveyed include a continued stock market expansion in the U.S., mentioned by 52 percent of companies, and lower or stabilized health care costs, mentioned by an equal percentage of companies. Forty-seven percent of the respondents said they would see a positive impact on their businesses if health care regulations were trimmed back.
PwC spoke with executives at 230 private companies in both the product and services sectors, between July and October of 2014.