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PwC: Private companies remain bullish about growth and hiring

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PwC: Private companies remain bullish about growth and hiring

Seventy-one percent of private companies voice optimism about the US economy--the highest level in nearly a decade.

In a bullish hiring outlook, 63% of private companies plan to add fulltime employees in the coming year, although they increasingly worry about a lack of qualified workers and growing wage pressure, according to a report from professional services firm PwC.

The quarterly report underscores that while nearly three-fourths (71%) of private companies are upbeat about the US economy, they haven't been hiring in droves. One reason is that they simply can't find the right workers (cited by 37% of companies). However, in spite of these concerns, they're looking to hire more of them in the coming year.

In one of the biggest quarterly jumps since the financial recovery began, headcount at private companies is expected to increase by an average of 2.6%, up from the prior quarter's 1.6%. Companies with international operations plan to hire even more aggressively, expecting a 3.2% workforce increase, while companies selling in China forecast an uptick of 3.6%.

"We've seen that private companies are generally more optimistic than their public counterparts."

Technology and engineering professionals remain highest in demand, and private firms are willing to invest in them. At the same time, they're feeling increased wage pressure at the lower end of the pay scale. Nonetheless, they are budgeting only a 2.6% hourly wage increase, in line with their average for the past three years.

"More hiring doesn't necessarily mean better wages," says Margaret Young, a partner in PwC's Private Company Services practice. "That said, businesses are facing increased competition for the right talent, and so we may soon start to see wages reflect demand. But wages are just one consideration when companies contemplate headcount increases. Many other factors go into a decision to add staff, including global competition, technology shifts and demographic changes. Given this complexity, if HR gets involved only when it's time to hire, it's probably too late."

Number of Companies Expecting Revenue Uptick Are at a Post-Recession High

Reflecting their broad optimism about the US economy, private companies' expectations for revenue growth in their own companies and industries was upbeat. Six-of-seven (86%) private company leaders indicated they anticipate positive revenue growth in 2015, the highest number since 2007. Improved gross margins are reported by 31% of private companies, the highest in a decade.

While businesses generally are more conservative when looking beyond their balance sheets, they're still predicting that calendar-year growth in their own industries will be 5.4%—the highest rate in eight years—while projecting growth of 8.9% in their own companies. Taking a view past 2015, companies expect to achieve an even faster growth rate of 9.4% for the next 12 months, with 37% of companies anticipating double-digit growth.

"We've seen that private companies are generally more optimistic than their public counterparts," says Ken Esch, a partner in PwC's Private Company Services practice. "Their agility in responding quickly to customers' changing demands, coupled with the ability to make long-term investments and weather short-term economic downturns, has generally led to stronger performances and higher growth."

Growth Opportunities for the Year Ahead

Private companies saw few impediments to growth, with only half citing lack of demand as a headwind in the past two quarters—the lowest level since 2005—followed by concerns over the skills gap.

Nearly three-quarters of companies intend to increase operational expenses across a variety of areas, including technology, new products and services, and facilities expansion. One-fifth of companies are planning new strategic alliances, and 37% of businesses that sell internationally are planning major capital investments in the next 12 months. Private companies are being judicious in their investments, however, even with good credit availability and historically low interest rates.

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