Despite ongoing US fiscal-policy issues, CEOs of US private companies raised their 12-month revenue forecasts to 9 percent in the third quarter, up 15 percent from the 7.8 percent they projected in the second quarter, reports PwC US's Trendsetter Barometer.

The last time that private companies' revenue growth rates were this high was in the first quarter of 2012, when they projected a 9.5 percent growth rate. Among private companies overall, those selling exclusively in the United State reported a sharply higher revenue growth rate of 10.4 percent  compared with their international peers, which forecast a more moderate 7.3 percent increase. Private companies' projected revenue growth continues to well-outpace current and forecasted US GDP growth rates, which remain in the low single digits.

Optimism about the US economy's 12-month prospects held relatively strong, with more than half of the CEOs surveyed (55 percent) reporting optimism (just four points below the prior quarter). Pessimism was at a low nine percent. Two-thirds (66 percent) of chief executives said they believed the nation's economy was growing, while only four percent viewed it as declining. With respect to the world economy, uncertainty remained the predominant sentiment, voiced by 54 percent of private companies, a 13-point increase from the second quarter. Thirty-five percent said they were optimistic, down from 39 percent the prior quarter.

"Private companies' strong revenue projections indicate steady improvement in the US economy," says Ken Esch, a partner in PwC's Private Company Services practice. "While growth may be slower than we would like to see, this latest forecast is a positive sign. Certainly US political and economic issues continue to be of concern. That said, private-company leaders have come to expect short-term political fixes and therefore aren't making strategic decisions on that basis. Most of their businesses haven't felt the long-term effects of sequestration, and so the recent economic debate in Washington hasn't kept them from pursuing their growth objectives."

Hiring Plans Level, Lack of Qualified Workers a Challenge

While private companies' plans for net new hiring over the next 12 months were well above what they'd been a year ago, when 1.6% workforce growth was projected, the third-quarter projection of 2.2 percent is markedly below the prior quarter's 3.2 percent. A key reason for the dip was that larger private companies scaled back their hiring plans. However, the overall percentage of private companies planning new hiring remained steady at 57 percent, and just 4 percent of companies expected to reduce headcount.

Average increases in hourly wages, however, rose to 2.89 percent — up 12 percent from a year ago and the highest planned increase in five years — reflecting companies' ongoing difficulty finding qualified workers. More than one-quarter (27 percent) of private companies cited this difficulty as a potential barrier to growth, with another 19% citing pressure for increased wages.

"Lack of skilled labor is a significant headwind for private companies, compounded by the rapidly retiring workforce," says Esch. "Among our domestic-only manufacturing clients in particular, we see challenges in finding sufficiently skilled blue-collar workers such as welders and machine operators. But we're also seeing companies searching for people to fill white-collar roles, such as controllers and chief financial officers. We encourage companies to make attracting, retaining, and training key workers a strategic priority so they'll be well-positioned for the next growth opportunity."

International Companies Continue Investment, Defer Expansion

International companies' 12-month plans for capital investment remain strong, continuing to outpace the spending plans of companies that sell solely in the United States – 44 percent versus 21 percent. In terms of operational spending, nearly three-quarters (72 percent) of international companies plan to increase spending, compared with 55 percent of their domestic-only peers.

Markedly fewer companies reported increased sales abroad in the third quarter — thirty-one percent, compared with 47 percent in the second quarter. The percentage of international companies planning expansion into new markets abroad also dropped, falling 11 points to 15 percent in the third quarter.

"Although we see a pullback in expansion to new markets abroad, we believe this is a deferral, not an abandonment of global growth strategies by private companies," says Esch. "The long-term bet is still on international markets."

Additional Survey Findings

• The top two major potential barriers to growth over the next 12 months are lack of demand (63 percent) andlegislative/regulatory pressures (52 percent), though the percentage of companies concerned about lack of demand is 11 points lower than a year ago.
• Merger-and-acquisition volume is tepid, despite the improving economy and companies' cash reserves. Looking at the next 12 months, 44 percent of companies expect to participate in various new business initiatives such as business acquisitions, strategic alliances, and joint ventures, down nine points from the second quarter.
• Banking activity saw an uptick in the third quarter, with 17 percent of private companies reporting new financing activity, up three points from the prior quarter, and 15 percent reporting new bank loans (up four points), due to borrowing capacity and active lenders.