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Trendsetter barometer®
Business outlook
1Q 2016
Private companies remain
on track despite economic
jitters
What’s inside:
At a glance
Economic sentiment
Corporate performance
Opportunities and barriers
Hiring
International expansion
Contents
At a glance
1
Economic sentiment
2
Corporate performance
4
Opportunities and barriers
6
Confidence tumbles, but without going into freefall
Revenue forecasts remain positive despite growing economic uncertainty
Companies keep spending, though not with borrowed money
Hiring
10
International expansion
12
Fewer businesses hire as US returns to near-full employment
Staying the course, but scant new expansion
Trendsetter barometer – Business outlook
Measure twice. Cut once. That’s the old carpenter’s saying, and it’s also sound advice for anyone seeking insights
from data. Get good data and then make your call. There’s certainly no shortage of information about the
economy. But that presents its own questions. Which data do you look at? What exactly do you need to measure?
For 20 years now, we’ve been taking our measure of private companies, asking their leaders what they’re seeing in
the economy, their industries, and their businesses. We’ve learned that their answers can give us a better idea not
only of where private companies — still the core of the US economy — are heading, but also the direction of the
economy overall.
So what have they been telling us lately? The clearest signal from our first-quarter survey is private companies’
growing concern about both the global and domestic economies. There are plenty of issues to watch, including
the slowdown in China, US elections, low oil prices, Britain’s future in the EU, Europe’s responses to a refugee
crisis, and an upsurge in terrorism.
These topics will likely dominate discussion in business and government during coming quarters. We’ll check in
regularly with our Trendsetter panel and pass on their insights. This current report is the result of interviews with
220 executives during the first quarter of 2016. As always, we’re grateful for their thoughts and happy to share
their collective wisdom with you.
Trendsetter barometer – Business outlook
Shawn Panson
Ken Esch
Margaret Young
US Leader
Private Company Services
Trendsetter Partner Sponsor
Private Company Services
Partner
Private Company Services
At a glance
PwC’s Trendsetter Barometer®
At a glance: What’s on the mind of private-company leaders
Private-company
sentiment has gone up (é), down (ê) or
Private-company sentiment has gone up (), down () or stayed the same (=)
stayed
same
(=) across a variety of areas
across athe
variety
of areas
Optimism about the US
economy is felt by 41% of
private companies, down
from 71% a year ago.
Economy

Performance
Most (86%) companies
expect positive revenue
growth, the same as a
year ago.

Spending
One-quarter (27%) plan
major new capital
investments, roughly the
same as a year ago (29%).
The majority (52%) plan
to increase headcount,
but that’s down from the
63% planning this a year ago.
Under one-quarter (22%)
of private companies worry
about wage pressure, down
from 33% the prior quarter.
International sales
contributed 19% of
overall revenue for
private companies,
about the same quarterly
contribution for the past
decade.
Trendsetter barometer – Business outlook

But the expected rate of
revenue growth is 7%,
down from 9.4% a year ago.
Nearly three in four
(71%) plan to increase
operational spending,
about the same as a year
ago (73%).
Hiring
At 2.72%, planned wage
increases haven’t varied
much since the prior
quarter (2.96%) or a year
ago (2.62%).

Headwinds


Optimism about the world
economy is felt by just
19% of international
marketers, down from
38% a year ago.
Expansion

Over one-third (41%) are
concerned about
legislative & regulatory
pressures, up from 36%
the prior quarter.
Under one-half (43%) of
private companies selling
in China plan new capital
spending, down from 53%
the prior quarter.
1
For more information, please visit:
pwc.com/us/pcs
Economic sentiment
Confidence tumbles,
but without going
into freefall
Trendsetter companies are having a
case of economic jitters. That’s the
biggest takeaway from our latest
quarterly Trendsetter Barometer.
Only 59% of Trendsetter executives
agreed the domestic economy
was growing during the first
quarter of 2016. That’s down 11
points from the quarter before
and a whopping 23 points lower
than a year ago. As for the rest of
Trendsetter businesses, their views
were best summed up by the CFO
of a 3D printer company: “The
economy has been stagnant over
the past year.” Only 9% thought the
economy was actually contracting.
The slide in sentiment follows
three quarters of declines and puts
this data point at its lowest since
late 2012, also a time of slowing
growth. We see this decline in
confidence about the first quarter
further reflected in feelings about
the coming year. After hitting a high
of 71% in early 2015, optimism
about the domestic economy’s
Trendsetter barometer – Business outlook
“T he economy has been stagnant over the past year.”
—CFO, 3D printer company
Optimism snapshot – Today and a year ago
Private-company optimism
Today
41%
71%
A year ago
Percentages denote private companies who are optimistic about the US economy's 12-month prospects.
The long view – Economic optimism over time
Percentage of respondents
80%
60%
40%
20%
0%
1Q’07
1Q’08
US economy
1Q’09
1Q’10
1Q’11
1Q’12
1Q’13
1Q’14
1Q’15
1Q’16
World economy*
* World optimism reflects responses only from private companies selling internationally.
2
Economic sentiment
12-month prospects has slipped
every subsequent quarter, dropping
to 41% by the time this latest survey
closed. That puts optimism at its
lowest ebb since the tail end of
2011. Trendsetter companies are
even more pessimistic about the
world economy, with just 19% of
them voicing confidence.
Check-engine light is on… but
so are the economy’s wheels
The worrisome dip in sentiment
about the US economy could, in
part, be in response to the recent
stock market rollercoaster. The
Dow Jones index shed around 12%
in January and February before
making up the lost ground in
March. But declining confidence
probably reflects weak data about
the economy as well. Car sales are
down 4.8% so far in 2016 compared
to last year, for example. And the
Fed has recently cut its GDP growth
Trendsetter barometer – Business outlook
forecast for the year from 2.4%
to 2.2%. As the executive from a
logistics firm sees it, “The economy
is too uncertain for us to grow.”
But while there’s real cause for
concern about the economy,
it would be a mistake to overreact. “The first-quarter decline in
business confidence is notable,”
acknowledges PwC’s Shawn
Panson. “But it’s the equivalent of
a ‘check engine’ light. The wheels
aren’t about to fall off the economy.
As with all warning lights, though,
you should definitely pay attention
and take corrective measures where
necessary.”
Economic barometer – 12-month outlook
US economy
World economy*
41%
7%
52%
19%
27%
54%
Optimism
Pessimism
Uncertainty
* Optimism about the world economy reflects responses only from companies selling internationally.
In fact, our first-quarter findings
show that while concern is growing,
there’s still a lot of strength in
the economy, with most private
companies continuing to forecast
increased revenue for themselves
over the next 12 months.
3
Corporate performance
Revenue forecasts
remain positive despite
growing economic
uncertainty
Economic modelling and surveys
are full of pitfalls. The main
one is what IT professionals call
“garbage in = garbage out.” It’s a
simplification of course, but your
conclusions can be only as good
as the data. During the 20 years
we’ve been running the Trendsetter
Barometer, we’ve seen how our
survey results have consistently
been a solid leading indicator for
the US economy.
Warning lights may be flashing,
but the numbers in the first
quarter’s Trendsetter also show a
lot of economic resilience. When
we asked Trendsetter executives
about growth prospects for this
year, their answers maintained
the positive trend seen in recent
quarters and contrasted sharply
with our respondents’ current
economic misgivings. In fact, 86%
of companies projected growth in
2016, up slightly from the prior
quarter’s projections.
Trendsetter barometer – Business outlook
“Business has improved, and consumers are spending.”
—CFO, Food wholesaler
Growth expectations
Most private companies project revenue growth for the next 12 months.
One-quarter expect double-digit growth.
3%
4%
7%
25%
Positive growth 10%+
Positive growth less than 10%
Zero growth
Negative growth
Not reported
61%
Private companies forecast slower rate of growth for 2016
Revenue growth rate*
Forecast in 1Q16:
Forecast in 1Q15:
7.0%
9.4%
* Projected
4
Corporate performance
But fewer companies are expecting
double-digit growth, slipping from
36% to 25% over the latest quarter.
Plus, Trendsetter businesses expect
growth to happen at a slower clip
over the next 12 months. How
slow? Seven percent. That’s still
an enviable rate, especially if
you compare it with first-quarter
US GDP growth of 2% — but it’s
down markedly from the 9.4%
growth rate Trendsetter companies
projected a year ago.
More firms running full
steam, or close to it
If Trendsetter revenue growth does
indeed decelerate over the next 12
months, it won’t reflect a slowdown
in private-company productivity.
When we asked executives about
whether their companies were
operating at full capacity in
the first quarter, the number of
respondents who said yes (52%)
actually increased slightly from
the prior quarter. And if we ignore
mid-2015 (55%), we’d have to go
back to the first quarter of 2008
to find companies busier. In fact,
93% of all firms said they were
operating at around, or more than,
three-quarters of capacity. Again
Trendsetter barometer – Business outlook
excluding 2015, we haven’t seen
that high a number since before
the recession. As the CFO at a
food wholesaler told us, “Business
has improved, and consumers are
spending.”
Election fever stokes
uncertainty, margins soften
The unevenness of the recovery
has helped feed the frenzy around
the US presidential election,
which is shaping up as one for
the ages. Insurgent candidates
have emerged during the primary
season in response to voter
resentment, with party leaders
struggling to manage an unrulier
process than normal. It all helps
stoke the general feeling of
uncertainty.
As the executive vice president at
a fluid-management technology
company told us, “The election
is probably the most important
issue. Once it’s done, the
uncertainty will be gone.”
That might be wishful thinking,
but certainly there will be fewer
unknowns once the election is
over. Among the main points
of uncertainty for Trendsetter
executives is whether gross margins
will continue to soften. The net
number of survey respondents
reporting margin increases in the
first months of 2016 was 10%,
down from 24% just a few quarters
ago. Although costs came down for
Trendsetter companies in Q1, so
did their pricing power, and this is
reflected in the softening margins.
Private companies’ pricing power
also tends to be reflected in the
broader economy, and the past
quarter was no exception, with
downward pressure also seen in the
US Producer Price Index.
But are we really seeing a change in
direction for the economy? Not yet.
As PwC’s Ken Esch says, “There’s
clearly increased pressure on the
economy, but we’re not ready to
call an inflection point yet. Yes,
Trendsetter executives are voicing
concern, but we don’t see them
substantially scaling back spending
or other growth activities. This
signals that private companies
remain pretty confident about what
the rest of 2016 holds for their
businesses.”
5
Opportunities and barriers
Companies keep
spending, though not
with borrowed money
The end of the first quarter is often
a time for reviewing the year’s
plans. Are the original targets
feasible? Do they need to change?
Every quarter we ask companies to
think about the next 12 months. Do
they see exciting opportunities or
worrisome barriers?
Despite their rising concern about
the economy, private-company
leaders are not signaling a
proportionate increase in their
concern about growth barriers.
Nearly a third fewer Trendsetter
executives expect pressure for
higher wages. However, their
anxiety about more regulation and
taxation has grown, as one might
expect during a heady election
season, and their perennial concern
about lack of demand has held
steady, with the majority of privatecompany leaders voicing this.
But are Trendsetter companies
tightening their purse strings as
result? No. On the contrary, the
number of Trendsetter companies
that plan to increase their
operational spending (71%) and
make new capital investments
Trendsetter barometer – Business outlook
“Business is good. Contracts are secure for now.”
—COO, Technical and tactical services provider for Department
of Defense
Growth barriers in the next 12 months
59%
58%
Lack of demand
41%
36%
Legislative/regulatory
pressures
34%
38%
Profitability/decreasing
margins
29%
28%
Lack of qualified workers
29%
25%
Increased taxation
24%
24%
Strength of the dollar
Pressure for
increased wages
Oil/energy prices
22%
33%
19%
25%
Today
(1Q 2016)
Prior quarter
(4Q 2015)
Percentages denote the number of companies that perceive these factors as growth barriers for their businesses.
6
Opportunities and barriers
(27%) over the next 12 months
has barely changed since the past
quarter and is nearly the same as
a year ago. Indeed, their planned
capex as a percent of total sales
(8%) is the highest since mid-2014.
So, all in all, Trendsetter leaders
seem to feel okay about their own
companies in the current economy:
“Business is good,” was how we
heard things sized up by the
COO of a company that provides
technical and tactical services to the
Department of Defense. “Contracts
are secure for now.”
Credit still available, but
fewer takers
And when we asked about the
availability of credit, executives’
answers captured the mix of concern
and confidence that characterizes
this quarter’s Trendsetter Barometer.
Trendsetter executives’ collective
answer to this quarterly question
has been a good leading indicator
of changes in credit availability for
companies in the broader economy.
The survey’s Q4 2015 data was no
exception – the rise in Trendsetter
credit availability late last year was
followed by an uptick in consumer
and industrial loans from banks
soon after.
Trendsetter barometer – Business outlook
But fewer Trendsetter companies
reported an increase in credit
availability in Q1 2016, suggesting
there will be a slight decline
in future credit growth for
businesses overall. And well,
fewer Trendsetter companies were
seeking credit to begin with. Just
18% said their firm had looked for
loans or other financing in the past
three months, down from 27%
in the prior quarter, bringing the
number back to what it had been a
year ago.
“The fourth-quarter jump we
saw in the number of private
companies seeking new financing
probably had a lot to do with
the Fed’s anticipated rate hike in
December,” says PwC’s Margaret
Young. “Many companies may
have seen that as their last chance
to obtain credit at rock-bottom
prices and so decided to seize
the moment. Rates nonetheless
remain historically low, and
further hikes are expected to
be gradual. Therefore, private
companies are under no particular
pressure to snatch up cheap credit,
especially since many of them have
built and maintained healthy cash
reserves since the recession.”
Ahead of the borrowing curve
Economic indicator: Credit availability improved for private companies
in 4Q15. The next quarter, it improved for companies generally, though
not as steeply. Our Q1 findings suggest a slower rate of credit growth
is on the horizon for businesses overall.
C&I loans in bank credit quarter-overquarter annualized
% of private companies with greater
credit availability in the past quarter
40%
25%
30%
20%
20%
15%
10%
10%
0%
5%
-10%
0%
-20%
-5%
-30%
-10%
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: PwC’s Trendsetter Barometer quarterly survey question: “In terms of banking relationships this past
quarter, has your business’ credit line or amount of credit availability increased, decreased or stayed the same?”
Oxford Economics / Haver Analytics
The numbers in the right Y-axis are the percentage of Trendsetter respondents answering “increased” minus
the percentage answering “decreased.”
7
Hiring
Fewer businesses
hire as US returns to
near-full employment
“More companies are transitioning to temporary people.”
—President and CFO, Payroll services company
While the phrase “since the
recession” rolls off the tongue
easily enough, there are plenty
of reminders that we haven’t
returned to the good old days. We
see this when we look at the US
employment situation. Yes, the
economy continues to create new
jobs, but the recovery remains an
uninspiring, “meh” one.
On the other hand, if you’re an
HR manager in charge of hiring
decisions, things can be downright
fraught. Add too many people to
the payroll, and you’ll wind up
handing out pink slips. Add too
few, and you’ll let opportunity slip
away. But unless you’re really good
at predicting the future, it’s hard
to know just how many employees
you’ll need at any given time. If you
happen to also worry that economic
growth might not support much
more employment, you might hire
very cautiously, if at all.
Trendsetter barometer – Business outlook
Though fewer private companies plan to hire in the next
12 months, the majority of them do intend to increase
headcount during that time
7%
Hire new workers
Keep workforce the same
Reduce headcount
41%
52%
Well, more than half of Trendsetter
companies do plan to hire over the
next 12 months, but this is down
from the 63% that intended to
increase headcount a year ago and
the lowest since the first quarter of
2013 — a time when US economic
growth ended up being decidedly
slower than expected. As the US
now approaches what’s considered
full employment, we should
expect less hiring in general. And
it hardly surprises us to see this
happen at Trendsetter companies
8
Hiring
first — their hiring intentions have
long been a good leading indicator
of changes in US payrolls across the
wider economy.
Trendsetter executives told us that
on average they expect to increase
their workforce by 1.3%. That’s
low. But to put it in perspective,
this data point hasn’t broken
above 5% since the first quarter of
2008. Technology has had a clear
and irreversible impact, allowing
businesses to do more with less —
including less fulltime staff. Indeed,
gig economy workers are projected
to make up 40% of the workforce
by 2020. “More companies are
transitioning to temporary people,”
observes the president and CFO
of a payroll services company,
underscoring what looks more
like the new normal than just a
protracted response to the latest
recession.
Wages hold steady
With the full-employment
benchmark in sight, firms will
have to start offering higher pay to
attract new workers. We already see
Trendsetter barometer – Business outlook
this in the wage hikes Trendsetter
companies are planning for the
next 12 months — another leading
indicator in our survey. Over
recent quarters, respondents have
said they expect to raise their
salaries by an inflation-busting 3
percent (approximately).
Despite these higher projected
employment costs, Trendsetter
executives don’t seem especially
concerned about wage pressure.
Just 22% of them flag this as a
potential growth barrier, down
from 33% the prior quarter.
And whereas a year ago 37% of
Trendsetter companies worried
about finding qualified workers,
that figure has since dropped
to 29%. That may change as
the economy moves closer to
full employment and the skills
shortage really starts to bite.
Other trends have been holding
steady: Unskilled workers
continue to bear the brunt of the
recession’s fallout, with just 9% of
private companies saying they’re
looking for unskilled labor. Today’s
jobs — even manufacturing
Help wanted, but not tons of it
Which workers are most in demand?
52% of private
companies plan to
hire in the next year
18%
of companies seek
marketing & sales
professionals
28%
of product
companies seek
blue collar workers
Planned workforce increase
Today
Prior quarter
1.3%
2.1%
of service
companies seek
technology workers
Planned wage increase
Today
Prior quarter
30%
2.72%
2.96%
ones — increasingly call for
employees with special skills. “This
trend is now some 60 years in the
making, going back to the Rust Belt
decline that started in the 1950s,”
observes PwC’s Margaret Young.
“Technology-driven industries and
automation have since become
the norm in what were once
predominantly blue-collar domains.
As this is unlikely to change, today’s
workers must, by necessity, adapt.”
9
International expansion
“T he most critical growth factor for our business is expansion into
the Far East outside of China.”
—CFO, Logistics company
Staying the course, but
scant new expansion
As readers know by now, the
world economy is having a tough
time. China is flirting with a hard
landing. Refugees, terrorists,
and the potential Brexit are
putting pressure on Europe. And
once-thriving economies in Latin
America are now beset by political
corruption and violence.
Meanwhile, the low price of oil
continues to have a double-edged
effect. US consumers are enjoying
cheaper prices at the gas pumps,
but it is of course a different story
for oil producers. Some, like Saudi
Arabia, can still balance their
budgets despite low oil prices,
but other producers, such as
Venezuela, are having a far harder
time. And investors are also
concerned that low prices mean
demand will remain depressed
indefinitely, especially in China.
Over half of Trendsetter private companies sell
internationally
47%
International markets
United States only
14%
Emerging markets*
53%
Private-company revenue from international sales
Market presence
International markets
generally
Emerging markets*
specifically
Percentage of total revenues
derived from international sales
19%
34%
* Here, the term emerging markets refers to Brazil, China, and India only.
Trendsetter barometer – Business outlook
10
International expansion
It’s little wonder, then, that only
19% of private-company leaders
say they’re optimistic about
the world economy. That’s 21
points down from a year ago.
We also saw the shakiness of
the global economy reflected
in answers to questions about
plans to expand into new foreign
markets. Only 1 in 20 (5%) of
Trendsetter executives reported
their companies were looking at
new markets abroad. That’s a new
record low.
Although few Trendsetter
companies are venturing into
new markets abroad, they show
no signs of leaving the foreign
markets where they’re already
established. And staying there
appears to be doing them little
harm. For one, their revenue
forecasts are stronger than those
for their domestic-only peers — a
long-term trend that held steady
this past quarter, at 7.4% vs 6.6%.
International sales also make up
about one-fifth of overall revenue
for these businesses, another
long-term trend.
Trendsetter barometer – Business outlook
Emerging markets still
calling
For Trendsetter companies with
interests in Brazil, India, or
China, the international-sales
contribution is even higher, at
over one-third (34%) of total
revenue — which is saying
something, given that two of those
economies aren’t exactly in the
pink. These companies are more
upbeat in other ways, too. More
than four out of ten are planning
capital investments, compared to
35% of businesses with broader
global interests and just 19% of
domestic-only businesses. Clearly,
Trendsetter executives remain
alert to growth opportunities,
despite concerns about the global
economy. The CFO of a logistics
firm put this in relief, saying that
the most critical growth factor for
his business “is expansion into the
Far East outside of China.”
While the phrase outside of
China hardly means instead of
China, it’s a reminder that China
isn’t the only game in town for
international marketers that seek
International companies plan to be more growth-focused
than their peers over the next 12 months
Plan major
capital investments
Plan increased spending on
new product/service introductions
Plan increased
spending on R&D
35%
29%
17%
42%
29%
26%
19%
International overall
19%
Emerging markets*
5%
US only
Percentages denote the number of companies planning these expenditures.
*Here, the term emerging markets refers to Brazil, China and India only.
sizable growth opportunities.
“India’s prospects in particular
have improved in recent years,”
notes PwC’s Ken Esch. “Thanks,
in part to reform efforts from
Prime Minister Narendra Modi’s
government and a windfall from
cheaper oil. Like China, India is a
vast market made of many diverse
submarkets, and so companies
that sell there have to be strategic.
A blanket approach won’t work.
But as nearly half the companies in
our survey will tell you, making the
investment can yield substantial
returns over the long haul.”
And one of the great advantages
to being a private company is the
liberty to do just that — make
investments over the long term.
That much we’ve learned in the
two decades we’ve conducted the
Trendsetter Barometer survey.
11
About this report
Since 1995, PwC’s Trendsetter Barometer Business Outlook has tracked
the views of top executive officers at privately held US businesses and
the trends these reveal. This quarter, we spoke with 220 chief executive
officers (CEOs/CFOs), including 119 from companies in the product sector
and 101 in the service sector.
How the Trendsetter companies break down
• Products 54%
–– Manufacturing 24%
–– Trade/Distribution 13%
–– All other 17%
• Services 46%
All (220)
Product (119)
Service (101)
Average number of employees
1,329
1,525
1,101
Average enterprise revenues
$534 million
$727 million
$307 million
Five-year growth rate
80%
77%
83%
Survey interviews were conducted by the independent research firm BSI
Global Research, Inc. by phone between January 8, 2016 and April 8, 2016.
The same companies are interviewed and tracked from quarter to quarter,
with occasional changes to the survey population due to turnover.
Trendsetter barometer – Business outlook
12
To find out more about private-company trends and to discuss the survey
findings, please contact:
Shawn Panson
Ken Esch
Private Company Services Leader
[email protected]
Trendsetter Partner Sponsor
[email protected]
Margaret Young
Partner, Private Company Services
[email protected]
To see more charts and graphs,
including those showing trends
over a span of years, and to
download the complete survey
findings, go to our website:
http://www.pwc.com/us/en/
private-company-services/
publications/pcs-trendsetterbarometer.jhtml
About PwC’s Private Company Services Practice
Located in all major US markets, PwC’s Private Company Services (PCS)
is a national practice comprised of more than 170 partners and 2,000
professionals who provide customized tax, audit and advisory services
to private companies, their owners and high net worth individuals. The
majority of America’s largest private companies are PwC clients.* They
span a broad scope of sectors and industries ranging from manufacturing
to retail to industrial to professional services.
A hallmark of PCS is a robust thought leadership program that provides
clients with timely, thought-provoking information to help manage and
grow their businesses and wealth.
Visit us online at pwc.com/us/pcs
* Forbes America’s Largest Private Companies 2015
© 2016 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to
PricewaterhouseCoopers LLP, which is a member firm of PricewaterhouseCoopers International
Limited, each member firm of which is a separate legal entity. 159530-2016
13