Most CEOs of private companies are optimistic on the economy, driving plans for major capital spending projects to the highest level in the past two years.
The survey, PriceWaterhouseCoopers US's Trendsetter Barometer, tracks the business issues and challenges of America's leading privately held companies and interviewed 205 private company leaders. Fifty-nine percent of the leaders are optimistic about the U.S. economic outlook over the next 12 months. PriceWaterhouseCoopers is a multinational business with U.S. headquarters in New York City that focuses on providing audit, tax and consulting services.
“By and large, the companies that are clients of mine did experience a downturn in '09-10,” said Marty Janowiecki, partner in PwC's private company services lender group, based in Philadelphia. He described these companies, which include firms in Allentown, Upper Bucks County and other parts of eastern Pennsylvania, as more conservative in their capital spending practices.
“A lot of them held back on larger dollar purchases,” Janowiecki said. “Many of them held a tight rein on their costs right out of the recession.”
Now, these same companies are focusing on top line growth and investing in new equipment and plant upgrades, Janowiecki said. Hiring is up and this is across many sectors, including retail, manufacturing, industrial and consumer markets.
“The demand from international markets is picking up and companies that are selling and exporting are experiencing a greater increase in sales,” he said. “All in all, my client base is experiencing a couple of the better years they've seen; 2014 is holding up well and looking favorable.”
Another factor fueling growth is that many companies appear less anxious over regulations such as the Affordable Care Act for health care insurance. Many companies hadn't fully understood the implications of the act when it was enacted, and now these companies have developed a game plan and are able to at least consider the regulations, Janowiecki said.
“Banks would tell you they are looking for more projects,” he said. “That tells you that capital is cheap and it makes it an even greater reason to invest in capital expansion.”
At one northern Lehigh County community bank, commercial loan growth is occurring.
“Based on general tax returns and financial statements from our commercial and residential customers, we are starting to see some improvements,” said Kevin Schmidt, president and CEO of Neffs National Bank. “I've been seeing real estate mortgages picking up.”
However, housing construction has not been picking up at all, Schmidt said. If anything, it seems some people are doing home equity improvements.
“If anything, the housing prices have stabilized,” Schmidt said. “Banks are doing very limited home construction mortgages.”
With the Federal Reserve possibly increasing interest rates in the third quarter of 2015, the market will probably push the mortgage rate higher later in the fourth quarter of 2014 or early in the first quarter of 2015 in anticipation of rates going up, Schmidt said.
Whether companies are hiring more now is a little difficult to determine, according to Schmidt. Most of the companies that Neffs National Bank has for clients are smaller firms, so a company increasing its hiring by 20 percent could mean it is simply hiring one employee, Schmidt noted.
In Berks County, hiring is critical, and business leaders are looking to hire more full-time employees, particularly in manufacturing, said Jon Scott, president and CEO of Greater Reading Economic Partnership.
“Those jobs do exist,” Scott said. These jobs lead to sustainable, long-time careers and are well-paying, he added.
However, finding employees with the right skills to fulfill these careers is still difficult, and hiring workers with the right soft skills, such as management, timeliness, appropriate workforce demeanor and etiquette, is challenging, according to Scott.
“That's the whole purpose behind the Careers in 2 Years program,” Scott said, referring to an educational initiative geared toward leading Berks County students to jobs, mainly in the manufacturing sector.
With all the activity that's been occurring at Berks Park 78 and Berks Midway, Berks County is showing strong economic development growth, and these projects have taken a lot of expenditures to come into reality, Scott said.
“[In 2013] … 75 percent of all incoming new businesses or expansions were advanced and diversified manufacturing,” Scott said. “We are certainly continuing to see a lot of interest and activity in manufacturing-driven prospects and projects this year.”
Various U.S. companies, including many in Berks, are doing more work abroad, Scott said. One example is Fidelity Technologies, which recently landed a contract in the Middle East.
“We are seeing stronger cross pollination of efforts on both the exporting and importing side,” Scott said.
Agencies that underwrite financing plans and help attract new private companies to the region, or help existing firms expand, are seeing strong growth as well, particularly in the manufacturing sector.
“That's very consistent with what we are seeing on the economic development side,” said Don Cunningham, president and CEO of Lehigh Valley Economic Development Corp. “We are seeing companies spending money on operations and expansions. Business investment has been robust.”
Last month represented the largest volume of Pennsylvania Industrial Development Authority approved projects ever in a 30-day period for LVEDC, Cunningham said.
LVEDC worked with four Lehigh Valley companies to obtain PIDA financing that totaled more than $6.1 million and included a total investment of more than $23 million from the four projects.
Heavy investment in manufacturing technology and innovation often will not translate into a high amount of jobs, however, banks, both big and small are being more aggressive and making loans in the commercial sector, Cunningham said.
“There is certainly a lot of interest in banks competing for commercial and industrial lending,” Cunningham said.