Large U.S. Companies Increase Hiring and Investment Plans

Senior executives at most large U.S. companies plan to increase both hiring and investments over the next 12 months amid growing optimism about the economy, according to the PricewaterhouseCoopers Management Barometer.

"Despite higher oil prices and the unsettled situation in the Middle East, executives expressed confidence about the continued strength of the economy and their company's ability to grow at a healthy pace," said Frank Brown, global leader of PricewaterhouseCoopers' Advisory practice. "Most are forecasting increases in both hiring and new investments to sustain revenue growth in the months ahead."

According to the survey, 56 percent of companies plan net additions to their workforce over the next 12 months, up from 46 percent in the previous quarter. Overall, surveyed executives said they expect to add an average of 1.1 percent new hires in the 12 month period, up from 0.6 percent estimated in the prior quarter. About the same percentage of technology companies and non-tech companies expect an increase. In addition, 55 percent said they plan major new investments, averaging 7.4 percent of revenue.

The survey results marked the third consecutive quarter of high confidence among executives, who have projected annual revenue growth at more than nine percent. In other survey findings:

Nearly 60 percent of respondents reported an increase in international sales, while only eight percent had a decrease. International sales are expected to account for 28.1 percent of total revenue over the next 12 months—up from 26.4 in the prior quarter.

51 percent reported an increase in gross margins, and 13 percent a decrease, for a net of 38 percent increasing, compared with a net of one percent increasing in the prior quarter.

Contrasting this upbeat picture, however, were indications of potential inflation due to higher costs and pricing:

41 percent reported higher costs and 17 percent lower costs, a net of 24 percent with increases, compared to a net of one percent with cost decreases in the prior quarter.

37 percent increased their prices, and nine percent decreased them, a net of 28 percent increasing, compared to a net of six percent increasing in the prior quarter.

"Costs are increasing and companies are starting to pass them along to customers in order to maintain margins. That's the classic formula for inflation," Brown said.

Respondents' views have changed about prospective barriers to growth for the next 12 months. Only 25 percent are now concerned about market demand, off six points from the previous quarter, and only 20 percent are worried about decreasing profitability, off five points. The most prevalent concerns now are legislative and regulatory pressures, cited by 34 percent; competition from foreign markets, 26 percent; lack of qualified workers, 26 percent; pressure for increased wages, 22 percent; and the monetary exchange rate, 20 percent.

12 - month Perspective Comparisons between 2Q03 and 2Q04 illustrate executives' changing perceptions:

View the U.S. economy as growing
Optimistic about U.S. economy
Optimistic about world economy
Company's revenue growth target
Industry sector growth
Planning major new investments
Expect new hiring
Concern about demand
Concern about decreasing profit

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