Confidence about the US economy's 12-month outlook rose sharply this past quarter among executives surveyed for PwC US’s Private Company Trendsetter Barometer. Sixty percent of Trendsetter executives voiced optimism (up 21 points from the prior quarter), with just 8% expressing pessimism; the remaining 32% were uncertain.

Confidence about the global economy also rose, with optimism being voiced by 29% of Trendsetter companies that sell abroad (up 5 points). Just 10% expressed pessimism, while the majority registered uncertainty (61%).

“Trendsetter executives' confidence in the US economy has returned to nearly the same level it was a year ago, and pessimism levels keep dropping, indicating private companies' belief that the economy continues to recover, if at a slow pace," says Ken Esch, a partner with PwC’s Private Company Services practice. "Last year, we saw confidence plummet to 27% on the heels of policymaking gridlock and the S&P's downgrade of the US debt rating," Esch further notes. "While we don't anticipate a repeat of last year, these are still volatile times, and so optimism about the US economy may continue to fluctuate. On the other hand, optimism about the world economy has seen no dramatic movement among Trendsetter executives over the last several quarters, reflecting the Eurozone's difficulties of the past year. With the political uncertainty around austerity measures and the recent announcement that Spain and the UK are officially in a double-dip recession, Trendsetter optimism about the world economy might stay at its current level for the time being."

Operational Spending Remains Strong, Led by International Marketers

Seventy-one percent of private companies plan to increase operational spending over the next year. Trendsetter companies that sell abroad outpace domestic-only businesses in planned boosts to operational spending (81% of international companies vs 61% domestic-only), with top areas of increased investment including information technology (40% of Trendsetter companies), new product/service introductions (30%), and marketing and sales promotion (26%) topping the list of spending areas reported by companies. Trendsetter companies are also planning to engage in new strategic alliances (25%), new joint ventures (23%), and the purchase of another business (19%).

“Information technology continues to lead operational spending as private companies seek to better understand and engage their customers through social media and data analytics,” says Esch. “Integrating digital strategies into their marketing plans also allows companies to do more with fewer people. Here many of them see great upside potential for a moderate investment.”

The number of private companies planning major new investments of capital over the next 12 months has also held steady at 38% (down just two points from the prior quarter). More international businesses expect major new investments of capital, compared with their domestic-only peers (48% versus the 28%), with Trendsetter companies in emerging markets leading the way at fifty-nine percent.

Private Companies Project Strong Growth, Set Higher Revenue Targets

Overall, 90% of private-company executives expect positive revenue growth for the next 12 months (up from 78% last quarter). They forecast an average revenue growth rate of 9.5%, up from 8.5% the prior quarter. Much of this increase comes from domestic-only companies, which forecast a growth rate of 9.9% (up from 7.5%). Meanwhile companies selling abroad forecast a growth rate of 9.0% (down from 9.6%).

Despite their uncertainty about the world economy, Trendsetter companies selling abroad expect that 21% of their total revenue over the next year will come from outside the United States. Sales abroad improved in the first quarter of 2012, with 43% of international Trendsetter companies reporting higher sales (up 6 points) and only 4% reporting lower sales.

"Many of the Trendsetter companies that sell abroad are operating in a two-speed economy because they have a presence in both Western Europe and various emerging markets," says Esch. "So while we see the survey results clearly reflecting companies' ongoing concern about the Eurozone, where economic growth remains sluggish for the most part, we're also seeing those same businesses maintain their focus on fast-growth markets outside Europe. Those markets have become integral to the long-term growth strategy of many US private companies."

Read the full PwC US’s Private Company Trendsetter Barometer press release.