In 3Q 2008, PricewaterhouseCoopers interviewed 50 US based industrial manufacturing executives about their current business performance, the state of the economy, and their expectations for business growth over the next 12 months. We then compared their responses to the prior quarter’s results to see how the panel’s 12-month outlook changed. The final step was to compare their views with a wider panel to show how the industry differs from the broader population.
Overall, US-based industrial manufacturers are contracting in
the face of the global credit crisis and economic slowdown.
Two-thirds are pessimistic about the US economy’s
prospects, and nearly as many have turned pessimistic about
the world economy’s prospects. Own-company growth is
projected at a slower pace for the next 12 months, but most
expect positive growth. International sales, although strong,
have slowed in their overall contribution to revenue.
Key findings:
-
Pessimism takes hold. Sixty-six percent of senior
executives interviewed are pessimistic about the US
economy’s prospects over the next 12 months. Only 6
percent are optimistic that the US economy will grow. With
the global credit crisis, those marketing abroad have
become nearly equally pessimistic. Sixty-three percent are
pessimistic about its prospects over the next 12 months.
- Growth loses momentum.
Senior executives of US-based
industrial manufacturers project slower own-company
average revenue growth of 2.8 percent over the next 12
months, down from 3.7 percent in the prior quarter and 6.5
percent a year ago. Fifty-four percent expect positive
growth over the next 12 months, but 38 percent are
projecting zero or negative growth.
- International sales falter, but projections remain
steady. Over the next 12 months, international sales are
projected to contribute 32 percent to total revenue for those
selling abroad, off 6 points from the 38 percent high last
quarter but only slightly off from last year’s 35 percent. In
3Q 2008, 45 percent of international marketers reported an
increase in sales from abroad. Although positive, it is 21
points down from the prior quarter’s 66 percent.
- Investments, M&A activity hit a lull. Plans for major new
investments of capital over the next 12 months dropped 16
points to 34 percent and came in well below last year’s 42
percent. The mean investment as a percentage of total
sales remained at a moderate 6.1 percent, below last year’s
8.7 percent. Operational spending increases also declined,
dropping 13 points from the prior quarter to 64 percent and
down 21 points from last year's 85 percent.
- Lack of demand stunts growth. Among panelists,
concern about lack of demand is the chief potential barrier
to growth over the next 12 months, cited by 82 percent of
those interviewed. Concern about oil/energy prices as a
barrier to growth dropped 16 points to 62 percent.
- Decreasing profitability looms. Nearly two-thirds of senior executives cite concern about decreasing profitability as a leading barrier to company growth over the next 12 months, rising 14 points from 50 percent last quarter to 64 percent (a year ago, it was 48 percent).
- Workforce reductions on the table. Only 12 percent plan
net new hiring, while 40 percent will be reducing their
workforces. Composite new hiring has turned negative for
the next 12 months, with workforces contracting 4 percent
or more.
