Economy Continues its Tailspin

By Paul Carton and Jean Crumrine

Last quarter's accelerating U.S. economic freefall has extended through the first quarter of 2009, according to a new ChangeWave survey that shows another downturn in corporate sales projections and customer willingness to spend.

Our latest corporate survey, however, also contains some hopeful signs, including a slight leveling off in the rate of contraction going forward. But the bottom line is that the U.S. economy remains caught in the clutches of a recession that is much more severe than the 2001 recession, including alarmingly grim hiring trends and a continued pullback in capital spending.

The ChangeWave survey was completed March 3, and 3,076 U.S. respondents participated.

Tailspin Continues in the First Quarter

Fifty-two percent of respondents said they now project that their company sales will come in below plan for first quarter of 2009 -- one point worse than the previous quarter. Only 9% said their company sales will come in above plan -- a two-point decrease.

As the following chart shows, the first quarter (March 2009) corporate sales projections are the worst ever recorded in a ChangeWave survey dating back to the depths of the 2001 recession.

1  |  2  |  3  |  4

next >>

We also asked respondents to rate the current willingness of existing customers to spend money on their company's products and services. Seventy-six percent said their customers have either a "yellow light" to spend (i.e., spending is downsized, though not completely stopped) or a "red light" (i.e., spending is virtually on hold).



Just 18% reported that their existing customers have a "green light" to spend (i.e., spending is normal).

The U.S. labor market also remains in a dismal state. Only 7% said there are more new hires in their company at this point in the first quarter versus last quarter -- a one-point decline from the previous survey. Thirty percent said there are less new hires -- a one-point improvement from previously, but overall the second worst reading since we began asking this question five years ago.

Longer-Term Outlook Contains Glints of Hope

As terrible as the current quarter looks, the longer-term economic outlook is beginning to show the first tiny signs of hope.

<< previous

1  |   2  |  3  |  4

next >>

First, the projected sales pipeline decline for the second quarter, while still horrific, is not quite as bad as the collapse recorded in our previous survey. While just 11% said their company will come in above plan, that is a two-point improvement from previously. And while 38% reported they'll come in below plan, that represents a one-point improvement compared with the previous survey.



Thus, for the first time in more than two years, we're picking up a slight leveling off in the rate of contraction going forward.

We're seeing a similar deceleration in the rate of capital spending decline. Capital spending is still in the midst of a gigantic pullback going forward, but the spending rate of decline is also not quite as bad as the collapse recorded last quarter.

Only 5% projected an increase in their company's second-quarter capital budget, while 41% projected a decrease, but that's a three-point improvement from the previous survey.



And, finally, for the first time in 15 months, one of the key causes of the recession -- the credit crunch -- appears to have stopped worsening, although it clearly continues to have a severely negative impact on U.S. business.

<< previous

1  |  2  |   3  |  4

next >>

While 30% of respondents continued to say that it is harder for their company to borrow money than it was just 90 days ago, that's unchanged from the previous survey. And 1% said it is now easier to borrow money, which is one point better than previously.



To be clear, the credit crisis remains significantly worse than it was even 90 days ago, but the rate of decline finally shows some signs of stabilizing.

What to Watch Going Forward

Turning around an economy plunged headlong into recession is no easy task, but the first sign of improvement is often a leveling off in the rate of economic decline.

And although there are no signs of a leveling off during the abysmal first quarter, the longer-term economic outlook is beginning to show the first tiny signs of hope.

In other words, while the U.S. economy remains in a tailspin, the rate of decline going forward has begun to slow. The tricky part is whether this is a temporary trough before a further collapse, or if we're starting to see the first early signs of a bottom.

Future surveys will provide the answer. But, for now, let's not forget that coming out of a recession is usually far bumpier than going into one.

Click here to check out more of the latest ChangeWave research findings.

---

Paul Carton is the Director of Research for the ChangeWave Alliance Research Network. Jean Crumrine is an Associate Director of Research. The Research Network is a group of 20,000 highly qualified business, technology and medical professionals -- as well as early adopter consumers -- who work in leading companies of select industries. ChangeWave surveys its network members weekly on a range of business and consumer topics, and converts the information into a series of proprietary quantitative and qualitative reports.

<< previous

1  |  2  |  3  |   4