Corporate Executive Board Q3 Business Barometer Points to Areas for
Corporate Vigilance and Investment Based on Cross-Functional Survey of
More Than 400 Senior Executives
ARLINGTON, Va., Aug 18, 2010 (BUSINESS WIRE) --
Amid fears of a double-dip recession and slow macroeconomic recovery,
senior executives are once again feeling cautious about the future
business environment, according to the latest Business Barometer survey
released today by The
Corporate Executive Board (NASDAQ: EXBD) (CEB). Measuring the
economic assumptions of more than 400 executives across six functional
business roles, the quarterly survey revealed that companies will likely
need to be vigilant in responding to cost pressures and challenging
labor conditions, yet need to make investments in R&D and other areas to
stay competitive in the year ahead.
Dropping to a reading of 47.8 in Q3 from 51 in Q3 2010, the Q2 Business
Barometer showed that optimism among business leaders about the year
ahead has wavered. While most executives say they expect higher revenues
for their companies this year (68 percent), fewer are optimistic about
their respective industries' growth prospects (only 50 percent say they
expect their industries to grow) and a majority are anxious about rising
cost pressures (68 percent). However, executives remain cautiously
optimistic about increases in R&D spend and capital expenditures.
"The results of this quarter's Business Barometer point to increased
uncertainty among businesses about the pace of the economic recovery,"
said Michael Griffin, managing director, Global Research for the Finance
and Strategy Practice at CEB. "While fundamentals at large companies
have recovered steadily across the past year in terms of both top-line
growth as well as margins, executive concerns about the economic
environment--especially the strength of consumer demand--have returned.
Many companies are taking a wait-and-see approach, but history suggests
that those who undercut growth investments during economic trough
periods risk longer-term revenue stalls while those who make investments
ahead of peers are more likely to seize outsized returns."
Areas for Vigilance
One of the biggest negative shifts in this quarter's Business Barometer
reading was the extent to which executives view the resilience of U.S.
consumers, with only 38 percent of executives expecting consumer
confidence to improve, compared to 59 percent in Q2. Executives also
expect unemployment to linger, with 49 percent anticipating numbers to
stay the same, compared with 46 percent who had that outlook in Q2.
Also surprising was the deterioration of sentiment among HR executives
regarding labor market conditions. Nearly two-thirds (64 percent) expect
a moderate increase of one-to-four percent in average labor costs this
year. Forty-two percent expect average health benefits to increase by
one-to-nine percent, with 18 percent expecting a higher than 10 percent
increase. Compared to Q2 2010, HR executives have dropped their
expectations of employee engagement (32 percent think employees will be
less engaged) and anticipate higher turnover (54 percent compared to 39
percent in Q2).
In addition, growth prospects in the U.S. and EU have deteriorated, with
only 32 percent of executives seeing strong economic growth in these
industrialized economies (compared to 54 percent in Q2).
Areas of Cautious Optimism
On a brighter note, outlook among IT executives improved, largely driven
by the fact that 54 percent expect higher discretionary CapEx IT
spending (up from 47 percent in Q2). Fifty-seven percent of IT
executives expect spending on software to increase (up from 45 percent
in Q2). Moreover, finance and operations executives remain largely
optimistic about increasing CapEx, and making long-term innovation bets,
even though the strength of the optimism retreated somewhat.
"Even though the overall outlook has moderated, there is still
resilience in key investment areas such as anticipated R&D and IT
CapEx," said Oleg Polishchuk, senior director, Finance
and Strategy Practice at CEB. "Furthermore, executives expect higher
order volumes and plan to increase production levels."
Additional notable findings from this quarter's Business Barometer
A majority of finance executives expect increases in the number of M&A
deals this year; however, optimism may be waning with the number
dropping slightly (51 percent compared to 63 percent in Q2).
While the majority of finance executives expect to increase CAPEX,
their number declined from 55 percent in Q2 to 51 percent in Q3.
More than two-thirds of sales executives (65 percent) expect rising
sales to new customers this year, with more than half (53 percent)
expecting to see increases among existing customers.
Fifty-two percent of all executives expect no changes in terms of
access to credit.
The number of executives who expect interest rates to increase has
dropped to 42 percent, compared to 57 percent in Q2.
Executives' outlook on production is positive, with 68 percent
expecting a higher number of new orders and 67 percent expecting
expanded production over the next 12 months (compared to 64 percent in
Q2). However, the number of product introductions may decrease with 52
percent expecting a higher number of new products this year, compared
to 65 percent who had that outlook in Q2.
CEB's Business Barometer is a forward-looking diffusion index of
expected business conditions, condensed from a survey of more than 440
senior executives in North America and Europe across 33 industries. The
Business Barometer provides a unique measure of business sentiment among
a representative sample of CEB's executive member network. The index
measures the assumptions of senior executives across six functional
disciplines, including HR, corporate finance, operations, sales and
marketing, real estate and IT, on the impact 12 key business and
economic indicators will have on their business in the year ahead.
For more information on CEB's Business Barometer, visit http://cebviews.com/economic-outlook/.
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SOURCE: The Corporate Executive Board Company
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