Optimism in the world economy also dropped significantly, with only 19 percent of Trendsetter CEOs claiming they are optimistic about the global economy over the next 12 months, down 20 points from the previous quarter and 36 points below last year's 55 percent. Despite lowered optimism, 38 percent of international marketers reported increased sales abroad, up 2 points from the prior quarter and higher than one year ago (35 percent). Only 8 percent reported fewer sales in 3Q08; 54 percent reported no change from the prior quarter.
Additionally, for the first time in 2008, the number of Trendsetter CEOs reporting new bank loans increased, jumping five points to 14 percent in 3Q08. "Financial activity across the board increased in the third quarter of 2008, as cash flow is becoming an increasing concern for a number of private companies," says Ken Esch, partner with PricewaterhouseCoopers' Private Company Services Practice. "As the economy slows down and customers begin to delay payments, many companies will turn to new bank loans to stabilize cash levels and subsidize slow-payments." In the face of the credit crisis, bank lending to private companies will become increasingly important.
Costs and Prices Rise as Gross Margins Remain Tight
Gross margins remained tight in 3Q08 as net three percent of private company CEOs reported lower margins, recovering slightly from last quarter but remaining in stark contrast to much stronger margins one year ago when net 12 percent reported positive margins. This slight recovery in gross margins may be due in part to fewer Trendsetter CEOs (net 27 percent, down 14 points from last quarter) reporting higher costs in 3Q08. Prices also decreased last quarter with only net eight percent of respondents citing higher prices, down 17 points from 2Q08 and eight points from last year.
Growth Projections Stabilize
While own-company revenue targets for the next twelve months remained stable at 10.1 percent in 3Q08, down just 0.7 points from last quarter, they remain significantly lower than 3Q07's target of 18.6 percent. Similarly, only 67 percent of Trendsetter CEOs are projecting revenue growth over the next 12 months, down 13 points from last quarter; just 38 percent of respondents are projecting double-digit growth, a 7 point drop from last quarter and down 25 points from 3Q07.
International marketers remain well ahead of their domestic-only peers in revenue growth projections for the next 12 months at 12.3 percent versus 8.5 percent, respectively, widening the gap this quarter to 45 percent. "While international companies' projections aren't improving, they're certainly holding fast," adds Esch. "While their margins remained tighter this quarter and costs increased, international marketers had more price flexibility and the ability to better distribute products across a number of different markets and economies."
Capital Investments Remain Flat, Fewer CEOs Plan Spending Increases
After dropping five points to 30 percent in 2Q08, the percentage of Trendsetter CEOs planning major new investments of capital remained flat in 3Q08, but the average investment dropped to 8.2 percent as a percent of sales, down from last quarter (10.6 percent) and last year (11.6 percent).
The number of respondents planning to increase spending also fell in 3Q08, down five points to 61 percent. In line with previous quarters' results, more international marketers plan to increase spending over the next 12 months than their domestic-only counterparts (71 percent versus 54 percent for domestic-only), including spending on new products/services and R&D.
Despite decreasing steadily for the last five quarters, the percentage of Trendsetter companies planning to increase spending on R&D increased two points to net 12 percent in 3Q08.
Weak Demand, Oil and Energy Continue to Present Challenges
Eight out of ten (83 percent) Trendsetter CEOs cite lack of demand as a major potential barrier, up nine points from the previous quarter and up 20 points from last year's levels. Oil/energy prices remained a concern but fell 9 points to 42 percent in response to the change in crude oil prices during the quarter. In a change to last quarter's results, the number of respondents citing profitability/decreasing margins rose five points to 40 percent in 3Q08 after falling to 35 percent in 2Q08. Concern over the availability of qualified workers continued to decline, cited by just 30 percent of respondents this quarter as hiring plans slow; this is down from 35 percent last quarter and 52 percent one year ago.
Hiring Plans Slow, Hourly Wages Increase at a Slower Pace
While most private businesses plan net new hiring over the next 12 months (48 percent, down nine points from last quarter) and few plan net reductions (8 percent, up two points from last quarter), workforce composite hiring plans dropped from 3.9 percent to an average of 3.6 percent - 2.5 percent for full-time employees and 1.1 percent FTE part-time or contract employees. The mean expected increase in hourly wages decreased from 3.03 percent in 2Q08 to 2.84 percent in the third quarter.
Professionals/technicians remain the most sought after new hires, down five points from last quarter to 34 percent in 3Q08. Sales/marketing executives (16 percent) and administrative support (nine percent) remained the second and third most cited job types.
