hangeWave Research Report:

4Q 2008/1Q 2009 Corporate Quarterly Report

Grim Snapshot – The U.S. Economy in Rapidly Accelerating Freefall

December 8, 2008
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Overview: Most everyone knows it’s a jungle out there for the U.S. economy, but how does this recession measure up to the last one we went through in 2001?

ChangeWave’s latest corporate quarterly survey shows the U.S. economy caught in the clutches of a recession far deeper and more painful than that of 2001 – with alarmingly low 4th Quarter sales projections, abysmal visibility, a deteriorating job market and a severe pullback in capital spending.

The survey was conducted November 20-December 1, 2008 and a total of 3,029 U.S. respondents participated.

Highlights:

4th Quarter 2008 Performance: A whopping one-in-two respondents (51%) project that their company sales will come in Below Plan for 4th Quarter 2008 – 16-pts worse than the previous quarter. Only 11% say their company sales will come in Above Plan – a 7-pt decrease.

As the following chart shows, these 4th Quarter ( Dec ’08 ) corporate sales projections are the worst ever recorded in a ChangeWave survey dating back to the depths of the 2001 recession.



1st Quarter 2009 Sales Pipeline: There is also a huge plunge in visibility going forward. Sales pipeline projections for 1st Quarter 2009 show just 9% of respondents say their company will come in Above Plan – 12-pts less than the previous survey. At the same time, 39% report they’ll come in Below Plan – 18-pts worse than previously

Once again, these are by far the lowest sales pipeline numbers ever recorded in a ChangeWave quarterly survey.

Massive Pullback in Cap Spending: In perhaps the most ominous sign of rapidly deteriorating U.S. business conditions, survey respondents project a massive cutback in capital spending going forward.

Only 6% project an increase in their company’s 1st Quarter capital budget, while nearly half (45%) project a decrease. Note that these are the worst cap spending numbers ever recorded in a ChangeWave survey since we began asking this question back in December 2002.



Most disturbingly, capital spending is plunging at a time of year when we normally experience seasonal increases. This becomes immediately apparent when you look at the change for each December - beginning with December 2003 - in the Overall Capital Budgets chart above.

Ever since 2003, December has always been the peak point of the yearly cycle in this survey – up until December of 2007. That was when we had the critical early warning that cap spending was very seriously breaking down. Continued deterioration for the next 4 quarters led us to this December’s historic collapse.

Labor Market Woes. The survey also shows an unprecedented deterioration in the labor market. One-third (31%) of respondents say there are Less new hires in their company at this point in the 4th Quarter vs. last quarter – a 9-pt increase since the previous survey. Only 8% say there are More new hires.



Credit Crisis Tightens its Chokehold. Over the past year we’ve been measuring the impact of the credit crisis on U.S. businesses – generally thought to be one of the key causes of the recession. Yet despite the U.S. government’s numerous attempts to open the credit spigot, the credit crunch continues to worsen.



Three-in-ten respondents (30%) now say that it is harder for their company to borrow money than it was just 90 days ago – a 5-pt jump from previously. Less than 1% say it is easier to borrow money.

Biggest Drop in the Price of Products. The slowing economy continues to drive down the prices companies are charging for their products.

Simply put, the current results show a major acceleration of the downward price pressures we first picked up in our September survey – capping a dramatic turnaround from the upward price spikes we saw during the first half of 2008.



Only 7% now report prices are rising for their company's products –15-pts less than the previous quarter. At the same time, the percentage reporting falling prices (24%) has nearly doubled.

We also note that there has been an improvement in the ability to purchase commodities. One-in-four (26%) say it is easier for their company to purchase commodities than it was 90 days ago – a five-fold increase from previously. At the same time, just 8% say it’s become harder – 16-pts less.

Bottom Line: The current survey results provide clear evidence that the U.S. recession has now entered a far more virulent period – characterized by an unprecedented and rapidly accelerating freefall.

Moreover there is no relief yet in sight. Rather, 1st Quarter sales pipeline projections are by far the most dismal of any ChangeWave survey of the past eight years, and massive cutbacks are occurring in capital spending going forward.

To top it off, the U.S. credit crunch is now weighing even more heavily on U.S. businesses than at any previous point of the past year.

Further negative indicators include a rapid deterioration of the labor market, coupled with a huge increase in cancelled orders and a pullback in customer willingness to spend.

Summary of Key Findings

U.S. Economy in a Rapidly Accelerating Freefall
# Only 11% of respondents say their 4th Quarter company sales will come in Above Plan – a 7-pt decrease from previous quarter
# An unprecedented 51% say 4Q sales will come in Below Plan – 16-pts worse than previously, and the worst in a ChangeWave survey dating back to 2001

Credit Crisis Weighs Even More Heavily On U.S. Businesses
# 30% say it is harder for their company to borrow money than it was 90 days ago – 5-pts worse than previous survey
# Less than 1% say it's easier

Record Low Visibility for 1Q Pipeline – With No Relief in Sight
# Just 9% project their company sales will come in Above Plan for 1Q – 12-pts less than previous quarter
# 39% say they’ll come in Below Plan – 18-pts worse than previously

Massive Pullback in 1Q Capital Spending
# Far more project a decrease in their overall 1Q capital budget (45%) than an increase (6%) – a net 22-pts worse than previously

Accelerating Labor Market Woes
# Only 8% see more new hires in their company this quarter and 31% see less – a net 17-pts worse than previous quarter

Biggest Drop in Prices Ever Recorded in a ChangeWave Quarterly Survey
# Only 7% say prices are rising for their company's products – 15 pts less than previous quarter
# At the same time 24% say prices are falling – 10-pts more than previously

Improved Ability to Purchase Commodities
# 26% report it’s easier for their company to purchase commodities than 90 days ago – a five-fold increase from previously
# 8% report it’s harder for their company to purchase commodities – but that's 16-pts improved from previously

Table of Contents ( all of these in blue are links; please go to the original to view them )

Key Findings

o 4th Quarter 2008 Sales Results
o Last 8 Years Comparison

* What's in the Pipeline
o 1Q 2009 Projected Sales Pipeline
o Overall Sales Pipeline Projections – A Comparison

* Capital Spending Growth Rate
o Overall 4Q Capital Budgets – A Comparison

* Hiring Trends in the 4th Quarter
o 4Q 2008 Hiring Trends – A Comparison

* Layoff Trends in the 4th Quarter
o 4Q 2008 Layoff Trends – A Comparison

* Impact of Credit Crunch
o Ability of Companies to Borrow Money – A Comparison
o Ability of Companies to Borrow By Company Size

Survey Methodology

Additional Findings and Highlights

* Price Pressures
o Price Pressures in the Current Marketplace
o Ability of Companies to Purchase Commodities

* Current Willingness of Customers to Buy Products

* 4th Quarter Cancelled Orders

* Product Inventories for the 4th Quarter

* Backlog of Orders for the 4th Quarter

ChangeWave Research Methodology

About ChangeWave Research

I. Key Findings

ChangeWave’s latest corporate quarterly survey shows the U.S. economy caught in the clutches of a recession far deeper and more painful than that of 2001 – with alarmingly low 4th Quarter sales projections, abysmal visibility, a deteriorating job market and a severe pullback in capital spending. The survey was conducted November 20-December 1, 2008 and a total of 3,029 U.S. respondents participated.

4th Quarter 2008 Performance: A whopping one-in-two respondents (51%) project that their company sales will come in Below Plan for 4th Quarter 2008– 16-pts worse than the previous quarter. Only 11% say their company sales will come in Above Plan – a 7-pt decrease.



The Last 8 Years: As the following chart shows, these 4th Quarter (Dec ’0 corporate sales projections are the worst ever recorded in a ChangeWave survey dating back to the depths of the 2001 recession.




What's in the Pipeline for 1st Quarter 2009?

1st Quarter 2009 Sales Pipeline: There is also a huge plunge in visibility going forward.Sales pipeline projections for 1st Quarter 2009 show just 9% of respondents say their company will come in Above Plan – 12-pts less than the previous survey. At the same time, 39% report they’ll come in Below Plan – 18-pts worse than previously



Capital Spending Growth Rate

Massive Pullback in Cap Spending: In perhaps the most ominous sign of rapidly deteriorating U.S. business conditions, survey respondents project a massive cutback in capital spending going forward.

Only 6% project an increase in their company’s 1st Quarter capital budget, while nearly half (45%) project a decrease. Note that these are the worst cap spending numbers ever recorded in a ChangeWave survey since we began asking this question back in December 2002.



Most disturbingly, capital spending is plunging at a time of year when we normally experience seasonal increases. This becomes immediately apparent when you look at the change for each December - beginning with December 2003 - in the Overall Capital Budgets chart above.

Ever since 2003, December has always been the peak point of the yearly cycle in this survey – up until December of 2007. That was when we had the critical early warning that cap spending was very seriously breaking down. Continued deterioration for the next 4 quarters led us to this December’s historic collapse.

Hiring Trends

We asked respondents about hiring trends in their company for the quarter.

Question Asked: We are two-thirds through 4th Quarter 2008. How would you characterize the number of new hires (full or part-time payroll employees) in your company at this point in 4th Q 2008 compared with the same point in the previous quarter (3Q 200?

http://www.changewave.com/alliance/view ... 81208.html

Many more charts and info; too big to post it all on here. Please go to the link above to view it