PricewaterhouseCoopers' Management Barometer is a quarterly survey of large, U.S.-based multinational businesses. A total of 127 executives were interviewed for this survey ending January 19, 2007.
NEW YORK, Feb. 26, 2007 (PRIME NEWSWIRE) -- Senior executives of U.S.-based multinationals expect a solid revenue growth rate of 7.8 percent over the next 12 months, similar to the prior quarter's 7.5 percent, but off from the 9.0 percent level projected a year ago, according to the fourth quarter results of the PricewaterhouseCoopers' Management Barometer survey, released today.
For the first time in more than a year, general optimism about the future of the U.S. economy grew slightly. Almost two-thirds (63 percent) of participants report they are optimistic about the U.S. economy in the next 12 months, higher than the third quarter (55 percent), but off from a year ago (70 percent).
"Our quarterly U.S. results echo what global CEOs said in our annual CEO survey released at the World Economic Forum last month in Davos," said Greg Garrison, PricewaterhouseCoopers managing partner for U.S. Operations. "Although growth opportunities exist, they depend on the successful management of a broad set of challenges. The list of concerns for U.S. firms includes the cost of energy, weaker demand, regulatory pressures, and the difficulty of finding the right mix of talented employees."
Although optimism is increasing, the number of companies planning to hire new staff declined for the third quarter in a row, showing an overall reduction in spending for net new hiring. Four in ten of those interviewed (40 percent) plan to hire new staff in the next 12 months (compared to 59 percent a year ago), while 48 percent plan to keep staff at existing levels, and 12 percent plan to reduce their ranks.
More than half (56 percent) are planning major capital investments over the next 12 months, higher than in the previous quarter (47 percent), but equivalent to a year ago (55 percent). However, the planned mean investment as a percentage of revenue is lower: 6.5 percent compared to 8.2 percent the previous quarter and 9.5 percent a year ago.
Half (51 percent) also report energy prices as the largest barrier to growth. This group served to pull down the averages of all major growth indicators in the survey.
Optimism Remains Relatively High
Looking ahead, almost two-thirds of these multinationals (63 percent) are optimistic about the U.S. economy over the next 12 months, an increase of eight points this quarter, with only 8 percent pessimistic. Although optimism was higher than during the third quarter (55 percent reporting so then), it was lower than the 70 percent reported a year ago. In contrast, optimism about the world economy remained at 68 percent, one point higher than the prior quarter but on par with the 70 percent level a year ago.
Fewer Net New Hires
Presently, 40 percent of these companies plan to increase their workforce over the next 12 months -- off from 46 percent last quarter and 59 percent a year ago. Forty-eight percent say full-time employee levels will remain about the same, compared to 38 percent the previous quarter. Twelve percent say they will reduce their ranks, lower than the 16 percent reported in the third quarter.
"Firms with $5 billion or more in revenues plan to do less hiring than smaller organizations," said Garrison. "Only 29 percent of this segment plan to hire over the next 12 months compared to 45 percent of all others."
Companies planning to hire predict above-average revenue growth -- targeting 11.2 percent growth over the next 12 months compared to 5.5 percent for those who plan to keep their workforce numbers constant or reduce them. Many who plan to hire are not oil/energy vulnerable, but are concerned about being able to find the right mix of qualified workers in the year to come (38 percent), versus only 24 percent for all others.
New Investments Continue, But at a Lower Percentage of Revenue
Despite the high numbers of companies planning for new investments of capital, (56 percent this quarter, 47 percent the previous quarter and previous year), the amount devoted to new investments is lower: an average 6.5 percent of revenue compared to 8.2 percent the previous quarter and 9.5 percent a year ago.
Increased investment over the next 12 months will be concentrated in seven business areas, led by IT. Note the rise in facilities and geographic expansion:
* Information technology 50% (Up 1 point from the prior
quarter)
* New products/service
introductions 44% (Off 2 points)
* Facilities expansion 40% (Up 5 points)
* Geographic expansion 39% (Up 6 points)
* Business acquisitions 38% (Off 1 point)
* Marketing/sales promotion 32% (Up 1 point)
* Research & development 26% (Off 4 points)
Fewer Report Gross Margins Up
For the second quarter in a row, fewer companies reported an increase in gross margins (25 percent) off from 32 percent last quarter, 31 percent a year ago, and 40 percent two years ago.
According to Garrison, "If the net change dips even further, it will be the first time in four years where the number of companies increasing gross margins is less than 25 percent."
Costs and prices also increased, but at a lower overall rate than the previous quarter and the previous year.
Barriers to Growth
Broadly, executives identified the following as key barriers to growth over the next 12 months.
* Oil/energy prices 51% (Up 7 points from the prior
quarter)
* Weaker demand 36% (Off 2 points)
* Legislative/regulatory pressures 32% (Up 6 points)
* Lack of qualified workers 29% (Up 3 points)
* Pressure for increased wages 26% (Off 6 points)
* Competition from foreign markets 26% (same)
* Taxation policies 19% (Up 6 points)
In contrast, lower levels of concern were reported for higher interest rates, 13 percent (off 11 points), and for anxiety about decreasing profitability, 17 percent (off 6 points).
Those citing oil/energy costs as a barrier to growth are concentrated among larger firms, with an average of $8.36 billion in enterprise revenues. Along with concern about oil/energy prices, these firms report reported:
-- Slower revenue growth - 6.1 percent versus 9.6 percent for all
others (36 percent slower).
-- Higher costs and prices from the previous quarter - 40 percent
have increased costs (14 points higher than for all others), and
51 percent report an increase in prices (20 points higher than for
all others).
-- Less new hiring - 31 percent in this segment plan for new hiring
versus 50 percent for all others.
This segment also shows greater concern for other key prospective barriers compared to all others: demand, 43 percent (14 points higher), legislative/regulatory pressures, 45 percent (26 points higher), and taxation policies, 29 percent (21 points higher).
PricewaterhouseCoopers' "Management Barometer" is an established quarterly survey in the U.S. conducted with the assistance of the opinion and economic research firm BSI Global Research, Inc.
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