Latest ChangeWave Corporate Survey Shows a Striking Downturn

"All roads indeed lead to Rome..." -- Richard Le Gallienne, poet

ChangeWave's latest corporate survey results are in and the findings lead to a clear, if less poetic, conclusion - the U.S. economy has already veered into recession.

The survey of 3,345 respondents working in U.S. companies - conducted February 27th through March 5th - reveals a sharp downturn in corporate sales projections for the 1st Quarter, along with a bearish outlook going forward.

Negative capital spending, reduced visibility, and an increase in canceled orders provide additional details of a U.S. economy that is clearly in recession. Here are some highlights:

1st Quarter 2008 Sales: Only one-in-five (20%) respondents now project that their company sales will come in Above Plan for the 1st Quarter - 8 percentage points less than the previous quarter. Another 30% report their company sales will come in Below Plan, 5-pts worse than previously.

Just how striking a downturn it is can be seen in the following chart, which shows the last four years of corporate surveys. Note that in the current survey (Mar '08) the percentage projecting Below Plan sales is higher than the percentage projecting Above Plan sales.

You have to go all the way back to 2002 to find a downturn of this magnitude in a ChangeWave corporate survey. Importantly, these results echo earlier ChangeWave findings pointing to a downturn in both corporate IT purchasing and consumer spending.

But there's more:

Capital Spending Has Gone Negative: In a further sign of deteriorating business conditions, respondents project negative capital spending going forward. In other words, more project a decrease in their company's 2nd Quarter capital budget (23%) than an increase (11%).

That's 11 points worse than previously and the biggest drop ever recorded in a ChangeWave survey. And there's no immediate relief on the horizon.

Rather, there's reduced sales visibility going forward:

2nd Quarter Visibility: Sales pipeline projections for 2nd Quarter 2008 show just 22% of respondents saying their company will come in Above Plan - 4-pts less than the previous quarter. At the same time, 20% report they'll come in Below Plan - 4-pts worse than previously.

But the picture gets even uglier. We also asked respondents to rate the current willingness of their existing customers to spend money on their company's products and services. Only 42% report that their existing customers have a Green Light to spend (i.e., "spending is normal") - 12-pts less than the previous quarter.

At the same time, 50% say 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) -an enormous 11-pt jump from previously.

In another bearish sign, 13% report their company is experiencing an increase in cancelled orders - 2-pts higher than previously and the worst reading in recent years in a ChangeWave survey.

To top it off, the U.S. credit crunch is continuing to negatively impact businesses. A total of 15% say it's now harder for their company to borrow money than it was just 90 days ago. Only 1% say it's easier to borrow.

An Ailing Economy

The current survey results provide clear and unambiguous evidence of an ailing economy, led by a downturn in 1st Quarter sales, negative capital spending, reduced 2nd Quarter visibility, and an increase in canceled orders.

Further negative indicators include a downturn in customer willingness to spend and ... well ... you know ... you already have the picture.

It's a U.S. economy in recession.


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