Business outlook report April 2009

US-based industrial manufacturing executives about their current business performance, the state of the economy, and their expectations for business growth over the next 12 months. We then compared their responses with the prior quarter 9s results to see how the panel 9s 12-month outlook has changed. The final step was to compare their views with a wider panel to show how the industry differs from the broader population.<br><br> Overall, US-based industrial manufacturers project more stability, if not improvement, in early 2010. Looking at the next 12 months, they project slightly negative revenue growth overall, but more expect positive rather than negative growth, a reversal from the prior quarter. Demand and decreasing profitability are overwhelming concerns, and the majority remain pessimistic about the US and world economies over the next 12 months.<br><br> International sales among those marketing abroad have slowed, but the pace of layoffs may be lessening. Key findings: " Forecast hints of an upturn. Senior executives of US- based industrial manufacturers project an average minus 0.7 percent growth over the next 12 months.<br><br> Although negative overall, the number of businesses projecting positive revenue has increased from the prior quarter. Calendar year 2009 looks to be a rough year for these businesses, with own-company revenue growth projections averaging minus 9.1 percent. Only 13 percent expect positive revenue growth in 2009, versus 64 percent negative growth.<br><br> " International sales lose some resilience. International sales turned increasingly negative in first quarter 2009 for those marketing abroad: up for 19 percent but down for 60 percent. The remaining 21 percent said sales were about the same.<br><br> However, anticipated contributions to total revenue over the next 12 months remained at 36 percent, off only 1 percentage point from the prior quarter and in line with a year ago. " Economic outlook shifts slightly. Pessimism remains even toward the US and world economies over the next 12 months, with 55 percent pessimistic toward the US economy and 58 percent pessimistic toward the world economy.<br><br> However, both dipped from survey highs set in the prior quarter. On the positive side, 16 percent are optimistic about the US economy (up 11 points), and 12 percent are optimistic about the world economy (up 8 points). The remainder are uncertain.<br><br> " Weak demand weighs on minds. Among panelists, concern about lack of demand is the overwhelming potential barrier to growth over the next 12 months, cited by 95 percent of respondents. Concern about decreasing profitability follows, cited by 69 percent.<br><br> " Margins tighten. Gross margins were up for only 15 percent but down for 47 percent 3a net 32 percent with lower margins, reflecting greater margin pressures. Notably lower prices helped break the yearlong cost-price climb.<br><br> Only 13 percent reported increased costs, while 49 percent reported decreases 3a net of 36 percent reporting decreased costs. Similarly, only 11 percent raised their prices, and 34 percent lowered them 3a net of 23 percent decreasing prices. " Investments, M&A activity plummet.<br><br> Plans for major new investments of capital over the next 12 months sank from 33 percent last quarter to 24 percent. Projected M&A activity over the next 12 months also plunged, from 32 percent to 15 percent. " Pace of workforce layoffs slows.<br><br> Although workforce layoffs are planned over the next 12 months (42 percent net reducing), the pace of reductions may be slowing. Composite new hiring plans are expected to be off on average minus 1.8 percent 3below the minus 3.2 percent and minus 4.0 percent of the prior two quarters. Only 10 percent plan net new hiring, and 48 percent expect their workforces to stay about the same size.<br><br> A quarter-over-quarter comparison of key indicators shows the business outlook for the next 12 months and how the views of the panel have changed each quarter (see chart 1.1). The pages that follow provide a detailed look at each question for the past five quarterly surveys. Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 4 Business outlook, next 12 months among industrial manufacturers 2008 2009 Change Page 1Q 908 2Q 908 3Q 908 4Q 908 1Q 909 4Q 908 - 1Q 909 Optimistic about US economy 12% 8% 6% 5% 16% 7 Optimistic about world economy 38% 37% 7% 4% 12% 9 Expect positive revenue growth 70% 68% 54% 25% 34% 19 Average growth rate expected 4.6% 3.7% 2.8% -2.4% -0.7% 19 Planning major new investments 52% 50% 34% 33% 24% 23 New investments as a % of sales 5.6% 5.4% 6.1% 8.3% 5.4% 23 Planning to hire 32% 32% 12% 10% 10% = 21 New workers as a % of workforce (net) -0.3% +0.1% -4.0% -3.2% -1.8% 21 Expected barriers to growth " Lack of demand 62% 60% 82% 85% 95% 25 " Decreasing profitability 48% 50% 64% 62% 69% 25 " Legislative/ Regulatory pressures 35% 38% 36% 37% 44% 25 " Capital constraints 32% 23% 26% 37% 44% 25 " Taxation policies 18% 25% 22% 30% 40% 25 " Competition from foreign markets 25% 37% 34% 25% 39% 25 " Monetary exchange rate 57% 40% 36% 38% 37% = 25 " Oil/energy prices 68% 78% 62% 25% 21% 25 " Higher interest rates 12% 17% 30% 13% 15% = 25 " Pressure for increased wages 30% 50% 20% 10% 7% 25 " Lack of qualified workers 23% 18% 26% 3% 7% 25 Key indicators for the business outlook Chart 1.1 Key indicators for the business outlook A quarter-over-quarter comparison of the key indicators shows how the 12-month outlook has changed each quarter.<br><br> The change column indicates the movement of opinion from the past two quarters. Economic views Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 6 20 20 8 5 75 77 90 98 93 2 7 3 2 0 0 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 Growing Unchanged Declining View of the US economy, this quarter Which best describes your view of the US economy this quarter? For the third straight quarter, an overwhelming majority of industrial manufacturing executives interviewed 393 percent 3believe the US economy declined, down 5 points from last quarter's 98 percent.<br><br> None of them believes it grew, and only 7 percent believe it was unchanged. Economic views Note: In 1Q 2009 Industrial manufacturers n=62, All respondents, n=100 All respondents Industrial manufacturers 26 28 10 92 96 85 65 70 4 8 4 7 0 0 5 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 Growing Unchanged Declining Chart 2.1 View of the US economy, this quarter Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 7 View of the US economy, next 12 months Looking at the next 12 months, how do you feel about the prospects for the US economy? Looking ahead, 16 percent of respondents express optimism about the 12-month outlook for the US economy, ahead of the prior quarter 9s 5 percent and last year 9s 12 percent.<br><br> Fifty-five percent remain pessimistic, and 29 percent are uncertain. Economic views 36 40 28 25 29 12 8 6 5 16 52 52 66 70 55 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 Optimistic Uncertain Pessimistic All respondents Industrial manufacturers 39 46 30 26 30 18 14 8 9 19 51 65 62 40 43 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 Optimistic Uncertain Pessimistic Chart 2.2 View of the US economy, next 12 months Note: In 1Q 2009 Industrial manufacturers n=62, All respondents, n=100 Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 8 View of the world economy, this quarter Which best describes your view of the world economy this quarter? (international marketers only) Virtually all of those marketing abroad 98 percent believe the world economy declined in the fourth quarter, same as the prior quarter.<br><br> 37 28 7 38 37 13 98 98 80 35 25 0 0 2 2 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 Growing Unchanged Declining All respondents Economic views Industrial manufacturers 40 37 9 34 32 13 96 96 78 31 26 2 3 2 1 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 Growing Unchanged Declining Chart 2.3 View of the world economy, this quarter Note: In 1Q 2009 those marketing abroad, Industrial manufacturers n=60, All respondents, n=90 Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 9 View of the world economy, next 12 months Looking at the next 12 months, how do you feel about the prospects for the world economy? (international marketers only) Of US-based industrial manufacturers who market abroad, 12 percent are optimistic about the prospects for the world economy over the next 12 months up from 4 percent last quarter. Thirty percent are uncertain, and 58 percent said they are pessimistic.<br><br> Economic views 41 36 30 27 30 38 37 7 21 27 63 69 58 4 12 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 Optimistic Uncertain Pessimistic All respondents Industrial manufacturers 44 43 32 31 32 41 33 8 7 14 54 62 60 24 15 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 Optimistic Uncertain Pessimistic Chart 2.4 View of the world economy, next 12 months Note: In 1Q 2009 those marketing abroad, Industrial manufacturers n=60, All respondents, n=90 Company performance Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 11 Company revenue growth, calendar year What is your company 9s estimated revenue growth rate for the calendar year? In the first quarter, only 13 percent of US-based industrial manufacturers expected positive growth in 2009. Of those, 5 percent forecast double-digit growth, and 8 percent forecast single-digit growth.<br><br> Overall, the composite average growth estimate has dropped sharply to minus 9.1 percent from plus 1.3 percent in the prior quarter and plus 3 percent last year. Sixty-four percent project negative revenue growth in 2009. 28 18 17 12 18 21 53 45 36 30 12 20 18 12 5 5 5 6 3 2 64 37 13 12 8 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 10% or greater Between 0 and 10% Zero Negative Not reported All respondents Mean 3.0% 3.4% 2.5% 1.3% -9.1% 20 16 13 14 18 23 56 51 43 35 14 21 18 15 7 3 3 5 2 2 51 30 12 11 17 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 10% or greater Between 0 and 10% Zero Negative Not reported Mean 3.2% 4.0% 3.8% 1.6% -6.1% Company performance Industrial manufacturers Chart 3.1 Company revenue growth, calendar year Note: In 1Q 2009 Industrial manufacturers n=62, All respondents, n=100 Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 12 Industry growth, calendar year What is your industry 9s estimated growth rate for the calendar year?<br><br> Industry growth for the calendar year is expected to wane to an average minus 12.5 percent, well below last quarter 9s minus 3.8 percent. Seventy-one percent expect negative industry growth in 2009. US-based industrial manufacturers interviewed anticipate an average growth rate of minus 9.1 percent for their companies in 2009, only slightly better than the estimated negative growth rate for their industry.<br><br> Company performance 36 15 25 18 20 18 53 45 28 23 6 2 6 1 6 71 47 18 22 5 4 10 12 9 0 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 10% or greater Between 0 and 10% Zero Negative Not reported All respondents Mean 1.3% 1.9% -1.9% -3.8% -12.5% 30 15 19 18 22 22 56 54 40 31 5 9 9 7 4 3 3 2 4 20 16 37 57 15 2 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 10% or greater Between 0 and 10% Zero Negative Not reported Mean 1.3% 2.1% -0.6% -2.7% -8.9% Industrial manufacturers Chart 3.2 Industry growth, calendar year Note: In 1Q 2009 Industrial manufacturers n=62, All respondents, n=100 Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 13 International sales Are international sales up, down, or the same compared with three months ago? International markets turned negative for the second quarter in a row for US-based industrial manufacturers that sell abroad. In the first quarter, only 19 percent of international marketers increased sales abroad, while a survey high of 60 percent reported a decrease, well above the 44 percent who reported decreases in the prior quarter.<br><br> Company performance 37 30 42 28 21 63 66 45 28 19 60 44 13 4 0 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 Up Same Down All respondents Industrial manufacturers 42 38 44 33 28 58 57 44 32 24 48 35 12 5 0 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 Up Same Down Chart 3.3 International sales Note: In 1Q 2009 those marketing abroad, Industrial manufacturers n=60, All respondents, n=90 Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 14 30 40 39 42 39 38 39 28 21 32 21 19 40 30 42 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 Up Same Down Changes in gross margins Are gross margins up, down, or the same compared with three months ago? In first quarter 2009, gross margins were higher for 15 percent of respondents but lower for 47 percent, a net minus 32 percent 3continuing the downward pattern seen in the prior quarterly survey. Company performance 43 42 48 47 42 39 32 35 23 18 26 17 15 35 38 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 Up Same Down All respondents Net -12% -25% -16% -31% -32% Industrial manufacturers Net -2% -19% +2% -19% -20% Chart 3.4 Changes in gross margins Note: In 1Q 2009 Industrial manufacturers n=62, All respondents, n=100 Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 15 Changes in costs and prices Are costs up, down, or the same compared with three months ago?<br><br> Prices? In the first quarter, a pattern of lower costs and lower prices continued. Only 13 percent of US-based industrial manufacturers reported higher costs, and 49 percent reported lower costs a net minus 36 percent with lower costs.<br><br> As a result, only 11 percent raised prices while 34 percent lowered them, a net minus 23 percent with lower prices. Company performance 32 13 20 43 38 63 80 66 25 13 5 7 14 32 49 0% 20% 40% 60% 80% 100% Up Same Down 35 32 28 52 55 57 55 54 15 8 13 18 33 34 11 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 Up Same Down Industrial manufacturers Costs Prices +58% +73% +52% -7% -36% +49% +42% +36% -18% -23% 36 23 26 47 42 56 71 59 27 14 8 6 15 26 44 0% 20% 40% 60% 80% 100% Up Same Down 43 36 33 55 54 50 52 53 21 18 7 12 14 24 28 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 Up Same Down All respondents Costs Prices +48% +65% +44% +1% -30% +43% +40% +39% -3% -10% Chart 3.5 Changes in costs and prices Note: In 1Q 2009 Industrial manufacturers n=62, All respondents, n=100 Net Net Net Net Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 16 Inventory movement Are finished inventories as a percent of sales up, down, or the same compared with three months ago? (product companies only) Many more US-based industrial manufacturers reported lower inventories (44 percent) than higher inventories (20 percent), for a net 24 percent with lower inventories, compared with a net 7 percent that reported lower inventories last quarter.<br><br> Company performance 26 33 48 42 58 40 43 32 24 34 24 20 18 26 32 0% 20% 40% 60% 80% 100% 1Q '08 2Q '08 3Q '08 4Q '08 1Q '09 Up Same Down 18 24 30 44 44 56 40 47 33 26 36 23 20 23 36 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q '09 Up Same Down All respondents Industrial manufacturers Chart 3.6 Inventory movement Net Net +10% +8% +12% -7% -24% +6% +6% +8% -9% -28% Note: In 1Q 2009 Industrial manufacturers n=62, All respondents, n=100 Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 17 22 36 43 36 42 57 48 55 44 36 1 0 0 4 1 8 14 5 6 42 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q 909 Near full About 3/4 capacity About 1/2 capacity Not reported Level of operating capacity What is your organization 9s current operating capacity? Operating capacity is an estimate of the current level of permanent staffing compared with what is needed for full-capacity output. In first quarter 2009, the average level of operating capacity for US-based industrial manufacturers dropped for the fourth straight quarter to an estimated 73.9 percent.<br><br> A year ago, operating capacity was at 84 percent. This quarter, only 27 percent of industrial manufacturers claimed to be at or near capacity. Company performance 6 12 22 31 42 47 42 45 50 42 44 33 27 2 5 0 0 2 6 42 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q '08 4Q '08 1Q 909 Near full About 3/4 capacity About 1/2 capacity Not reported All respondents Mean 84.0% 81.8% 80.2% 76.8% 73.9% Mean 85.7% 83.6% 83.8% 79.7% 77.7% Industrial manufacturers Chart 3.7 Level of operating capacity Note: In 1Q 2009 Industrial manufacturers n=62, All respondents, n=100 Business outlook, next 12 months Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 19 15 16 36 28 56 54 46 26 18 20 15 7 10 6 6 7 6 2 16 27 25 5 5 15 33 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q 908 4Q '08 1Q '09 10% or greater Between 0 and 10% Zero Negative Not reported Revenue growth, next 12 months What is your organization 9s estimated revenue growth rate for the next 12 months?<br><br> Respondents anticipate a positive turn in early 2010, projecting a nearly flat minus 0.7 percent average growth rate better than the prior quarter 9s projected minus 2.4 percent but below last year 9s projected 4.6 percent. Looking ahead at the next 12 months, more businesses expect positive growth than negative growth 34 percent versus 27 percent. Of those planning for positive revenue growth, 8 percent forecast double-digit growth, and 26 percent forecast single-digit growth.<br><br> Business outlook, next 12 months 15 19 16 34 34 57 50 38 22 13 18 16 5 8 8 8 12 3 5 33 27 22 26 3 8 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q 908 4Q '08 1Q '09 10% or greater Between 0 and 10% Zero Negative Not reported All respondents Mean 4.6% 3.7% 2.8% -2.4% -0.7% Mean 4.8% 4.8% 3.8% -0.6% -0.9% Industrial manufacturers Chart 4.1 Revenue growth, next 12 months Note: In 1Q 2009 Industrial manufacturers n=62, All respondents, n=100 Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 20 International sales, next 12 months What percent of your business 9s total revenue over the next 12 months do you expect to be derived from international sales? Of those selling abroad, the projected contribution of international sales to total revenue is 36 percent over the next 12 months, slightly off the prior quarter 9s 37 percent but in line with last year 9s 35 percent. International marketers still expect to draw a consistent share of their now-declining revenue from world markets.<br><br> All respondents 36 37 32 38 35 0% 10% 20% 30% 40% 1Q 908 2Q 908 3Q 908 4Q '08 1Q '09 Industrial manufacturers Business outlook, next 12 months 29 29 26 31 30 0% 10% 20% 30% 40% 1Q 908 2Q 908 3Q 908 4Q '08 1Q '09 Chart 4.2 International sales, next 12 months Note: In 1Q 2009 those marketing abroad, Industrial manufacturers n=60, All respondents, n=90 Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 21 Percent planning to hire Do you plan to add or reduce the number of full-time equivalent employees over the next 12 months? In line with fourth quarter 2008, only 10 percent of US- based industrial manufacturers interviewed plan to add employees to their workforces over the next 12 months, but 42 percent plan to reduce the number of full-time equivalent employees. The net workforce projection is minus 1.8 percent, better than last quarter's minus 3.2 percent net projection.<br><br> A year ago, it was a minus 0.3 percent. 53 51 48 55 48 32 32 12 10 42 35 40 15 17 10 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q 908 4Q 908 1Q '09 Add Same Reduce Industrial manufacturers -0.3% +0.1% -4.0% -3.2% -1.8% All respondents 49 44 48 54 49 38 40 26 20 37 26 26 13 16 14 0% 20% 40% 60% 80% 100% 1Q 908 2Q 908 3Q 908 4Q 908 1Q '09 Add Same Reduce Business outlook, next 12 months -0.1% +0.5% -0.8% -3.0% -0.4% Net Net Chart 4.3 Percent planning to hire Note: In 1Q 2009 Industrial manufacturers n=62, All respondents, n=100 Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 22 Percent planning to hire by type of employee Industrial manufacturers 1Q 908 2Q 908 3Q 908 4Q 908 1Q 909 Planning to hire (net) 32% 32% 12% 10% 10% " Professionals/technicians 23% 27% 6% 5% 7% " Sales/marketing 12% 15% 4% 2% 3% " Production workers 13% 10% 2% 2% 2% " Skilled labor 23% 8% 4% 3% --- " White collar support 13% 10% 2% 3% --- What types of employees do you plan to add or reduce over the next 12 months? Only 10 percent of respondents plan to hire within the next 12 months, same as the last quarter but well below last year 9s 32 percent.<br><br> All respondents 1Q 908 2Q 908 3Q 908 4Q 908 1Q 909 Planning to hire (net) 38% 40% 26% 20% 14% " Professionals/technicians 26% 30% 18% 11% 10% " Sales/marketing 14% 18% 11% 6% 5% " Production workers 13% 11% 6% 6% 4% " Skilled labor 18% 10% 8% 5% 3% " White collar support 17% 15% 10% 8% 2% Business outlook, next 12 months Chart 4.4 Percent planning to hire by type of employee Note: In 1Q 2009 Industrial manufacturers n=62, All respondents, n=100 Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 23 51 48 40 31 28 0% 10% 20% 30% 40% 50% 60% 1Q 908 2Q 908 3Q 908 4Q 908 1Q '09 52 50 34 33 24 0% 10% 20% 30% 40% 50% 60% 1Q 908 2Q 908 3Q 908 4Q 908 1Q '09 Percent planning major new investments of capital Are you actively planning any major new investments of capital over the next 12 months? If so, what percent of total sales do you expect to invest? Only 24 percent of US-based industrial manufacturers interviewed plan major new investments of capital during the next 12 months, below last quarter 9s 33 percent and last year 9s 52 percent.<br><br> The mean investment as a percentage of total sales moved lower to 5.4 percent, in line with 5.6 percent a year ago. 5.6% 5.4% 6.1% 8.3% 5.4% Business outlook, next 12 months Mean investment as a % of total sales All respondents Industrial manufacturers 5.9% 7.7% 7.9% 6.8% 5.6% Chart 4.5 Percent planning major new investments of capital Mean investment as a % of total sales Note: In 1Q 2009 Industrial manufacturers n=62, All respondents, n=100 Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 24 Percent planning to increase operational spending Industrial manufacturers 1Q 908 2Q 908 3Q 908 4Q 908 1Q 909 Percent planning to increase spending (net) 75% 77% 64% 57% 53% " New product or service introduction 38% 48% 26% 23% 29% " Research and development 35% 40% 24% 15% 15% " Geographic expansion 27% 35% 20% 30% 13% " Information technology 40% 38% 24% 28% 13% " Facilities expansion 25% 27% 20% 18% 11% " Business acquisition 33% 30% 26% 18% 8% " Marketing & sales promotion 23% 13% 14% 7% 5% " Internet commerce 15% 17% 12% 3% 3% " Advertising 15% 12% 12% 2% 3% Over the next 12 months, where do you expect to increase spending? Looking at the next 12 months, the majority of respondents plan to increase operational spending (53 percent, down 4 points).<br><br> Among increased expenditures, new product or serve introductions lead the way (29 percent, up 6 points). All respondents 1Q 908 2Q 908 3Q 908 4Q 908 1Q 909 Percent planning to increase spending (net) 84% 78% 69% 58% 58% " New product or service introduction 36% 48% 30% 21% 33% " Research and development 27% 29% 17% 15% 14% " Geographic expansion 27% 30% 23% 28% 16% " Information technology 46% 43% 29% 33% 18% " Facilities expansion 29% 29% 24% 20% 12% " Business acquisition 33% 30% 25% 22% 11% " Marketing & sales promotion 22% 16% 18% 14% 13% " Internet commerce 17% 18% 13% 7% 7% " Advertising 14% 12% 15% 10% 10% Business outlook, next 12 months Chart 4.6 Percent planning to increase operational spending Note: In 1Q 2009 Industrial manufacturers n=62, All respondents, n=100 Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 25 Expected barriers to business growth Over the next 12 months, will any of the following represent barriers to business growth? Concern about lack of demand is the chief barrier concerning respondents, up 10 points to a survey high of 95 percent.<br><br> Also up is anxiety about decreasing profitability, rising 7 points to 69 percent. Business outlook, next 12 months Chart 4.7 Expected barriers to business growth Note: In 1Q 2009 Industrial manufacturers n=62, All respondents, n=100 23 30 12 68 57 25 18 32 48 62 18 50 17 78 40 37 25 23 38 50 60 26 20 30 62 36 34 22 26 36 64 82 3 10 13 38 25 30 37 37 62 85 7 15 21 39 44 44 69 95 35 25 7 37 40 All respondents Industrial manufacturers 25 29 16 58 46 22 17 33 42 65 20 45 20 66 38 27 23 28 38 45 53 20 21 35 52 37 21 24 27 38 45 75 6 11 17 40 22 32 36 39 58 76 8 15 21 28 45 48 63 85 36 26 6 33 43 1Q 09 4Q 08 3Q 08 2Q 08 1Q 08 Lack of demand Decreasing profitability Oil/energy prices Higher interest rates Pressure for increased wages Lack of qualified workers Legislative/ regulatory pressures Capital constraints Taxation policies Competition from foreign markets Monetary exchange rate Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 26 Plans for M&A and other business initiatives Over the next 12 months, do you expect to participate in any of the following new business initiatives? Plans for M&A activity during the next 12 months among US-based industrial manufacturers dropped sharply to 15 percent in the first quarter from 32 percent last quarter.<br><br> Plans to expand to new markets abroad are also weaker, dropping to 18 percent from 32 percent. On the positive side, new strategic alliances remain high, at 27 percent. Business outlook, next 12 months Chart 4.8 Plans for M&A and other business initiatives Industrial manufacturers 1Q 908 2Q 908 3Q 908 4Q 908 1Q 909 New business initiatives (net) 60% 63% 70% 60% 55% " New strategic alliance 30% 23% 32% 30% 27% " New joint venture 30% 27% 28% 25% 20% " Close/reduce facilities abroad 10% 5% 10% 13% 19% " Expand to new markets abroad 30% 30% 32% 32% 18% " Reduce activity in markets abroad 10% 10% 16% 15% 16% " M&A activity (net) 37% 40% 32% 32% 15% - Purchase another business 33% 33% 28% 25% 10% - Sale part/all own business 7% 10% 2% 8% 7% - Equity carve-out/spin-off 8% 8% 4% 3% 2% " New facilities abroad 25% 17% 20% 20% 13% All respondents 1Q 908 2Q 908 3Q 908 4Q 908 1Q 909 New business initiatives (net) 60% 62% 63% 60% 58% " New strategic alliance 32% 23% 30% 27% 25% " New joint venture 27% 29% 26% 25% 20% " Close/reduce facilities abroad 5% 3% 5% 9% 16% " Expand to new markets abroad 32% 29% 26% 30% 18% " Reduce activity in markets abroad 10% 8% 12% 12% 15% " M&A activity (net) 40% 40% 32% 33% 21% - Purchase another business 36% 31% 27% 27% 16% - Sale part/all own business 7% 11% 5% 9% 4% - Equity carve-out/spin-off 9% 8% 5% 5% 3% " New facilities abroad 17% 12% 13% 16% 13% Note: In 1Q 2009 Industrial manufacturers n=62, All respondents, n=100 Manufacturing Barometer: Business outlook report PricewaterhouseCoopers 27 Survey demographics and research methodology Demographics Who Senior executives of US-based, industrial manufacturing organizations Interview dates January 17, 2009 to April 14, 2009 Industrial manufacturers (62) All respondents (100) Average number of employees 7,609 8,645 Average business unit revenue $4.68 billion $3.74 billion Average enterprise revenue $9.83 billion $8.93 billion Market capitalization $6.58 billion $5.95 billion Industry sectors Products 100% Manufacturing 100% Trade/Distribution --- All other --- Services --- Products 82% Manufacturing 75% Trade/Distribution 3% All other 4% Services 18% Methodology PricewaterhouseCoopers' Manufacturing Barometer is a quarterly telephone survey conducted by the independent research firm BSI Global Research Inc.<br><br> Our regular survey panel consists of senior executives from a geographically balanced sample of large companies in the United States. Ninety-five percent of the panelists hold titles such as president, CEO, CFO, VP of finance, treasurer, controller, internal audit director or other related title. PwC www.pwc.com/manufacturing About the research: The Manufacturing Barometer is one in a series of quarterly business outlook surveys from PricewaterhouseCoopers.<br><br> The survey provides a view on the 12-month outlook for revenue growth, new investments, new hiring plans, emerging business barriers and more. In addition to the business outlook, we hear from our panelists about special issues they face as the business climate changes. Results of the quarterly business outlook surveys and special issue surveys are available from www.barometersurveys.com.<br><br> Visit: www.barometersurveys.com Mobile: wap.barometersurveys.com Email: barometer.surveys@us.pwc.com PricewaterhouseCoopers has exercised reasonable professional care and diligence in the collection, processing, and reporting of this information. However, the data used is from third-party sources and PricewaterhouseCoopers has not independently verified, validated, or audited the data. PricewaterhouseC oopers makes no representations or warranties with respect to the accuracy of the information, nor whether it is suitable for the purposes to which it is put by users.<br><br> Price waterhouseCoopers shall not be liable to any user of this report or to any other person or entity for any inaccuracy of this information or any errors or omissions in its content, regar dless of the cause of such inaccuracy, error or omission. Furthermore, in no event shall PricewaterhouseCoopers be liable for consequential, incidental or punitive damages to any person or entity for any matter relating to this information. © 2009 PricewaterhouseCoopers LLP.<br><br> All rights reserved. "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP or, as th e context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal e ntity. MC-NY-07-1162-A.<br><br> Industry contacts: Barry Misthal US Industrial Manufacturing Leader +1 267 330 2146 Tom Haas Sector Analyst +1 973 236 4302

less