Sales Up, Jobs Flat – World’s Executives Confident But Cautious

Our business barometer has passed the ’50′ mark for the first time since we began the survey last year. With the needle pointing at 51, the world’s business decision-makers are optimistic about a global recovery but still more cautious than some recent data suggest.

What makes this optimism interesting is that their views are based not on ‘gut feeling’ about the economy, but on what heads of sales, supply chain, and HR are telling them. In particular, executives expect to invest more in capital expenditure this year than they previously thought and are bullish about consumer confidence; this means they see a boost to both B2B and B2C markets.

The underlying data shows executives are still uncertain about what form the recovery will take however, and their outlook on hiring means they don’t see unemployment easing any time soon.

For a summary of the findings, listen to the interview with Mike Griffin, our chief research officer, on Bloomberg Radio.

The Big Indicators — Growth, Costs, and Consumer Confidence — All Expected to Rise

Our business barometer shows that 70% percent of executives expect their firms’ revenues to increase in the next year, and a fairly large 53% of them expect growth in excess of 5%.

Unsurprisingly, 64% of executives expect greater cost pressure in the next 12 months as well; however, most of them (63%) expect only 1-4% increase in costs. This is due to a widely anticipated rise in the prices of energy and other commodities, as well as a 1-4% rise in labor costs. Fewer executives expect an increase in hiring, but it’s not all bad HR news: employee engagement is expected to rise, and ‘regretted turnover’ (loss of staff that you don’t want to leave) to fall.

Despite their pessimistic outlook on employment, executives are more confident about consumer confidence: 60% now expect consumer confidence (and potentially spending) to improve over the next twelve months (compared to 51% in Q1).

Breakdown by Function

Sales Indicators: Sales executives expect sales to rise, and sustainably so. They predict sales to existing customers to outpace sales to new customers, and also predict the majority of those sales will be absorbed by the U.S. and Asian economies.

Finance Indicators: New products, an increase in R&D spend and capital expenditures (CAPEX) will follow sales upward. Finance executives’ positive sentiment has strengthened considerably since the first quarter: 55% now expect capital expenditures (CAPEX) to rise (compared to 48% in Q1), with the greatest increase taking place in IT.

CAPEX will also include facilities and manufacturing equipment. This trend may reflect the need tor a more substantial overhaul of companies’ production capacity as the economy adapts to structural changes. Finance executives also anticipate an increase in the number of M&A deals and the size of R&D budgets. As growth improves, they also expect a small increase in G&A costs.

Supply Chain and Operations Indicators: The Supply Chain and Operations Barometer retreated in Q2 from a somewhat positive reading to a cautiously neutral position. While two-thirds of supply chain and operations executives now expect a boost from rising new orders and the introduction of new products, their optimism is tempered by rising core input prices. Further, 51% expect higher supply chain disruption risk (compared to 37% in Q1).

Marketing Indicators: Marketing executives’ outlook has improved from somewhat neutral to cautiously optimistic. Executives’ budgets and staff are expected to be stable in the next twelve months and their outlook for customer loyalty has improved.

Human Resources Indicators: The HR Barometer showed no improvement from the last survey; it remained at 40, indicating a somewhat negative sentiment. More than two-thirds of HR executives expect a moderate increase in average labor costs (from 1-4%). Fifty-two percent expect average health benefits to increase by 1-9%, while 21% expect an increase in excess of 10% . That said, executives expect higher employee engagement and lower unwanted turnover.

IT Indicators: The IT Barometer has deteriorated since the last survey, but overall remained positive (it now stands at a somewhat optimistic 57, compared to 63 in Q1). A large minority of IT executives expect too see greater spending on software (45%) and hardware (43%).


Click here to view the full Q2-2010 Business Barometer Report