Is Corporate Spending Headed for a Slowdown?

There's no denying that numerous stock market mavens and economists are nervous about the prospects of continued growth for the U.S. economy. These days, everyone seems to be looking for a signal that we've peaked in terms of growth or have even started cooling down.

Here at ChangeWave, we're no different when it comes to wanting to know what's happening now and what will happen to the economy and individual stocks in the future.

But there's one important way in which we differ from the tea-leaf readers and market analysts. We've got our 10,000-plus strong ChangeWave Alliance.

To understand what's really going on in the economy, we turned to the results of our latest Alliance quarterly sales survey, conducted in June 2007. A total of 3,355 Alliance members participated.

As the following table shows, we had a slight improvement in corporate sales growth for the second quarter 2007 -- evidenced by the more than 31% of respondents projecting their company sales would come in above plan.

We also looked at the sales pipeline going forward and found 33% of respondents saying their sales projections are above plan for the third quarter -- unchanged from our previous survey. While the percentage didn't grow, it could certainly be characterized as stable.

The Achilles Heel -- A Slowdown in Business Spending

The Achilles heel of this growth picture is immediately apparent in the chart below. For the second-consecutive survey we picked up a major downturn in capital spending growth going forward. Only 16% of respondents projected an increase in their overall capital budget for the third quarter -- three points less than previously.

More Highlights

Our latest quarterly survey also provided insight into other key pieces of the economic puzzle -- bringing the overall corporate picture into much sharper focus. Here are additional highlights:

Strengthening Labor Market: 26% of respondents said there were more new hires in their company in the second quarter versus the first quarter -- up one point from the previous survey.

Uptick in Inflationary Pressures: Alliance members' companies tend to see downward price pressures on their products because many are in the IT sector and related markets. The current survey showed hints of inflationary pressures compared to the previous quarter, with 17% of respondents reporting that prices were rising for their company's products -- up one point from the last quarter. Only 14% said prices were falling.

Individual Sector Results: The computer hardware and networking sector showed quarter-over-quarter improvement. Thirty-eight percent of industry respondents said their company sales were coming in above plan for the second quarter -- a seven-point increase from the previous survey.

In another positive development, there were some signs that semiconductor manufacturers may finally be bottoming out, though their semi-equipment brethren are still going through very serious pains.

Stay tuned. We'll have more details on both sectors in an upcoming ChangeWave Alliance article. For now, the bottom line is that we see moderate growth going forward, which is good news for the market, but we're keeping a close eye on that Achilles heel.

Paul Carton co-wrote this article.

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This article summarizes the results of a recent ChangeWave Alliance survey. The Alliance is a research network of 10,000 business, technology and medical professionals who spend their everyday lives working on the front line of technological change. For more info on the ChangeWave Alliance, or if you are interested in joining, please click here.

Comments

[john gaats]

Good. I will read your future articles. Be sure to attract more members.