However, the impact of the downturn in the U.S. economy continued to be felt by consumer products companies' senior executives in the first quarter of 2008. More than half (54 percent) of respondents are pessimistic about the U.S. economy’s prospects during the next 12 months with only 19 percent remaining optimistic and 27 percent uncertain. Pessimism is now two-and-a-half times greater than optimism, which is a total reversal from one year ago.
“The economic downturn in the United States has affected nearly every industry, and the consumer products sector is no different,” said John Maxwell, leader of the retail and consumer industry practice at PricewaterhouseCoopers. “However, consumer products companies are optimistic that their revenue will grow in the upcoming year, signaling that things might not be as bleak as they seem.”
For the first time, optimism in the global economy faltered as the majority of consumer products executives are now uncertain about their international prospects. Nevertheless, the projected contribution from international sales among those selling abroad rose six points to 25 percent. Also, in Q1 2008, the majority (56 percent) of those selling abroad reported an increase in sales and less than one percent reported a decline.
Price-flexibility has allowed consumer products businesses to keep up with rising costs. While costs were higher for most (74 percent, up 12 points from last quarter), price increases were also high (59 percent, up 11 points).
Worries about oil/energy prices remained the leading barrier to growth, jumping seven points from the prior quarter to 79 percent, as crude oil prices continue to reach record levels. Concern about oil/energy prices as a barrier is much higher among consumer products companies than among the all-industry consensus where only 62 percent were concerned. Consumer products executives also cited lack of demand, the monetary exchange rate (the falling U.S. dollar), and increasing concern about profitability as major barriers to growth during the next 12 months.
"Consumer products companies are facing cost increases for raw materials and price constraints for product sales given the current state of the economy," noted Lisa Feigen Dugal, North American retail and consumer industry advisory leader for PricewaterhouseCoopers. "This directly affects their profitability, and we will begin to see it have an impact on their international prospects if the U.S. dollar continues to weaken."
Compared to last quarter, slightly more consumer products businesses are now planning major new investments of capital during the next 12 months. Forty-five percent are planning major new investments of capital, up 2 points from 43 percent last quarter. Their mean investment, however, dropped to 5.8 percent versus 7.2 percent of total sales last quarter. The all-industry consensus remained a higher 51 percent with plans to invest at a similar 5.9 percent of total sales.
While only 22 percent of consumer products businesses are planning to add to their workforce, the average workforce size is now projected slightly upward at plus 2.5 percent in the absence of major layoffs.
Special Issues Affecting Consumer Products Companies: Pressure to Go Green
Each quarter, the Barometer spotlights an issue that is currently affecting U.S. consumer products companies. When asked about whether they are making product and process changes to address consumers' desire for green products, half of consumer products executives reported that they are coming under increased pressure to do so.
Among those expecting to increase emphasis (48%) on green products during the next twelve months, 96 percent believe it will result in improved consumer perception of their companies, 82 percent believe it will increase emphasis of a product's green content in marketing campaigns, 75 percent believe it will result in greater innovation towards new green-oriented products, 61 believe it will increase sales, and 46 percent expect it will influence the reformulation of current products.
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For more information about Barometer surveys, including recent economic trend data and topical issues, visit www.barometersurveys.com.
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