Changewave Research: 1Q/2Q 2012 Corporate Quarterly Survey

ChangeWave Research: 1Q/2Q 2012 Corporate Quarterly Survey

ChangeWave Research Report:

1Q/2Q2012 Corporate Quarterly Survey

Moderate Improvement Continues for U.S. Economy – Inflationary Pressures Escalate

Paul Carton and Jean Crumrine

Overview:ChangeWave’s latest corporate quarterly survey shows the improvement first reported last quarter in U. S. economic growth is continuing at a moderate pace – led by a risein 1st Quarter sales and more new job hires. ChangeWave Research is a service of 451 Research.

The February 22-March 5 survey of 2,769 corporate respondents also shows an uptick in capital spending and a greater availability of credit for U.S. businesses. At the sector level, we’re seeing across the board improvement this quarter – with Semiconductors,Technology/Networking Hardware and Consumer Retail the top performers.

Despite this series ofencouraging signs, we’re also seeing an uptick in inflationary pressures – with energy costs a major driving factor.

U. S. Economy Continues to Improve

1st Quarter 2012 Sales: Nearly one-in-four respondents (24%) now say that their company sales will come in Above Plan for 1st Quarter 2012– 3-pts more than the previous quarter. Another 26% say their company sales will come in Below Plan – an 8-pt improvement.

Putting The Findings in Context: As the following chart shows, this is the second quarterly uptick in a row for corporate sales growth, and the rate of improvement has actually accelerated this quarter – with the net 11-pt uptick ranking as the second largest of the past seven years.

Customer Spending: We also asked respondents to rate the current willingness of their existing customers to spend money on their company’s products and services. Two-in-five (41%) now report their customers have a Green Light to spend (i.e., spending is normal) – a healthy 9-pts more than previously.

Job Market: For the first time in three quarters, we’re seeing measureable improvement in the U.S. labor market. A total of 18% report there are More new hires in their company at this point in the 1st Quarter vs. last quarter – up 2-pts since the previous survey. Only 13% report there are Less new hires – 3-pts improved.

2nd Quarter 2012 Sales Pipeline:Looking ahead, sales pipeline projections for the 2nd Quarter areshowing a strong uptick – with 28% now saying their company sales will come in Above Plan, 8-pts better than the previous survey. Only 15% report they’ll come in Below Plan – a 4-pt improvement.

The 2nd Quarter sales projections represent a net 12-pt positive change from the previous quarter – and are the second best sales visibility numbers in a ChangeWave survey in more than five years. However we note that next quarter sales projections can at times prove overly optimistic. Exactly a year ago we saw similarly bullish projections just beforethe U.S. economic growth rate began to seriously tighten.

Capital Spending:In a further positive sign, our latest survey shows an improvement in cap spending going forward.

A total of 13% of respondents project an increase in their 2nd Quarter capital budgets and just 12% project a decrease – a net 8-pt uptick from last quarter. The overall projected growth rate for cap spending is now essentially the same as it was a year ago.

Credit Crunch Moderates for U.S. Businesses: On the key issue of availability of credit for U.S. businesses we’re picking up real signs of improvement.

A total of 7% of respondents say it is now easier for their company to borrow money than it was 90 days ago – a 2-pt improvement from previously. And while 13% continue to say it’s harder to borrow money – that’s 4-pts better than previously. The improvement is occurring across companies of all sizes.

* Note: 54% of respondents report there has been No Change in their company’s ability to borrow money.

Inflationary Pressures Grow

Uptick in Price Pressures: Last quarter we reported only a slight uptick in inflationary pressures, but this quarter we’re seeing a significant increase, with 20% now reporting prices are Rising for their company’s products, up 3-pts. At the same time, the percentage reporting Falling prices declined 2-pts to 14%.

*Note that a total of 57% report their company’s prices are holding firm in the marketplace.

The rise in prices for company products is occurring across companies of all sizes, but is less prevalent among small sized companies (less than10 employees) than larger size companies.

Factors Driving the Rise in Corporate Prices: We asked respondents who reported prices are rising for their company’s products to tell us the one or two most important reasons why.

Although Higher Commodity Costs (44%; down 4-pts) still ranks as the number one reasonbehind the rise in corporate prices, there is a second factor that stands out from the rest.Higher Energy Costs (37%) has registered a huge 13-pt jump in just the past three months.

Ability of Companies to Purchase Commodities:Correspondingly, after two quarters of improvement, we’re seeing a slight tightening in the ability of companies to purchase commodities, with 19% now reporting it is harder for their company to purchase commodities than it was 90 days ago, and only 5% saying it’s easier – a net 2-pt change from previously.

Bottom Line: The moderate improvement we picked up last quarter in theU. S. economy is continuing – led by a jump in 1st Quarter corporate sales and an upswing in the jobs market. The ChangeWave survey also shows improvementon a range of other indicators,including2nd Quarter capital spending projections and the sales pipeline.

At the sector level, Semiconductors, Technology/Networking Hardware and Consumer Retail are all top performers this quarter. In a follow-up ChangeWave report we’ll provide full details on the survey results from these and other sectors.

While the overall survey findings are encouraging,they’re somewhat tempered by theuptickin the percentage of companies reporting rising prices for their company products. Higher energy costs are a major driving force behind the corporate product price increases – and it’s a factor that we’ll be keeping a close eye on in the coming months.

This notwithstanding, our latestChangeWave corporate survey findings represent one of the best overall outlooks for the economy since therecession endedand the U.S. economic recovery got underway.

Summary of Key Findings

The ChangeWave Research Networkis a group of 25,000 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.

Table of Contents

Summary of Key Findings...... 6

Key Findings...... 8

1Q 2012 Sales Results...... 8

Last 11 Years Comparison...... 8

Current Willingness of Customers to Buy Products...... 9

Hiring Trends in the 1st Quarter...... 10

1Q 2012 Hiring Trends – A Comparison...... 10

Layoff Trends in the 1st Quarter...... 11

1Q 2012 Layoff Trends – A Comparison...... 11

What’s in the Pipeline?...... 12

Overall Sales Pipeline Projections – A Comparison...... 12
Last 10 Years Comparison...... 12

Capital Spending Growth Rate...... 13

Overall 2Q Capital Budgets – A Comparison...... 13
Looking Ahead – Overall Capital Budgets Next Half...... 13

Impact of Credit Crunch...... 14

Ability of Companies to Borrow Money – A Comparison...... 14
Ability of Companies to Borrow By Company Size...... 14

Price of Products ...... 15

Price Pressures in the Current Marketplace...... 15
Factors Driving the Rise in Corporate Prices...... 16
Ability of Companies to Purchase Commodities...... 16
Companies Offering Discounts on Products/Services...... 17

Survey Methodology...... 17

Additional Findings and Highlights...... 18

1st Quarter Cancelled Orders...... 18

Product Inventories for the 1st Quarter...... 19

Backlog of Orders for the 1st Quarter...... 20

ChangeWave Research Methodology...... 21

About ChangeWave Research...... 21

About 451 Research...... 21

I. Key Findings

Introduction: ChangeWave’s latest corporate quarterly survey shows the improvement first reported last quarter in U. S. economic growth is continuing at a moderate pace – led by a risein 1st Quarter sales and more new job hires. ChangeWave Research is a service of 451 Research.

The February 22-March 5 survey of 2,769 corporate respondents also shows an uptick in capital spending and a greater availability of credit for U.S. businesses. At the sector level, we’re seeing across the board improvement this quarter – with Semiconductors, Technology/Networking Hardware and Consumer Retail the top performers.

Despite this series of encouraging signs, we’re also seeing an uptick in inflationary pressures – with energy costs a major driving factor.

U. S. Economy Continues to Improve

1st Quarter 2012 Sales: Nearly one-in-four respondents (24%) now say that their company sales will come in Above Plan for 1st Quarter 2012– 3-pts more than the previous quarter. Another 26% say their company sales will come in Below Plan – an 8-pt improvement.

Putting The Findings in Context: As the following chart shows, this is the second quarterly uptick in a row for corporate sales growth, and the rate of improvement has actually accelerated this quarter – with the net 11-pt uptick ranking as the second largest of the past seven years.

Current Willingness of Customers to Buy Products

Customer Spending: We also asked respondents to rate the current willingness of their existing customers to spend money on their company’s products and services.

Two-in-five (41%) now report their customers have a Green Light to spend (i.e., spending is normal) – a healthy 9-pts more than previously.

While 52% still 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) – that’s 10-pts improved from the previous quarter.

Hiring Trends

We also asked respondents about hiring trends in their company for the quarter.

Question Asked: We are two-thirds through 1st Quarter 2012. How would you characterize the number of new hires (full or part-time payroll employees) in your company at this point in 1Q 2012 compared with the same point in the previous quarter (4Q 2011)?

Hiring Trends / Current Survey
1Q 2012 / Previous Survey
4Q 2011 / Previous Survey
3Q 2011 / Previous
Quarter
2Q 2011 / Previous Quarter
1Q 2011
More new hires at this point in 1Q 2012 compared to 4Q 2011 / 18% / 16% / 17% / 24% / 22%
Less new hires at this point in 1Q 2012 compared to 4Q 2011 / 13% / 16% / 17% / 12% / 11%
Equal amount of new hires in 1Q 2012 compared to 4Q 2011 / 20% / 21% / 22% / 20% / 21%
No new hires at this point in either 1Q 2012 or 4Q 2011 / 40% / 40% / 37% / 38% / 39%
Don’t Know / No Answer / 8% / 7% / 7% / 7% / 7%

Job Market:For the first time in three quarters, we’re seeing measureable improvement in the U.S. labor market. A total of 18% report there are More new hires in their company at this point in the 1st Quarter vs. last quarter – up 2-pts since the previous survey. Only 13% report there are Less new hires – 3-pts improved.

We note the hiring picture is showing improvement across mid- to larger-sized companies but remains relatively weak for smaller-sized companies (less than 10 employees).

Layoff Trends

We also asked about layoff trends for the quarter.

Question Asked: And, how would you characterize the number of layoffs of full or part-time payroll employees in your company at this point in 1Q 2012 compared with the same point in the previous quarter (4Q 2011)?

Layoff Trends / Current Survey
1Q 2012 / Previous Survey
4Q 2011 / Previous Survey
3Q 2011 / Previous
Quarter
2Q 2011 / Previous
Quarter
1Q 2011
More layoffs at this point in 1Q 2012 compared to 4Q 2011 / 7% / 10% / 10% / 9% / 8%
Less layoffs at this point in 1Q 2012 compared to 4Q 2011 / 8% / 7% / 7% / 8% / 10%
Equal amount of layoffs in 1Q 2012 compared to 4Q 2011 / 13% / 12% / 13% / 11% / 12%
No layoffs at this point in either 1Q 2012 or 4Q 2011 / 64% / 63% / 63% / 65% / 64%
Don’t Know / No Answer / 8% / 8% / 7% / 7% / 7%

Only7% say there are More layoffs at this point in 1Q 2012 vs. 4Q 2011, 3-pts improved from previously. At the same time, 8% say Less layoffs – a 1-pt improvement.

What's in the Pipeline for 2nd Quarter 2012?

2nd Quarter 2012 Sales Pipeline:Looking ahead, sales pipeline projections for the 2nd Quarter are showing a strong uptick – with 28% now saying their company sales will come in Above Plan, 8-pts better than the previous survey. Only 15% report they’ll come in Below Plan – a 4-pt improvement.

Here’s a look at the projected pipeline results from 2001 to the present:

Capital Spending Growth Rate

Capital Spending:In a further positive sign, our latest survey shows an improvement in cap spending going forward.

2nd Half 2012 Cap Spending:

Looking ahead to second half 2012, we find similarly encouraging signs. One-in-five (20%) think capital spending will prove to be Greater Than 1st half of 2012, compared with 16% saying Less Than – a net 11-pt improvement over the previous survey.

Credit CrunchModerates for U.S. Businesses

On the key issue of availability of credit for U.S. businesses we’re picking up real signs of improvement.

Question Asked: Would you say it is now harder for your company to borrow money than it was 90 days ago, easier to borrow money, or has there been no change in your company's ability to borrow money?

* Note: 54% of respondents report there has been No Change in their company’s ability to borrow money.

As the following chart shows, the improvement is occurring across companies of all sizes.

The Price of Products

Uptick in Price Pressures: Last quarter we reported only a slight uptick in inflationary pressures, but this quarter we’re seeing a significant increase, with 20% now reporting prices are Rising for their company’s products, up 3-pts. At the same time, the percentage reporting Falling prices declined 2-pts to 14%.

*Note that a total of 57% report their company’s prices are holding firm in the marketplace.

As the following chart shows, the rise in prices for company products is occurring across companies of all sizes, but is less prevalent among small sized companies (less than10 employees) than larger size companies.

Factors Driving the Rise in Corporate Prices: We asked respondents who reported prices are rising for their company’s products to tell us the one or two most important reasons why.

Question Asked:For those companies who report Rising prices for their products, what are the one or two most important reasons why?(Check No More Than Two)

Although Higher Commodity Costs (44%; down 4-pts) still ranks as the number one reason behind the rise in corporate prices, there is a second factor that stands out from the rest. Higher Energy Costs (37%) has registered a huge 13-pt jump in just the past three months.

Ability of Companies to Purchase Commodities:Correspondingly, after two quarters of improvement, we’re seeing a slight tightening in the ability of companies to purchase commodities, with 19% now reporting it is harder for their company to purchase commodities than it was 90 days ago, and only 5% saying it’s easier – a net 2-pt change from previously.

Company Discounts: In the current survey, we’re seeing discounts become less prevalent – another finding that points to an improved business environment.

Question Asked: Is your company offering more discounts than they did 90 days ago, fewer discounts, or has your company's discounting remained the same?

Only 12% report their company is offering More Discounts than they did 90 days ago and 10 say Fewer Discounts –a net 6-pt change from the previous survey.

II. Survey Methodology

This report is based on a survey of members conducted online between February22 – March5, 2012. The goal of the survey was to get an up-to-the-minute picture of the health of the U.S. Economy and its sectors for 1st Quarter 2012 and 2ndQuarter 2012. A total of 2,769accredited members of the ChangeWave Research Network participated in the survey.

III. Additional Findings and Highlights

1st Quarter Cancelled Orders

Only 9% report their company is experiencing an increase in cancelled orders, 6-pts less than the previous survey.

At the same time, 6% report their companies are experiencing a decrease in cancelled orders – up 2-ptsfrom previously.

1st Quarter Product Inventories

Inventories: We also asked respondents to describe their product inventories for the current quarter.

A total of 12% report their product inventories decreased in the 1st Quarter, and only 9% say they’ve increased.

Backlog of Orders for the 1st Quarter

Order Backlog: We asked respondents if they have noticed any change in their backlog of orders for the current quarter. A total of 22% report an increase in their Order Backlog during the 1st Quarter, up 3-ptsfrom the last survey. Another 17% report a decrease in Order Backlogs, 8-pts less than previously.

ChangeWave Research Methodology

This report is based on a survey of ChangeWave Alliance members conducted online between February22 – March5, 2012. The goal of the survey was to get an up-to-date picture of the health of the U.S. Economy and its sectors, including any changes during the 1st Quarter of 2012. A total of 2,769accredited U.S. Alliance members participated in the survey.

ChangeWave's proprietary research and business intelligence gathering system is based upon the systematic gathering of valuable business and investment information directly over the Internet from accredited members of its research network.

The business and investment intelligence provided by ChangeWave provides a real-time view of companies, technologies, and consumer and business trends in key market sectors, along with an in-depth perspective of the macro economy – well in advance of other available sources.

About ChangeWave Research

ChangeWave Research, a service of 451 Research, is a survey research firm that identifies and quantifies change in corporate buying & business trends, telecom trends, and consumer spending & electronics trends.

The ChangeWave Research Network is a group of 25,000 highly qualified business, technology, and medical professionals – as well as early adopter consumers – who work in leading companies of select industries. ChangeWave surveys its Network members weekly on a range of business and consumer topics, and converts the information into a series of proprietary quantitative and qualitative reports.