Most senior executives in a broad spectrum of multinational companies say the September 11 terrorist attacks negatively impacted their business, and they have scaled back already-reduced revenue growth estimates by an additional 10 percent, according to the latest PricewaterhouseCoopers Management Barometer survey. In addition, the executives said they have significantly ratcheted down plans for major new investments and tempered their overall outlook for the economy for the next 12 months.
According to the survey, 73 percent of executives said their business was impacted by the September 11 attacks. Among these, 52 percent were adversely affected (including six percent "very negatively" and 46 percent "somewhat negatively"). Ten percent reported a positive business impact, due in large measure to increased federal spending. An additional 11 percent said they were affected, but were not yet certain about the direction or extent of the impact.
At the close of the third quarter, those surveyed had cut their composite revenue growth estimate for the next 12 months to 6.4 percent, down 15 percent from the prior quarter, before the September 11 attacks. Service businesses held up far better than those in the product sector, with average expected growth of 10.9 percent versus 3.2 percent, respectively. Overall, 67 percent now project growth for their business over the next 12 months-a downshift from 78 percent in the second quarter. The number expecting no growth doubled to 20 percent, while those anticipating reduced revenues increased to 12 percent from nine percent.
Optimism About the Economy Takes a Hit
At the end of September, only 23 percent had an optimistic view of the U.S. economy over the next 12 months-a drop of 19 points, quarter-to-quarter. In contrast, 77 percent had an uncertain (42 percent), or pessimistic (35 percent) outlook.
"Optimism about the economy had eroded significantly prior to September 11, and worsened even further in the aftermath of the attacks," said Frank Brown, global leader for Assurance and Business Advisory Services for PricewaterhouseCoopers. "Many executives who had been uncertain about the outlook for the economy have become pessimistic. The big question for the economy is how long it will be before they again have a positive outlook for their business."
Plans for Investments Scaled Back
At the close of the third quarter, 38 percent of those surveyed were planning major new investments of capital over the next 12 months, a drop of four points from the prior quarter. Their anticipated level of spending had slipped to a composite 7.8 percent of revenue from 9.0 percent, a quarter-to-quarter reduction of 21 percent.
"Businesses reduced their investment plans significantly after September 11, reflecting the economic uncertainty caused by the attacks. But there were some reports of increased spending plans in anticipation of the need for greater security and the impact of new federal programs to spark the economy," Brown said.
The survey also found fewer executives planning increased investments in the wake of the September 11 attacks. Among the most severely affected spending categories are research and development, where 20 percent now plan increased investments (off 17 points from the prior quarter); new product or service introductions, 38 percent (off 15 points); and facilities expansion, 15 percent (off 13 points).
Only one area, business acquisitions, planned by 34 percent, held steady quarter-to-quarter. Prior to September 11, three other spending categories -- new product or service introductions, information technology, and marketing and sales promotion -- had also held steady. But all three subsequently suffered declines.
"Executives may see acquisitions as an opportunity for growth in an unsettled marketplace, while investments in new product launches and IT may be seen as overly risky or easily postponed," Brown said. "The major concern is the squeeze on research and development, and its potential impact on innovation and growth."
Note: PricewaterhouseCoopers' new 'Management Barometer' is a quarterly survey of top executives in large, multinational businesses spanning technology (including information, communication, and entertainment); financial services; and consumer and industrial products and services. 157 CFOs and Managing Directors were interviewed in 3Q '01. Callbacks were made for all interviews conducted prior to September 11, so that results reflect the latest attitudes and plans.