Instrument and laboratory product company executives hold divergent opinions on the industry outlook for the next six months and related issues, according to the latest IBO Business Climate Survey. The survey is conducted twice yearly. This season’s survey of IBO subscribers was conducted anonymously via a webpage questionnaire during late September and early October. Twenty-five companies responded to the survey.

The global economic outlook has soured since July when US economic data indicated slowing GDP growth. Since then, Europe’s sovereign debt crisis and concerns about growth prospects in China have contributed to rising uncertainty about economic growth. The International Monetary Fund last month lowered its 2011 forecast for global economic growth to 4%, down from 4.3% in June. Advanced Economies are expected to grow 1.6%, down from the June projection of 2.2%. Emerging and Developing Economies are expected to grow 6.4%, down from June’s estimate of 6.6%. In 2012, the world economy is forecast to grow 4.0%.

The Business Roundtable’s third-quarter survey of 140 CEOs between August 28 and September 16 found growing unease compared with second-quarter results. In the latest Business Roundtable survey, the percentage of CEOs expecting sales to increase in the next six months declined to 65% from 87% in the second quarter. The percentage expecting their companies’ US capital spending to increase in the next six months also fell, dropping to 32% from 61%.

Duke University/CFO Magazine’s third-quarter Global Business Outlook Survey also found growing pessimism affecting some, but not all, R&D and capital-spending plans. All averages are weighted and all answers refer to a 12-month outlook. The survey of 996 CFOs was completed on September 9. Of the 494 US firms surveyed, the average expected increase for capital spending was 4.5% (compared with 8.7% in the June survey) and for R&D spending was 2.8% (2.0%). For 176 European firms, the average increase expected for capital spending was 3.2% (3.5%) and for R&D spending was 2.0% (3.7%). For 231 Asian firms surveyed, excluding Chinese firms, capital spending is expected to increase an average of 13.2% (5.3%), with R&D spending rising an average of 7.2% (6.9%). The 93 Chinese companies surveyed expect an average increase in capital spending of 6.0% (13.7%) and of 7.1% (3.7%) for R&D.

IBO’s Fall Business Climate Survey shows that 44% of respondents expect sales to increase moderately and 44% expect them to stay the same. The percentage expecting a moderate increase is down from 59% last spring. However, the Fall 2010 Survey showed 56% expecting sales to increase moderately and 44% expecting sales to stay the same. In this survey, two respondents actually expect sales to increase substantially, whereas no respondent indicated that last fall. Also, one respondent expects a decline in sales, compared with no such expectations last fall.

Variation is also evident in other results. Thirty-eight percent of respondents expect their companies to increase their number of employees over the next six months, 50% expect no change and 12% expect the number of employees at their companies to decline. The fact that a majority expect no change is certainly a good sign but may also indicate a level of uncertainty about future prospects.

To get an even better idea of the effect of the growing unease about the world economic situation on companies, IBO asked respondents about the impact of concerns about a “double-dip” recession on their companies’ expenditures. Four possible answers were provided: new spending cutbacks since July, increased monitoring of expenses since July, no change since July and other. Variation was again evident, as 40% of companies have increased their monitoring of expenses and 40% of companies indicated no change. Notably, five companies have instituted cutbacks. As the results above indicate, there is a minority of survey respondents that are pessimistic about the industry’s and their own companies’ outlooks.

To determine how the fears of a “double-dip” recession may be affecting customers, IBO asked respondents about how this concern is impacting their customers’ instrument and lab product expenditures. Three possible answers were provided: delayed spending, no impact and other. Again, an even split indicated no clear consensus, with 48% stating that their customers were delaying spending and 48% stating that there was no impact. The lack of consensus may be a result of the different end-markets that the surveyed companies serve and the companies’ different product lines. Also, company size, maturity and global footprint can affect how companies foresee business prospects in the coming months.

In recent months, some companies, including some of the industry’s largest firms, have indicated slower spending among US and European government and academic customers (see IBO 8/31/11). To ascertain if such a situation has continued, IBO asked companies if they have experienced any decrease in government-funded academic spending or government spending. Fifty-two percent of respondents stated that they have, but 42% have not. In this case, the lack of a clear consensus may be chalked up to the extent of a company’s business in these markets in the US and Europe versus outside of the US and Europe. Asia and emerging countries’ academic and government research spending has not showed signs of slowing.

To determine geographic variation among decreases in government and academic spending, IBO asked the companies that had indicated decreased spending among these sectors what regions had been affected. Multiple answers were allowed. Not surprisingly, Europe and the US were each selected by 31% of respondents. Japan was selected by 21%. However, Asia, China, Latin America and Rest of World were each selected by just two or fewer respondents. Two-thirds of respondents selected multiple regions, suggesting the extent of the slowdown.

In regard to China, respondents were asked about companies’ concerns about doing business in the country. Companies operating in the country face growing challenges, such as increases in manufacturing wages, greater inflation and an undervalued Renminbi. Four possible answers were provided (see graph, page 6), and respondents could select only one answer. Inflation was chosen by 41%, and intellectual property disputes was chosen by 36%.

China continues to be the country or region for which instrument and laboratory product companies have the brightest outlook. Asked to rate the six-month prospects for sales for nine regions/countries on a scale of 1 to 5 (1 indicating a worsening outlook, 3 indicating a stable outlook and 5 indicating an improving outlook), China received an average rating of 3.7. However, its rating was down from the Spring Survey, when the country received an average rating of 4.1. Overall, five regions/countries received average ratings of 3 or above. Like China, North America’s average rating also dropped from last spring, with an average rating of 2.9 this fall compared with 3.3 in the spring. The largest increase in average rating was for Eastern Europe, with an average rating of 2.9 compared with 2.0 last spring.

Government and academia continue to sit at the bottom of the ratings for the six-month sales outlook by end-user market. In fact, prospects for each worsened compared with the Spring Survey. Government received an average rating of 2.4, versus last spring’s 3.0 rating. Last spring, academia was rated 3.1 on average, but this fall, the rating fell to 2.7. In fact, the average ratings for all 11 end-markets declined. Among those markets with the largest decreases were metals/mining, down to 3.0 from 3.6, and environmental, down to 3.3 from 3.9. Electronics/semiconductor’s average rating also fell 0.6 to 2.8. In contrast, energy and biotechnology remained among the top three sectors for expected sales growth and were among the eight markets that received an average rating of 3 or higher.

 Line Graph: Executive Expectations for Instrument and Lab Product Sales for the Next Six Months

 Fall 06   Spring 07   Fall 07   Spring 08   Fall 08   Spring 09   Fall 09   Spring 10   Fall 10

    0.00        0.00      0.04        0.00      0.43        0.33      0.17        0.00      0.00

    0.36        0.58      0.32        0.41      0.35        0.38      0.42        0.28      0.44

    0.56        0.33      0.56        0.59      0.17        0.29      0.42        0.68      0.56

    0.08        0.08      0.08        0.00      0.04        0.08      0.08        0.04      0.00

 Spring 11     Fall 11 

      0.00        0.04   Decline

      0.41        0.44   Stay the Same

      0.59        0.44   Increase Moderately

      0.00        0.08   Increase Substantially

 Bar Graph: Issue Most Concerned About in China

 Currency                          18%

 Inflation                         41%

 IP Disputes                       36%

 Labor Shortages in Southern Region 5%

 Other                              0%

 Bar Graph: Avg. Ratings for Instrument and Lab Prod. Sales Growth for the Next Six Months by Geography 

 (1=Worsening, 3=Stable, 5=Improving)

 Japan            2.5

 W.Europe         2.8

 N.America        2.9

 E.Europe         2.9

 Middle East      3.2

 Southeast Asia   3.4

 Latin America    3.5

 India            3.6

 China            3.7

 Avg.             3.1

 Bar Graph: Avg. Ratings for Instrument and Lab Prod. Sales Growth for the Next Six Months by End-User Market 

 (1=Worsening, 3=Stable, 5=Improving)

 Govt.            2.4

 Academia         2.7

 Elec./Semicon.   2.8

 Chemical         3.0

 Metals/Mining    3.0

 Agriculture      3.0

 Pharma           3.2

 Environmental    3.3

 Food             3.4

 Biotech          3.5

 Energy           3.6

 Avg.             2.9