Economic Optimism Leads Consumer Products Companies Toward Expansion

Seventy-two percent of U.S. consumer products companies are optimistic about the U.S. economy over the next 12 months, up from 64 percent last quarter, according to PricewaterhouseCoopers’ Retail & Consumer Industry Practice’s Consumer Products Barometer, released today. A significant portion of the companies — 71 percent — also expressed optimism about the world economy.
 
"The fourth quarter reveals an overall upbeat picture in regards to economic optimism, revenue growth and increased spending in the consumer products industry,” said John Maxwell, leader of PricewaterhouseCoopers’ Retail & Consumer Industry Practice. “More consumer products companies are planning major new investments than ever before, as the majority of companies are expecting positive revenue growth over the next 12 months."

More than half of executives surveyed are planning major new investments of capital (56 percent) within the next year, a 13 percentage-point increase from last quarter. While most companies are investing in information technology (66 percent) and marketing sales/promotion (58 percent), executives also cite new product/service introductions (56 percent) and advertising (48 percent) as two other areas for major investments.

To add to the positive outlook, 84 percent of consumer products companies predict an average 6.6 percent revenue growth over the next year. Additionally, 70 percent of executives are considering other business initiatives to drive growth, with 38 percent citing mergers and acquisitions as their main focus.

Despite the rosy picture, executives are holding back on hiring new workers, with only 30 percent planning to hire additional workers over the next 12 months, bringing the percentage of net new employees in the workforce to minus 1.1 percent. More than half of respondents have plans to keep worker levels the same (58 percent).

When asked about potential barriers to growth, executives were most concerned about energy prices (54 percent) and lack of market demand (40 percent), consistent with the previous quarter’s responses. Thirty-four percent of executives, however, were also anxious about pressure for increased wages, 32 percent were worried about legislative/regulatory pressures while another 30% expressed concern regarding the lack of qualified workers.

Gross margins remained flat for consumer products companies in the fourth quarter; 48 percent said their margins stayed the same from the third to the fourth quarter. As for increases and decreases, the ratio was evenly split at 26 percent with each reporting either an increase or decrease in margins.

In addition, 54 percent of executives reported higher costs during this previous quarter, an 11-point increase from Q3. To compensate for higher costs, 32 percent of consumer product companies increased their prices.

U.S. Consumer Products Companies Raising Wholesale Prices

This quarter, the Barometer asked U.S. consumer products companies about wholesale pricing. Over the past six months, 38 percent of those surveyed report raising wholesale prices for their major brands. Among those who did raise prices, the average overall percent increase was 4.2 percent.

Looking ahead, 34 percent of consumer products companies expect to raise wholesale prices over the next six months by an average prospective price increase of 3.1 percent.

"The wholesale price increases are consistent with the overall price increases we are seeing in commodity prices and especially the impact of the recent run-up in energy prices," said Maxwell. “While fewer companies are planning to increase wholesale prices over the next six months, this is definitely something the industry should keep an eye on."