Quality Magazine

The Last Word: Measuring Spending

December 1, 2009


In measuring the dimensions of an object, your results can vary. Every metrologist knows the truth in this adage, as such outside forces as time of day, temperature and environment can influence accuracy. Even the difference between operators or machines can affect the final number. Likewise, in measuring market performance, outside influences play a large role in what one can expect.

The 10th Annual Quality Spending Survey results and analysis can be found starting on p. 28. The projected spending for 2010 is a far cry from the projections we reported one year ago for 2009. What happened to change those projections? Three words-“the economy tanked.”

Obviously, when we report our numbers in December, they have been gathered far earlier than that month. We collect data beginning early in the third quarter. It takes several months to gather and analyze the data and in 2008, looking toward 2009, our research and analysis took place before the economic crisis of October 2008.

Once we saw the crisis continuing to mount, we measured again, and in January 2009, revised our numbers downward, as nearly 41% of the manufacturing community told us they planned to spend less in 2009 than they originally reported.

As we all know from personal experience and the media headlines, that wasn’t the end of the downturn. The first quarter of 2009 showed continued weakness, and during the second and third quarters, when we began measuring for the coming year, spending bottomed out. Anecdotal evidence showed that quality suppliers were off by as much as 50% from 2008 sales numbers.

Indeed, in evaluating the data for 2009 spending during July 2009, it seems that about $1.5 billion less was spent during 2009 than actually projected-about $2.8 billion was spent in total. What a difference a year makes.

With the timeline in mind, it’s easy to see why when we measured during the third quarter of 2009, the numbers for 2010 were projected to be lower than revised spending for 2009 indicated. We’ll revisit projected 2010 spending numbers in the first part of the new year and see where they actually begin to fall. My estimation is that actual 2010 spending will exceed what has been projected. Is this wishful thinking on my part? Am I playing the role of a cockeyed optimist? The answer is “No,” on both accounts.

From when our quality spending data was originally collected during the third quarter, the economy has since experienced several upticks not reflected in that collection. The most current data available as I write this column shows the October Purchasers Manufacturing Index, supplied by the Institute of Supply Management, with continued growth in the manufacturing sector. The October number of 55.7-above 50 is growth and above 41.2 is expansion-indicates the third consecutive month of growth and the sixth straight month of expansion. Other positive news that has occurred since we gathered data for our 2010 Quality Spending Survey includes:

  • Three months, except August, of recovering manufacturing technology consumption, as reported by USMTC.

  • 80% of Prime Advantage Group Outlook (PAGO) survey respondents indicated that they expected revenue for the second half of 2009 to either stay the same or increase. This is a dramatic turnaround from the February GO survey, in which only 38% were predicting revenues to either stay the same as 2008 or increase.

  • 80% of economists in a National Association for Business Economics survey released Oct. 12, believe the recession is over and expansion has begun, albeit slowly.

  • Economic forecasters have revised their projections of GDP for the second half of 2009 to an increase of 2.9%, after four quarters of falling. They expect a 3% gain in GDP for 2010.

  • October 2009 retail sales in the United States rebounded more than forecast.



    All this positive data does not mean that challenging times are over, nor does it mean that we will return to the good times of the pre-economic crisis anytime soon. The worst looks to be behind us, though.

    As inventories shrink and spending increases, manufacturers will be spending more than they expected when they talked to our researchers during the third quarter.

    An aerospace manufacturer recently told me that he was at a trade show because he had been given the approval to spend a budget that was originally his, had been taken away and spent during the second quarter, and was his to spend again. I am not sure how the accounting on that works, but he was one of many people beginning to spend more than he had anticipated.

    Share your thoughts with me at williamst@bnpmedia.com , or share your thoughts with other Quality Magazine readers at the Quality Magazine LinkedIn Group page .