By Paul Carton
March 11, 2009

Last quarter's accelerating U.S. economic freefall has extended right through 1st Quarter 2009 - and a new ChangeWave survey shows yet a further downturn in corporate sales projections and in customer willingness to spend.

Our latest corporate survey, however, also contains glints of hope, including a slight leveling off in the rate of contraction going forward.

But the bottom line is that the U.S. economy remains caught in the clutches of a recession far deeper and more painful than that of 2001 - including alarmingly grim hiring trends and a continued pullback in capital spending. The ChangeWave survey was completed March 3rd, 2009, and a total of 3,076 U.S. respondents participated.

Tailspin Continues in the 1st Quarter

One-in-two respondents (52%) now project that their company sales will come in Below Plan for 1st Quarter 2009 - 1-pt worse than the previous quarter. Only 9% say their company sales will come in Above Plan - a 2-pt decrease.

As the following chart shows, the 1st Quarter (Mar '09) corporate sales projections are the worst ever recorded in a ChangeWave survey dating back to the depths of the 2001 recession.

We also asked respondents to rate the current willingness of their existing customers to spend money on their company's products and services, and more than three-quarters (76%) 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).

Just 18% report that their existing customers have a Green Light to spend (i.e., spending is normal).

The U.S. labor market also remains in a dismal state. Only 7% say there are More new hires in their company at this point in the 1st Quarter vs. last quarter - a 1-pt decline since the previous survey. Another 30% say there are Less new hires - a tiny 1-pt improvement from previously, but overall the 2nd worst reading since we began asking this question five years ago.

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But Longer Term Outlook Contains Glints of Hope

As terrible as the current quarter looks, the longer term economic outlook is beginning to show the first tiny signs of hope.

First, the projected sales pipeline decline for the 2nd quarter - while still horrific - is not quite as bad as the collapse recorded in our previous survey. While just 11% say their company will come in Above Plan - that nonetheless represents a 2-pt improvement from previously. At the same time, 38% report they'll come in Below Plan - 1-pt improved over the previous survey.

Thus, for the first time in more than two years we're picking up a slight leveling off in the rate of contraction going forward.

Secondly, we're seeing a similar deceleration in the rate of cap spending decline. Capital spending is still in the midst of a gigantic pullback going forward, but the cap spending rate of decline is also not quite as bad as the collapse recorded last quarter.

Only 5% project an increase in their company's 2nd Quarter capital budget while 41% project a decrease - but that's a net 3-pt improvement over the previous survey.

And third, for the first time in 15 months one of the key causes of the recession - the credit crunch - appears to have stopped worsening, although it is clearly continuing to have a seriously negative impact on U.S. business.

While three-in-ten respondents (30%) continue to say that it is harder for their company to borrow money than it was just 90 days ago - that's unchanged from the previous survey. And 1% now say it is easier to borrow money, 1-pt better than previously.

To be clear, the credit crisis still remains significantly worse than it was even 90 days ago, but the rate of decline finally shows some signs of stabilizing.

What To Keep Your Eye On Going Forward

The difficulty of turning around an economy plunged headlong into recession is somewhat akin to turning around an out-of-control Supertanker. In short, the first sign of improvement is often simply a leveling off in the rate of economic freefall.

And although there are no signs of a leveling off during the abysmal 1st Quarter, the longer term economic outlook is beginning to show the first tiny signs of hope.

In other words, while the U.S. economy remains in a tailspin, the rate of decline going forward has begun to slow. The tricky part is whether this is a temporary trough before a further collapse, or if we're starting to see the first early signs of a bottom.

Future surveys will provide the answer. But for now, let's not forget that coming out of a recession is usually far bumpier than going into one.

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Jean Crumrine co-wrote this article.