Economic Insights
This collection of the latest updates and data from the systems integration industry explores leading indicators including the CEO Confidence Index, Purchasing Managers Index, and CSIA updates. We offer our own insights based on the information referenced and interactions with Exotek clients and the SI community.
Tariff Deal Hopes Grow 5.-0 (+0.4)
- First 5 months has lowest level since 2010
- Recession fears down to 46% (-16)
- 62% Forecast a slowdown or recession within 6 months
- Revenue = 53% (+4)
- Profits = 45% (+8)
- CapEx = 27% (+1)
- New Orders and Backlogs Contracting
- Production and Employment Contracting
- Supplier Deliveries Slowing
- Raw Materials Inventories Growing; Customers’ Inventories Too Low
- Prices Increasing; Exports and Imports Contracting
The latest CEO survey reveals a modest rise in optimism, driven by hopes that the ongoing tariff situation may be resolved with minimal disruption to the U.S. economy. While revenue and profit forecasts are showing signs of recovery, capital expenditures (CapEx) remain historically low—only one in four respondents reported plans to increase spending, which often supports our systems integration (SI) automation initiatives.
Systems integrators should seize the opportunity to monitor shifts in capital spending and prioritize operational expenditure (OPEX) spending. Their customers will be focused on cost reduction and efficiency improvements.
Exotek Insights – CSIA vs UNXANO Analysis
We have transitioned from tracking US Capital Goods New Orders (USCGNO) to Non-Defense Capital Goods Excluding Aircraft (UNXANO). This shift better aligns with the focus of most system integrators and provides a clearer indication of actual capital spending.
Exotek Insights – UNXANO ROC Analysis
Exotek Insights – CSIA ROC Analysis
Our Key Takeaways
ROC Analysis
The UNXANO has remained stagnant since late summer 2023 after it began slowing in January 2021. On a positive note, spending remains at a high level. However, recent announcements have added to the uncertainty, making an uptick unlikely in the near future.
System integrators faced a significant slowdown last year, even entering the contraction zone. The second half showed promise with the 3/12 crossing above the 12/12, but the year ended with the 3/12 crossing back down over the 12/12 significantly. This suggests that we can expect very low growth to contraction in the near future. The ROC analysis for CSIA members is somewhat distorted due to the high revenue month in December, when end users typically spend the remainder of their approved budgets.
Our Key Takeaways
After a slow end to the year for our SI community, the new year has started with mixed results. Larger SIs (in the top quartile) are outperforming their 2024 benchmarks in the first two months, while mid-size and smaller integrators are slightly lagging behind last year’s performance. Revenue recognition in Q1 is often challenging as new projects are just getting underway. We’ll keep a close eye on the progress of these new projects.
As the new year projects kick off, capacity is trending positively, with more SIs reporting they are at full capacity and unable to take on additional work. However, the overall outlook from our SI community has dropped 14 points to a long-time low, with only 62% having a positive outlook. The ongoing tariff situation seems to be a significant concern.
Our Key Takeaways
The last three years have been increasingly difficult for professional services firms, with revenue and utilization trending downward. Interestingly, firms that focus on improving their maturity level to institutionalized or optimized tend to perform better across almost every measure. This highlights the importance of implementing CSIA Best Practices.