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.
Manufacturing CEO Confidence Sinks Amid Continued Volatility
U.S. manufacturers rate current conditions at their worst level since the pandemic, but continue to hold out hope that tariff resolutions will bring increased stability.
- 60% anticipate revenue to grow in the year ahead, which is down 5% and down for the 3rd consecutive month
- 51% expect profits to increase in the next 12 months, down 7%
- 38% plan to increase capex investments in the next 12 months, up 1%
While the PMI increased to 49.1 (+.4), it signaled that economic activity in the manufacturing sector contracted in September for the 7th consecutive month, following a two-month expansion preceded by 26 straight months of contraction.
- New Orders Contracting
- Production Growing
- Employment Contracting
- Supplier Deliveries Slowing
- Raw Materials Inventories Contracting
- Customers’ Inventories Too Low Prices Increasing
- Exports and Imports Contracting
CEO – September
In September, U.S. manufacturing CEOs rated current conditions at 4.5/10, which is their weakest reading since the pandemic. In general, manufacturing is under pressure; overall CEO sentiment is cautious, but not uniformly negative, and there may be glimmers of stabilization. Accordingly, our recommendations for Sis are:
- “Selective optimism in rough terrain.” SIs who lean into efficiency, risk mitigation, and flexible offerings are best placed to capture recovery momentum.
- “Bridge projects now, scale later.” Use smaller or modular engagements now (e.g. island automation, pilot systems) to maintain activity, keep teams busy, and build storylines for larger rollouts when confidence rebounds.
- “Cost certainty and resilience > fanciful visions.” Use messaging on how to protect ROI from cost inflation, supply chain shocks, and schedule slippage.
- “Talent & remote enablement matter more today than ever.” With tight labor markets and travel constraints, highlight delivery models that de-risk onsite staffing or leverage digital commissioning, remote service, and augmented reality tools.
PMI – September
Given that SIs often straddle the line between upstream industrial capital investment and mid/late-stage operations, the implications are clear: there’s no broad “go” signal yet, but conditions may stabilize — if not strengthen — in the near future. Rather than betting on large new investments, the smart play is to lean into value-preserving and efficiency-oriented projects (think system retrofits, energy optimization, predictive maintenance). Meanwhile, service, support, and recurring revenue lines may offer ballast against cyclical dips.
That said, margin pressure persists: clients are sensitive to cost escalation, and supply chain volatility will continue to challenge quoting and execution. To thrive in this environment, SIs should bake in flexibility (escalation clauses, modular architectures), lean heavily on backlog and pipeline management, and stay ready to pounce when pockets of demand materialize.
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
(September data pending)
Our Key Takeaways
ROC Analysis
The UNXANO has remained stagnant since spring 2023 after it began slowing in June 2021.
Observations:
- Capital spending is inching its way back to growth territory
- 3/12 staying above 12/12 is a positive indicator
The 12/12 rate of change for capital goods new orders is finally entering growth territory, signaling an encouraging development for system integrator (SI) companies. As capital spending begins to recover and show signs of expansion, it is reasonable to anticipate that new orders for automation projects will start to materialize. However, it is important to note that it may take several months for this increase in capital orders to translate into direct opportunities for SIs.
Another positive indicator is that the 3/12 line remains above the 12/12 line. This trend suggests that the current modest growth in capital spending is likely to persist and is not expected to reverse in the near term. Together, these signals point to a cautiously optimistic outlook for SIs as the market gradually moves toward renewed growth.
CSIA Stats – Revenue Trends
(September stats pending)
Our Key Takeaways
Observations:
- Revenue – In August, both Larger and Mid-size integrators fell sharply, now trailing revenue reported in August of 2024. Smaller integrators revenue grew slightly in August, but was still below August 2024.
- Capacity – Fell significantly to only 18% indicating full capacity
- Outlook – Despite falling revenue and capacity, Outlook, increased slightly to 73%