Economic Optimism Plummets

NEW YORK—Optimism in the domestic economy dropped dramatically among U.S.-based industrial manufacturers in the first quarter according to the PricewaterhouseCoopers LLP Manufacturing Barometer. Only 12% of senior executives surveyed are optimistic about the U.S. economy's prospects over the next year, a drop from the 29% who were optimistic last quarter and the 57% who were optimistic one year ago in Q1 2007.

Three-quarters of industrial manufacturers reported that they believed the domestic economy was declining, while only 5% believed it was growing. This is in stark contrast to one year ago, when 69% of respondents believed the economy was growing. Looking ahead, 52% are pessimistic about the U.S. economy over the next 12 months, as compared to only 5% a year ago.

“We knew industrial manufacturers were feeling the pressures of the economic downturn; however, the reality of the situation really hit us when we saw this quarter’s findings,” said Barry Misthal, partner and industrial manufacturing sector leader at PricewaterhouseCoopers. “We expect confidence will remain low for much of 2008, but are hopeful that the sector will begin to look up as 2009 approaches.”

The Barometer found that 70% of the executives expect positive revenue growth over the next year, down 11 points from last quarter. Coinciding with increased concerns over the economic climate, revenue targets were reset to 4.6%, a 15% drop from the 5.4% recorded in Q4.

Two-thirds of executives cited oil/energy prices as a potential barrier to growth over the next 12 months. Other key sources of anxiety cited include lack of demand (62%), the monetary exchange rate (57%),and decreasing profitability (48%).

On a positive note, survey respondents indicated that international markets continue to offer opportunities for industrial manufacturers. Sales increased for 63% of manufacturers selling abroad, and international sales projections remain steady at 35% of total revenue. More than one-fourth of all executives (27%) plan to expand in markets abroad overthe next year and 25% plan to develop new overseas facilities. However, only 38% of executives are optimistic about the world economy, a 26-point drop from the previous quarter and a considerable 45-point drop from one year ago.

“It appears mounting uncertainty about the U.S.economy is starting to affect opinions about the world economy," said Misthal. “However, to weather this economic storm, industrial manufacturers must set their sights on growth opportunities abroad, while at the same time maintain the health of their domestic operations by controlling costs and making selective investments of capital."

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