Survey says: Manufacturers are less optimistic than last year

A recent survey of U.S. manufacturers indicates that 44% expect manufacturing to trail the overall economy in 2006, a 10% increase in pessimism from last year’s survey. A substantial majority expect the economy to grow more slowly – less than 2.9% – in the year ahead than most economists predict.

“Most economists expect the overall economy to do better than that, including our own,” says John Engler, president of the National Association of Manufacturers (NAM). “It’s not that manufacturers are unduly pessimistic, but they are contending with unprecedented challenges that affect their outlook.”

On the brighter side, Engler says that more than half of the respondents expect to increase capital spending in 2006 and to increase employment, and that almost three-fourths of them now report they are exporting to other countries. “These are all positive signs,” he says.

The biggest challenge besetting U.S. manufacturers are rising external costs associated with health care, materials and energy, which manufacturers are unable to transfer to product pricing. “External costs burdens are having the biggest impact on manufacturers,” Engler notes, “lowering their profitability and tying up more funds that would otherwise be spent on investment, research and development, and new product lines. These costs are a significant and long-term problem for our nation’s manufacturers and our economy.”

“If the U.S. is to preserve its position as a major economic power in the 21st century it must stay out in front of the innovation curve, and it will need a much better-prepared workforce to do so,” Engler continues. “Like every modern nation, the U.S. is deeply involved in globalization. Technology and competition will only increase America’s need to have access to highly skilled professionals. But our schools and training programs just aren’t doing the job.”

Engler notes that one way manufacturers are competing more effectively with the rest of the globe is by increasing their exports, with 73% selling abroad. “The NAM has been working with the Bush Administration and Congress to level the international playing field for U.S. exporters,” Engler says. “On a more personal level, we are working with the Commerce Department to help small and medium-sized manufacturers sell their products abroad. Manufacturers in America who don’t sell outside the borders of the U.S. are shutting themselves out from more than two-thirds of the world market, and the rise in exporting is a win for manufacturers.”

The NAM survey showed that 54% of respondents expect their exports to stay the same in 2006 and 41% expected them to increase. “We are seeing a much stronger commitment toward exporting than in previous years,” Engler says. “This is a positive trend.”

The survey of 3,000 NAM members of all sizes in diverse industries and geographical areas generated a response of 349 responses, or 12% percent. The survey results are available at www.nam.org/nmwsurvey

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