Manufacturers Reluctant to Invest in New Hires

NEW YORK – U.S. industrial manufacturers expect to reduce their overall workforce by 1.9 percent over the next 12 months, according to the first quarter 2004 PricewaterhouseCoopers Manufacturing Barometer.

At the same time, the survey shows that more manufacturers plan to add to their workforce than reduce it (36 percent versus 23 percent). Despite these mixed signals, the Barometer points out that these executives are increasingly optimistic about the economy and expect top-line growth for the year.

“Job growth is a concern, as manufacturers desire to remain lean, doing more with less. These results show that manufacturers who plan to add to their workforce will do so cautiously, while those who plan to reduce it will do so more aggressively,” said Dean Simone, U.S. leader of PricewaterhouseCoopers’ Industrial Products practice. “However, there are several positive indicators that point to improved prospects for U.S. manufacturers. The pricing environment appears to be firming, and manufacturers expect to benefit from the growing economy.”

In fact, a solid majority of industrial manufacturers are experiencing top-line growth. Sixty-five percent reported positive revenue growth over the last 12 months while 18 percent reported negative growth. Looking ahead, 83 percent expect positive revenue growth over the next 12 months.

Manufacturing executives, however, have scaled back their expectations based on a pause in performance during the first quarter. Operating capacity slightly dropped to 77.5 percent versus 80.0 percent in the previous quarter. Corresponding with this drop, manufacturers reduced their projected revenue growth over the next 12 months to six percent, a decrease from the projected seven percent growth reported in the previous quarter. Additionally, spending for manufacturers planning to make major new investments of capital over the next 12 months is expected to average 5.5 percent of revenues, a decline from the 6.0 percent reported in the previous quarter.

Even with the slight pullback in plans that occurred during the first quarter, manufacturers are still optimistic about their current and future growth prospects. Ninety percent believe that the economy grew in the first quarter, while none describe it as declining. Looking ahead, 79 percent are optimistic about the economy’s prospects over the next 12 months while only three percent are pessimistic.

Perhaps one indication of this optimism is that more manufacturers are willing to raise prices in what has been a difficult pricing environment.

Twenty-three percent of manufacturers reported prices were up in the first quarter, an increase from the 13 percent who reported similarly in the previous quarter. Although 28 percent reported that prices were down, this gap has closed significantly over the past three quarters.

The full Manufacturing Barometer report is available at www.pwc.com/mb

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