The Manufacturing Barometer is a quarterly survey based on interviews with 60 senior executives of large, multinational U.S. industrial manufacturing companies about their current business performance, the state of the economy and their expectations for growth over the next 12 months. The current survey summarizes results for Q2 2009 and was conducted from April 15 through July 16.
While a majority of respondents continued to view the U.S. and global economies as declining in the second quarter of 2009, their overall outlook through the second quarter of 2010 shows improvement.
In the prior four quarters, an overwhelming majority of respondents viewed the U.S. and world economies as declining. However, the outlook began to shift in Q2 with a 30 point drop to 63% of industrial manufacturing executives maintaining that the U.S. economy is in decline. Similarly, 66% of respondents doing business abroad continued to view the world economy as declining in the second quarter, a marked improvement compared to the first quarter, when nearly all (98%) viewed the world economy as declining.
While the majority of industrial manufacturers still believe the U.S. and world economies declined in Q2 2009, the overall outlook for the next 12 months shows improvement, with the lowest levels of pessimism and the highest levels of optimism seen in the past five quarters for both the U.S. and world economies. Forty-three percent of respondents are optimistic about the U.S. economy, up 27 points from Q1, and only 18% are pessimistic, down 37 points from the prior quarter. Among those respondents doing business abroad, 43% were optimistic about the world economy, up 31 points from last quarter, and only 18% were pessimistic, which was down significantly from the 58% reported in the first quarter.
“The decline in pessimism is promising, since it shows increased economic confidence at both a U.S. and global level,” says Barry Misthal, partner and industrial manufacturing sector leader at PricewaterhouseCoopers. “Many manufacturing executives still appear to be cautious in terms of identifying a turnaround for the economy, but many more are feeling optimistic than were last quarter. It’s still evident we have quite a ways to go, but we are certainly on the right trajectory.”
More industrial manufacturers are expecting positive growth than are expecting negative growth over the coming 12 months. In Q2, 43% of respondents are forecasting positive growth, up from 34% in the prior quarter. Nearly one-third (32%) are forecasting negative growth over the next year. Overall, the projected average revenue growth for industrial manufacturers over the next 12 months is -0.4%, well above the -7.9% for calendar year 2009.
Although concern about market demand dropped in Q2 from the overwhelming survey high of 95% last quarter, it still remains the chief potential barrier to growth for U.S. manufacturers over the next 12 months, according to 82% of survey respondents. Decreasing profitability is the second-highest concern, cited by 50% of respondents (down 19 points from last quarter), followed by concern about new taxation policies (43%).
"Despite a slightly more optimistic view of the economy for the next 12 months, industrial manufacturers are still very concerned about lack of future demand," explains Misthal. "And, return of that demand will be critical to the start of a turnaround for the industry."
Plans for major new investments of capital over the next 12 months rebounded slightly to 27% from last quarter’s survey low of 24%. Those respondents planning to make new investments also plan to spend more, with the mean investment rising to 6.2% of total sales, up from 5.4% last quarter.
To view the complete Manufacturing Barometer report, visit www.pwc.com/manufacturing. For more information about other Barometer surveys, including recent economic trend data and topical issues, see www.barometersurveys.com.