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Industrial Manufacturers Adjust to Slower Growth Environment

April 27, 2016
 Manufacturers are investing wisely while conserving liquidity.

The U.S. economy declined to 42% in the first quarter, down from 46% in the fourth quarter, but off a significant 34 points from 76% in last year’s first quarter, according to the PwC's Manufacturing Barometer, which was released last week.

The last time this U.S. optimism indicator was this low was in the third quarter of 2012 when it came in at 37%, says PwC, when the country was still in the earlier stages of the global recession.

Highlights from this quarter’s report include:

 A majority believes the U.S. economy was growing in the first quarter, which is likely a major reason why 72% of survey respondents forecast revenue growth in the year ahead.

 Company forecasts point to slower growth ahead. Industrial manufacturers see reduced growth, with survey respondents forecasting average revenue growth of 3.7% over the next 12 months.

 Manufacturers are investing wisely while conserving liquidity.

"An environment of weaker revenues is clearly settling in – and that means management teams will continue to focus on reducing costs,” explains Bobby Bono, audit partner at PwC. “There will be less investing, less hiring and less expansion abroad.  Perhaps most dramatically, only 38% of respondents plan to add new employees in the next 12 months, down 14 points from 52% in the first quarter of last year. CapEx as a percentage of sales is also dropping – with forecasted spending representing 1.9% of sales going forward, compared to 3.3% last year." 

Bono points out that the survey’s results point to an elevated level of caution among U.S. industrial manufacturers. “They’re bracing for leaner times, while investing prudently in core competencies.  They're continuing to double down on what they do best. In fact, plans for operational spending remained reasonably high at 80 percent in the first quarter, off only three points compared to year-ago levels.  New product or service introductions and R&D continue to lead the way. "

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