U.S. Manufacturers More Upbeat about Domestic than Global Economy

Jan. 29, 2013
Most executives plan to increase hiring in next 12 months, according to PwC survey.

Industrial manufacturing executives are optimistic about their growth prospects in 2013, according to PwC’s latest Manufacturing Barometer Business Outlook Report. They raised their own-company 12-month revenue growth forecasts by a half-point, from 4.6 percent to 5.2 percent.  Eighty-three percent expect positive revenue growth and only 3 percent forecast negative growth.

This report is based on fourth quarter 2012 interviews with 60 U.S.-based industrial manufacturing executives.  Highlights indicate that:

∙ International sales remain strong despite uncertainty about world markets, contributing 38 percent of total revenues.

∙ Several potential barriers to growth emerged along with concern about demand, legislative/regulatory pressures, and oil/energy prices. They were taxation policies, along with concern about decreasing margins and wage pressures.

∙ More panelists’ companies plan new hiring (58 percent), but at a similar moderate rate.

∙ Spending plans continued: 47 percent plan major new expenditures of capital. Increases in operational or budget spending was cited by 80 percent, with IT and facilities expansion higher.

∙ Gross margins were moderately higher in 4Q 2012; costs and prices were also moderately higher. 35 percent were up and 22 percent were down for a net plus 13 percent, which is 10 points above the prior quarter. Looking ahead, 30 percent now view decreased profitability as a barrier to growth over the next 12 months, up 9 points quarter-to-quarter.

Optimism among industrial manufacturers about the U.S. economy’s prospects over the next 12 months rose from 37 percent to 48 percent, up 11 points. Although many industrial manufacturing executives are uncertain (45 percent), relatively few are pessimistic (7 percent). These attitudes are notably better than a year ago, according to the report, when optimism was at a much lower point: 30 percent optimistic and 13 percent pessimistic.

However optimism toward the global economy’s prospects remained low, at 32 percent, up 3 points from the prior quarter. The majority of those selling abroad remain uncertain (53 percent), and 15 percent remain pessimistic (off 2 points).

The majority of industrial manufacturing panelists are planning net new hiring over the next 12 months, up 11 points to 58 percent. A year ago, it was at 37 percent. Only 7 percent plan to reduce the number of full-time equivalent employees, and 35 percent will stay about the same. Overall, workforce projections are 0.5 percent, similar to last quarter’s 0.7 percent, as many more employers intend to hire but are hiring in moderation.

Operational spending increases are reported by 80 percent, with focus on facilities expansion (43 percent), new products or service introductions (40 percent), research and development (38 percent), and information technology (37 percent). Geographic expansion was the same at 28 percent. Plans for marketing and sales promotion were higher, 18 percent (up 4 points).

Plans for M&A activity over the next 12 months continued at the 35 percent level, with 32 percent planning purchase of another business and 13 percent planning a sale of part of their business. On the debit side, plans for expansion to new markets abroad (23 percent) and new facilities abroad (17 percent) remained lower.

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