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Economic optimism continues to rise among US manufacturers 

By Jack Hagel 
May 09 2012

More US industrial manufacturers plan to hire in the year ahead, and many forecast increased spending and improved profitability. Meanwhile, concerns about barriers to growth such as taxes and regulatory issues are decreasing, according to PwC’s most recent “Manufacturing Barometer”. And while concern about oil and energy prices rose to 53% from 47% in the previous quarter, it was down considerably from 70% in the second quarter on 2011.

Optimism about the US economy’s next 12 months rose to 70% in the first quarter of 2012. That’s up from 30% in the previous quarter, itself much higher than the historic low – 5% – recorded in the third quarter last year.

Optimism about the world economy also increased to 44%, up from 16% in the fourth quarter. Still, 45% of respondents felt uncertain about the world economy, while 11% were pessimistic.

The PwC results come from a small sample: 60 US-based industrial manufacturing executives, who were surveyed between February 8th and April 20th. But the results echo rebounds in confidence found in a recent KPMG survey of 11,000 manufacturers and service providers. The latest CGMA Global Economic Index, which is formed by the opinions of more than 600 business leaders who hold the CGMA designation, also showed an increase in confidence.

According to the most recent AICPA “Business and Industry Economic Outlook”, which was released in March, US manufacturers projected that their organisations’ ranks would grow by 2.2% during the next 12 months. That’s above 12-month projections of 1.9% in the fourth quarter and 1.2% in the third quarter.

And 62% of the 217 manufacturing respondents to the AICPA survey said they were optimistic about their organisations’ prospects over the next 12 months, up from 55% in the fourth quarter and 46% in the third quarter.

“Following a prolonged period of streamlining and cost-cutting during the economic downturn, there is no question that companies have achieved efficiency gains, while balance sheets improved measurably,” Barry Misthal, global industrial manufacturing leader for PwC, said in a press release. “Hence, management teams are increasingly focusing on strengthening their product offerings and competitive positioning, as well as evaluating global expansion strategies through both M&A and new facilities building.”

Ninety-two per cent of respondents expected positive revenue growth from their operations, with 17% forecasting double-digit gains and 75% projecting single-digit growth, according to the PwC report.

Among the other findings in the first-quarter PwC barometer:

  • US-based industrial manufacturers that sell abroad noted upward movement in the first quarter, with 48% reporting an increase in worldwide sales, up 12 points.

  • Gross margins moved higher for 45% of respondents. Meanwhile, costs and prices rose sharply. Half the respondents reported higher costs, and 43% raised prices.

  • Eighty-two per cent plan to increase operational spending in 2012, driven by new product or service introductions (52%), information technology (47%) and geographic and facilities expansion (42% each). 

  • Half of the respondents plan to add employees in 2012, up 13 points from the fourth quarter. Seven per cent plan to reduce the number of full-time equivalent employees; 43% will stay about the same.

  • The top three barriers to growth over the next 12 months were oil/energy prices (53%), lack of demand (47%) and regulatory pressures (40%). Taxation concerns dropped 13 points to 20%.

Jack Hagel (jhagel@aicpa.org) is the editorial director of CGMA Magazine.

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