Optimism among U.S. industrial manufacturers regarding the domestic economic outlook rose to 63 percent during the second quarter of 2013, up from 55 percent in the first quarter and representing the highest level since the first quarter of 2012, according to the Q2 2013 Manufacturing Barometer, released today by PwC US. In addition, 72 percent of respondents believed the U.S. economy grew in the second quarter, up 10 points from the prior quarter. At the same time, sentiment pertaining to the world economy remains guarded with only 31 percent expressing optimism and 59 percent voicing continued uncertainty.
The spread between those optimistic about the domestic economy versus those optimistic about the global economy over the next 12 months was 32 percent, representing the second highest quarterly total since these questions were first asked in the third quarter 2003 survey. At the same time, PwC’s Global Manufacturing Current Assessment and Outlook indices show a reduction in overall pessimism among manufacturing executives compared to the first quarter, which appears to be driven by more bullishness over total sales, driven by the U.S., offsetting in part increasing bearishness over international sales.
Reflecting the healthy level of optimism pertaining to the domestic economy, 82 percent ofiindustrial manufacturers surveyed expect positive revenue growth for their own companies in the next 12 months, with only three percent forecasting negative growth. The projected average revenue growth rate over the next 12 months was 4.6 percent, up from 4.3 percent in the first quarter, but down from 5.6 percent in last year’s second quarter. Despite the reduced rate of forecasted growth, the outlook for the U.S. continues to contrast with the international picture, where optimism regarding commerce in the next 12 months was only 31 percent, compared to 36 percent in the first quarter. In addition, the projected contribution of international sales to total revenue over the next 12 months remained low at 32 percent, consistent with the first quarter survey, but down from 37 percent in the second quarter of last year.
With regard to capital spending, 40 percent of respondents plan major new investments during the next 12 months, off three points from 43 percent in the first quarter, but well below the 55 percent recorded in the second quarter of 2012. The mean investment as a percentage of total sales of four percent was also lower than the prior quarter’s 4.8 percent, indicative of moderate spending among respondents, and reflecting in part a reduction in planned spending increases from the peak post-recessionary period, which benefitted from pent-up demand.
Plans for operational spending also remained notably below prior year levels. Looking at the next 12 months, 73 percent of respondents plan to increase operational spending, similar to 71 percent in the first quarter, but down from 87 percent in the second quarter of last year. Leading increased
expenditures were new product or service introductions (45 percent) and research and development (38 percent). Plans for geographic expansion remained low at 15 percent, up from 10 percent in the first quarter, but down significantly from 33 percent last year.
According to the latest survey, 42 percent of industrial manufacturers plan to add employees to their workforce over the next 12 months, off three points from the first quarter. Only five percent plan to reduce the number of fulltime equivalent employees, and 53 percent will stay about the same. The net workforce projection stayed at plus 0.9 percent, similar to last quarter’s plus one percent, indicating some new hiring continuity among several of these industrial manufacturing companies. The most sought-after employees will be production workers (23 percent), skilled labor (23 percent) and professionals/technicians (18 percent).
Similar to levels recorded in the first quarter, second quarter survey respondents highlighted legislative/regulatory pressures (53 percent) and lack of demand (47 percent) as the biggest barriers for growth over the next 12 months. Oil/energy prices were viewed by 22 percent as a barrier to growth, a significant drop from 35 percent in the first quarter and 48 percent
in last year’s second quarter.
To view the complete Manufacturing Barometer report, visit https://www.pwc.com/manufacturing-barometer. For information about other Barometer surveys, including recent economic trend data and topical issues, visit https://www.barometersurveys.com. For other information regarding economic conditions for manufacturing, contact the LEAN Accountants of McKonly and Asbury, LLP.