Manufacturers are becoming more confident in the economy as the year is winding down. In the last NAM/IndustryWeek Survey of Manufacturers -- which was released in September 2011 -- respondents were mostly positive, but they were significantly less optimistic than earlier in the year. They were confronting a number of challenges, thus increasing anxieties and depressing their sales.

Businesses have had to cope with supply chain disruptions, natural disasters, rising energy and raw material prices, continued weaknesses in U.S. labor and housing markets, and fiscal and financial pressures in the U.S. and Europe. In light of these uncertainties, the number of manufacturers saying that they were either "somewhat positive" or "very positive" about their business outlook dropped over 20 points in the third-quarter survey.

Since then, there have been signs of improvement in the domestic economy, and manufacturing activity has started to pick up again. Industrial production is up 2.1% year to date (through October) and 9.2% since December 2009. Other indicators also point to higher production levels this quarter and next year, with sentiment surveys from the Institute for Supply Management and various regional Federal Reserve Banks expressing renewed strength.

The latest NAM/IndustryWeek Survey of Manufacturers mirrors this view. As Figure 1 shows, 80.2% of NAM members responding to this survey have a positive outlook -- up from 65.4% in September. While this is still below the 86.4% reading of June, it reflects a nice turnaround in confidence. The response was 13% lower for individuals saying that they are "somewhat negative," while the "somewhat positive" and "very positive" responses both edged higher. Even though uncertainties remain, particularly with regard to European sovereign debt, business confidence is clearly higher, which is boosting expectations for 2012.

This assessment carries forward into manufacturers' forecasts for sales, employment and capital spending plans for next year. Over 72% of NAM members expect their sales to increase over the next 12 months, with an average expected increase of 4.4%. This exceeds the 3.2% projection from the previous survey, yet it is below the 5.5% finding from June. Nonetheless, it suggests that manufacturers anticipate production will pick up significantly. In fact, roughly half of them expect for sales to grow by at least 5%, and one out of five predicts sales growth will exceed 10% next year.

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What is driving optimism among manufacturers for 2012? NAM Chief Economist Chad Moutray comments on the findings of the 4th Quarter IW/NAM Manufacturing Survey in an interview with IW Executive Editor Steve Minter.

Overall hiring and capital spending are predicted to grow by 1.8% and 2.8%, respectively. Those figures had been 1.4% and 1.5%, respectively, in the previous survey. There was also a modest uptick in employment expectations, and businesses' investment plans rose more dramatically. In terms of capital spending intentions, 52% plan to increase their investment, while 36% anticipate no changes.

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