Wage Expectations
Manufacturing wages are expected to rise by 1.5% over the next 12 months, just slightly below the 1.8% stated in the past two surveys.
Almost 60% of respondents planned to provide raises of up to 3%, with another 20% planning wage increases of between 3% and 5%. This does not include the additional costs of benefits, which have been significant, particularly for health insurance. Forty-three percent of manufacturers cited rising insurance costs as a primary challenge.
Inventories are expected to decline by 0.6% over the next year, with 49% of respondents saying that their inventory levels would stay the same. Meanwhile, the prices for final goods are anticipated to increase by 1.4% on average. This is only slightly below the 1.5% gain suggested last time.
Nearly half of all manufacturers, however, plan to keep their prices about the same, with around 35% suggesting final price increases of up to 5%. Almost 8% expect to lower prices. In terms of overall pricing pressures, 39.9% of manufacturers worry about rising energy and raw material costs for their products (Figure 4).
More than 42% of manufacturers cited increasing international sales as one of their primary drivers of growth (Figure 5). Illustrating the importance of overseas markets, firms that were anticipating higher exports over the next year tended to be more optimistic about their overall business outlook. In fact, 77.8% of these export-increasing firms were positive about their outlook versus 64.7% of those who anticipated slowing or no change in their export sales.
The slowdown of the global economy is a major challenge for the manufacturing sector, which depends heavily on exports for growth. Recent weaknesses have slowed the growth rate of exports, as we have seen in official government data. Here, too, we can see an impact.
Around 22% of manufacturers expect their exports to increase by 3% or more over the next year; this is down from just more than 28% in the past two surveys. Roughly 56% anticipate no changes in their export levels.
Firm size is often an important determinant of business sentiment. In recent surveys, smaller manufacturers were less positive than their larger counterparts. In this survey, however, it was larger manufacturers (e.g., those with 500 or more employees) that were more pessimistic. Just 62.9% of large businesses were positive, with one-third suggesting that they were somewhat negative.
This contrasts with 69.5% for small manufacturers and 72.3% for medium-sized manufacturers. The sales outlook helped to explain the differences. Large manufacturers predict sales gains of 1.8% over the next 12 months, compared to 2.7% and 2.9% gains for small and medium-sized firms, respectively.
Figure 4: Primary Current Business Challenges, Third Quarter 2012
Note: Respondents were able to check all that apply. Therefore, responses exceed 100%.
The top challenge for manufacturers—cited by 78.7% of respondents—was uncertainty related to the political climate. With potential tax increases and budget cuts looming at the beginning of 2013, businesses are following the political stalemate in Washington closely. The top concern in the past survey was an unfavorable business climate, which 62.4% of individuals noted this time. It is clear that politics and frustration with the political process are important, with businesses worried about the fallout that could result from the upcoming election.
In fact, several people mentioned the election, the tax and regulatory climate, budget sequestration and/or the political process on the survey. Clearly, the closer we draw to the fiscal abyss, the more manufacturers’ pessimism grows, fueling their reluctance to invest in their companies. A sampling of some of these comments appears below.
This survey specifically listed healthcare costs as a possible top challenge. Past iterations simply noted insurance costs, with healthcare being implied. Perhaps as a result of this change—or maybe because of the recent Supreme Court decision on the Affordable Care Act, higher insurance premiums, etc.—the number of respondents saying that healthcare/insurance costs were a primary concern rose to 69.4%. With the previous wording, 43.1% of individuals cited this as a primary concern. Regardless of the reason, this was enough to make it the second-most important problem for manufacturers.
Figure 5: Primary Drivers of Future Growth, Third Quarter 2012
Note: Respondents were able to check all that apply. Therefore, responses exceed 100%.
The NAM/IndustryWeek Survey of Manufacturers has been conducted quarterly since 1997. This survey was conducted among NAM membership between August 16 and 31, 2012, with 514 manufacturers responding. Responses were from all parts of the country, in a wide variety of manufacturing sectors and in varying size classifications. Aggregated survey responses appear on the following pages. The next survey is expected to be released in December 2012.
