Among industrial manufacturers, optimism in the U.S. economy has dropped to 45% according to the PricewaterhouseCoopers' Q3 Manufacturing Barometer. This is a 17-point drop from the 62% level of optimism reported last quarter.
Consistent with previous quarters, high oil and energy prices are the most likely barrier to growth during the next 12 months, cited by 57% of the respondents. However, lack of demand (cited by 53%), legislative/regulatory pressures (50%) and decreasing profitability (48%) all showed significant increases as potential barriers to future growth.
"Ongoing concerns about high energy costs are now being coupled with similar concerns about lower demand and decreasing profitability," said Barry Misthal, partner and industrial manufacturing sector leader, PricewaterhouseCoopers. "Mix in uncertainty about legislative and regulatory pressures and it's not hard to see why manufacturers are less optimistic about the U.S. economy. However, healthier international prospects are offsetting these lowered expectations on the domestic front."
International markets remain strong for U.S.-based industrial manufacturers with more than three-quarters (79%) expressing optimism about the world economy during the next 12 months. Two-thirds (67%) of those who sell abroad increased their international sales in the most recent quarter.
The majority of manufacturers are scaling back plans for major new investments during the next 12 months. Only 42% are planning new initiatives during the next year, a decrease from 57% citing plans for major investments last quarter. However, the average percent of revenue put aside for major new investments remains high at 8.7%. Those who are investing are looking to spend more on information technology (IT) -- a trend that continues into the third quarter, with 57% planning to expand their IT capabilities.
A little more than half (52%) plan to add new workers over the next 12 months, consistent with hiring plans from the previous quarter. They are concerned about the availability of talent, however, with 37% citing a lack of qualified workers as a potential barrier to future growth.
"The health of the U.S. economy is definitely in question," commented Misthal. "The strong international market has allowed companies to be moderately bullish about their own companies' prospects during the next year, and these companies have maintained interest in new hiring as a result. While September and October are traditionally volatile months for the marketplace, it will be important to see how things play out in the fourth quarter of this year."
For access to the complete Manufacturing Barometer report, please visit www.pwc.com/manufacturing.