Industrial Manufacturers Aren't Seeing Bright Future

Only 29% see growth in 2008

According to the Q4 Manufacturing Barometer, a study done by PricewaterhouseCoopers (PwC), optimism by U.S. industrial manufacturers plummeted to 29% in the fourth quarter of 2007, down from 64% one year ago. This is the lowest level of domestic optimism recorded since the inception of the Barometer in Q3 2003. The survey reports on the current business climate based on interviews with senior executives of large, multinational U.S. industrial manufacturing companies.

Consistent with previous quarters, oil and energy prices are considered the leading barrier to company growth among two-thirds (66%) of industrial manufacturers. Concerns over lack of demand (61%) and a lower monetary exchange rate (44%) both showed significant increases as potential barriers to future growth.

The majority of manufacturers who are concerned about oil and energy showed increased concern for other key barriers to growth, including demand (67%); competition from foreign markets (51%); and monetary exchange rates (49%). A greater number cited both higher costs (69%) and higher prices (59%) in Q4 2007 than their non-vulnerable counterparts. On the positive side, more executives in the oil/energy vulnerable segment are planning major new investments of capital (44%) and M&A initiatives (49%).

On the international front, 64% of manufacturers responding last quarter had a positive outlook on the world economy, in line with 69% of executives who cited international optimism in Q4 2006. Only six percent of respondents cited a negative outlook about the international economy during the fourth quarter of 2007.

The positive global outlook is due largely in part to international sales projections, which are estimated at up to 33% of total revenue. Of those manufacturers reporting international transactions, nearly two-thirds (64%) experienced an increase in their sales abroad. As a result, 81% of executives expect positive revenue growth during the next 12 months. However, overall revenue targets have been reset from 6.5% in the prior quarter to 5.4% in Q4.

Hiring plans are in line with one year ago, with 36% of executives planning to add workers over the next 12 months, a 16 point drop from the previous quarter's 52%. The minority of executives who are expanding their workforce are a notably faster-growing segment, expecting 8.8% revenue growth over the next year versus 3.5% for those not hiring.

Despite concerns over a deflating U.S. dollar, over half (53%) of industrial manufacturers have undertaken outsourcing of manufacturing to low-cost countries or plan to do so over the next year. However, most executives scaled back plans for major new investments of capital, with only 41% planning major investments over the next year. Of those planning increased expenditures, information technology (48%) and new product/service introductions (43%) were most common.

"With a weak U.S. dollar and a potential downturn in the economy, executives have legitimate reasons to scale back on future plans and focus on their business prospects abroad," explained Misthal. "The unknown is whether the strength of those international sales, plus the existence of a solid minority who continue to hire and invest capital, will be enough to reverse the current industry pessimism in future quarters."

To view the survey, visit: www.barometersurveys.com

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