More Investment Ahead for U.S. Manufacturers

PwC survey shows 82% plan increased capital spending as focus shifts to competitive positioning.

U.S. manufacturers turned sharply more bullish in the first quarter of 2012, according to the latest Manufacturing Barometer survey released by PwC. Some 68% of manufacturers said the U.S. economy was growing, up 40 points from the fourth quarter of 2011.

Though half of the manufacturers surveyed said they faced higher costs, 43% were able to raise prices and 45% reported improved gross margins. Overall, manufacturers estimated that their revenues would grow an average of 5.6% in the year ahead.

Manufacturers are taking renewed interest in the U.S. market because of growth in sectors such as energy, aerospace and automotive, Barry Misthal, global industrial manufacturing leader for PwC, told IndustryWeek.

"These are very big industries where industrial manufacturers play large and they are seeing some very good performance from their customers in the U.S.," Misthal noted.

Manufacturers also showed more optimism about the world economy, with 44% saying they were optimistic about the next 12 months and only 11% expressing pessimism. However, 45% remained uncertain about the global economy.

In spite of exposure to increased costs globally, industrial manufacturers generated margin growth in the first quarter as they continued to benefit from operating efficiencies and improved pricing flexibility. This uptick in profit levels bodes well for investment spending as companies put their cash to work in the coming months, said Misthal.

Indeed, increased capital spending was projected by 82% of the manufacturers, driven by new product or service introductions (52%), information technology (47%) and expansion of facilities or to new geographic areas (42% each).

Manufacturers also are showing more interest in hiring, with 50% planning to add employees and 43% staying about the same. Respondents said they are planning on hiring production workers (37%), professionals/technicians (32%) and skilled workers (32%).

More interest in acquisitions was reported, with 42% considering the purchase of another business, according to the quarterly PwC report. Other expansion activities included moving into new markets (35%) and striking new strategic alliances (35%).

Survey respondents identified the top three barriers to growth during the next 12 months as oil/energy prices (53%), lack of demand (47%) and legislative/regulatory pressures (40%). Concern about taxes dropped 13 points to 20%.

Digital Technology Important for Growth

According to the PwC survey, 91% of manufacturers believe technology is important in achieving the strategic objectives of their business and 98% have used technology to improve their business' performance. Areas where they have employed technology include manufacturing processes (84%), supply chain/distribution (73%) and business intelligence and reporting (71%).

Seven out of 10 manufacturers said they view digital change and digital transformation as important to the growth of their business in the next 1-2 years. Just over half of manufacturers are revising their business models to address new commerce and communication demands with customers, PwC found. Technology investments are aimed primarily at mobility (69%) and cloud computing (57%).

The survey reinforced a clear connection between the importance of digital technology in manufacturing and the search for qualified workers with computer skills, Misthal said.

The incentive for greater use of digital technology will come not only from manufacturers seeking greater efficiencies in their operations, Misthal said, but also from their customers pushing them for greater visibility regarding product information and enhanced ordering processes.

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