NAM/IndustryWeek 1Q 2013 Survey of Manufacturers reveals:
- Manufacturers' optimism is on the rebound
- Comprehensive immigration reform is supported by majority of manufacturers
- Slight majority expect improved sales in 2013
- Majority do not expect foreign sales to increase
- Rising cost of health care is top challenge facing manufacturers
While not universal by any means, there have been some signs of increased activity for manufacturers early in 2013. The Institute for Supply Management’s Purchasing Managers’ Index has risen for three straight months on stronger sales and production data, and the economies of many of our largest trading partners—with the exception of those in Europe—have made some progress in the past few months, which should boost our export numbers moving forward. However, many of the problems illustrated in our last survey continue to persist. Manufacturing production declined 0.4% in January, and many of the regional Federal Reserve Bank sentiment surveys report ongoing weaknesses with new orders, shipments and especially hiring growth.
One of the primary challenges noted in the previous National Association of Manufacturers (NAM)/IndustryWeek Survey of Manufacturers was anxiety about the U.S. fiscal situation and the threat of the fiscal cliff. Today, concerns about the long-term fiscal health of the country continue, and many manufacturers have pulled back hiring and investing due to across-the-board federal budget cuts.
Currently, the U.S. economy is a complicated mix of both progress and enduring headwinds that dampen growth. Optimism remains well below the sentiment level of 88.7%in the first quarter of 2012. Against this backdrop, we observe the current health of the manufacturing sector in the most recent NAM/IndustryWeek Survey of Manufacturers. The percentage of manufacturers with a positive outlook declined significantly throughout 2012, falling from 88.7% in March to roughly 52.0% by December. The percentage of respondents reporting a somewhat negative outlook nearly tripled in the second half of the year, increasing from 15.8% in the second quarter to 38.9% in the fourth quarter.
In the first quarter 2013 survey, the percentage of manufacturers who were either somewhat or very positive about their own company’s outlook rose from 51.8% to 70.1% (Figure 1). This essentially returns the level of optimism back to the third quarter 2012 levels from six months ago.
Breaking it down further, 60.5% of respondents said they were somewhat positive in their outlook, with 28.2% answering somewhat negative. Each of these figures represents a change from the last survey, suggesting a gain in optimism in the past three months. However, as we mentioned previously, the current sentiment levels remain well below what was seen one year ago, when 88.7% of manufacturers were positive and, on average, they expected to see a 5.0% growth in sales.
These findings reflect the projected 1.5% increase in manufacturing production over the course of the next six months (Figure 2). A regression model using the NAM/IndustryWeek outlook measure, housing permits, the interest rate spread, real personal consumption and the S&P 500 attempts to predict production two quarters ahead. It explains roughly 90% of the variation since the data began in the fourth quarter of 1997. These findings show an improvement from the last survey, which predicted consistently declining production due to increased uncertainty and pullbacks in hiring and capital spending.
We asked several special questions regarding immigration reform in this survey. The desire to pass comprehensive immigration reform has come into increased focus since the election. More than two-thirds of those responding to questions on the topic said they supported comprehensive immigration reform (Figure 3). Manufacturers rely on foreign-born workers for numerous tasks, ranging from leadership roles to R&D to production (Figure 4). In fact, nearly 12% noted that their businesses were founded by immigrants, with almost 28% having immigrants as part of the leadership team. Additionally, 31.1% of the respondents cited foreign-born workers as instrumental in the innovation and development of key products and services for their company, and three-fourths described immigrants as integral to the production process.
The role of immigrants varies greatly in the manufacturing industry, but many individuals mentioned the need for improved science, technology, engineering and math (STEM) workers in their businesses. For those respondents who volunteered a comment in the special question section on the roles of foreign-born workers in their companies, a number of them wrote computer programmer, engineer, R&D, structural designer, or similar occupations. Others listed responsibilities such as accounting, clerical, loader operator, management, sales/marketing and truck driver. A few comments focused on the challenges related to obtaining a visa for their immigrant workforce, necessitating the need for reform.
Looking once more at the outlook data in the first quarter survey, manufacturers expected improved levels of sales, employment and investment (Figure 5). As noted, the last survey showed declining hiring and capital spending over the course of the next 12 months, which was the first downturn of these averages since the fourth quarter of 2009. The current survey predicts average sales growth of 2.3% this year, with capital spending and employment growth rates of 0.9%and 0.7%. These figures do not suggest rapid growth, however they track at a slightly faster pace than predicted in the fourth quarter of 2012.