- 82% of U.S. manufacturers forecast revenue growth in next 12 months.
- Uncertainty prevails for both U.S. and global economies
- Lack of demand cited as biggest barrier to growth
- Hiring and investment plans remain stable but overseas expansion plans lessen
Capital Spending Plans
With regard to spending, 49% of respondents plan major capital investments over the next 12 months, slightly below last quarter and a year ago (55%). However, their mean investment as a percentage of total sales at 5.8% was higher than the second quarter and similar to the third quarter of 2011. The survey also projects a rise in operational spending, with 83% planning increased spending in the next 12 months, focused on new products or service introductions (46%) and research & development (46%).
As for new business initiatives, PwC found that plans for expansion into new markets abroad dropped to 23% in the third quarter from 37% in the second quarter, representing the lowest level since the fourth quarter of 2009. In addition, plans to invest in new facilities abroad also dropped considerably to 16% in the third quarter, down 16 points from 32% in the second quarter.
Plans for M&A activity over the next 12 months remained steady at 37%, with 35% planning to purchase another business and 12% planning a sale of part of their business. The divestiture indication reached the highest level since the fourth quarter of 2007.
Gross margins remained flat in the third quarter, with 26% indicating increased gross margins and 23% saying they were lower, while 51% said they were the same as the previous quarter. Costs and prices were moderately higher with 30% of respondents reporting higher costs and 14% reporting lower costs, for a net plus 16 percentage points higher, one point above the second quarter’s 15%. On the price side, 28% raised prices (up 10 points) but 18% lowered them (up 13 points), for a net plus 10 percentage points, off three points from the second quarter.
“The considerable drop in global expansion plans, combined with an uptick in potential divestiture activity, further highlights the conservative stance being taken by management teams in the industrial manufacturing sector,” said Bono. “U.S. industrial manufacturers are waiting for clarity on the direction of the economy and geopolitical picture, and as the outlook becomes clearer, we believe companies will step-up targeted spending to support new growth initiatives, particularly given tightening margins associated with current revenue streams.”
PwC's Manufacturing Barometer is a quarterly survey based on interviews with 57 senior executives of large, multinational U.S. industrial manufacturing companies about their current business performance, the state of the economy and their expectations for growth over the next 12 months.
