NAM/IW Q2 Survey: Sector Remains Optimistic -- Sees Sales Increasing

NAM/IW Q2 Survey: Sector Remains Optimistic -- Sees Sales Increasing

Over half of those surveyed expect sales increases next year.

Earlier this year, manufacturing was helping to drive overall output and employment growth. In fact, since December 2009, manufacturing accounted for roughly 15% of the net job growth in the economy despite the fact that it represents just 9% of total employment. Various indicators of production and export sales made similar findings, with growth in manufacturing -- particularly durable goods -- pushing up real gross domestic product. As a result, a number of commentators began acknowledging the "revival" of manufacturing.

In April and May, though, a number of headwinds began to impact the manufacturing economy. Supply disruptions stemming from the Japanese disaster, rising energy and raw material costs and severe weather began to slow overall productivity. Current conversations surrounding manufacturing are likely to center on the "cooling" or slowdown of the sector. To be sure, manufacturers continue to grow, albeit more slowly than in the first quarter of this year. Some of the challenges are temporary -- such as the supply chain issues -- while others might linger for some time-- such as the rising price of raw materials or uncertainty about tax and regulatory policies coming from Washington.

It is against this backdrop that manufacturers were surveyed in late May to gauge their opinions about the current and future business environment. Despite the current deluge of weak indicators, manufacturers have responded positively about their prospects for growth in recent surveys, most notably those from the regional Federal Reserve Banks which ask about their expectations for the next six months. This presents, to some at least, a stark contrast between the current obstacles and the more optimistic perceptions down the line. Time will tell whether the current realities alter such viewpoints.

Listen To an Associated Podcast

What accounts for the upbeat mood of manufacturers? NAM Chief Economist Chad Moutray comments on the findings of the 2nd Quarter IW/NAM Manufacturing Survey in an interview with IW Editor-in-Chief Steve Minter

In the meantime, the NAM/ IndustryWeek Survey of Manufacturers echoes the brighter outlook on the economy moving forward, as respondents to the survey were generally upbeat about the economy. As evidence of this, 86.4% of respondents were positive about the current business climate. This represents a significant improvement in manufacturer optimism from the Great Recession and is the highest reading in 5 years. Strong sales expectations are helping to drive this sentiment. Nearly two-thirds of those responding to the survey said that they expect sales to increase by at least 5% over the next year, bringing the average expected sales increase to 5.4%.

With such high expectations, businesses are also planning to hire additional workers, invest in new capital ventures, and pursue new export opportunities. More manufacturers plan to increase (56%) rather than decrease (8.5%) their capital spending in the next twelve months -- a significant indicator of confidence in their long-term economic prospects.

Likewise, over half of manufactures planned to increase employment over the course of the next year, with one in five stating planned hiring growth of at least 5%. Manufacturers are also planning to pay their workers more. Wages are expected to go up an average of 1.8% over the next twelve months, with over half predicting an increase of up to 3% and one-quarter forecasting pay raises of more than 3%.

Despite the improved economic environment, the economy remained the top concern for manufacturers. This was followed closely by the cost of raw materials. For this survey, respondents were able to write-in additional concerns, and many used this space to cite specific examples of how pricing pressures were squeezing the bottom line. Such findings are consistent with other economic data which show businesses grappling with these costs. Indeed, nearly three-fourths of manufacturers responding to this survey find that they will need to increase prices over the next year, with an average expected price increase of 3.4%.

Other comments regarding top concerns included the following: concern over the federal fiscal situation in Washington, the U.S. corporate tax structure relative to other countries, the high cost of complying with new regulations, rising health care costs, the ability to attract a skilled workforce, and global competitive barriers.

International trade represents a tremendous opportunity for many manufacturers. Nearly 45% of respondents said that they planned to increase exports over the next twelve months, with one in five forecasting export growth of 5% or greater. Not surprisingly, those manufacturing concerns which predicted increases in exports were also more positive about the current business environment, with over 34% of them suggesting that they are "very positive" in their business outlook versus almost 16% for those whose export expectations were flat or negative.

While they were generally positive about the next 12 months, smaller manufacturers with less than 50 employees were less optimistic than medium (50 to 499 employees) or large (500 or more employees) entities. Nearly one in five small manufacturers expressed some pessimism in their business outlook. Medium-sized manufacturing operations are the most optimistic, with nearly 29% saying that they are "very positive" about the business environment compared to 15% and 23%, respectively, for small and large manufacturers.

Smaller manufacturers also have less optimistic views on sales, employment, and investment plans moving forward. Small manufacturers, for instance, anticipate sales to grow 3.7%, while medium and large firms anticipate growth of approximately 6.1%.

The NAM/IndustryWeek Survey of Manufacturers has been conducted quarterly since 1997, with the exception of the last two quarters. This survey was conducted among NAM membership between May 16 and 27, 2011, with 330 manufacturers responding. Responses were from all parts of the country, in a wide variety of manufacturing sectors, and in varying size classifications. Aggregated survey responses appear on the following pages.

The next survey is expected to be released in September.

Survey Responses

  1. How would you characterize the business outlook for your firm right now?
    1. Very positive -- 23.9%
    2. Somewhat positive -- 62.4%
    3. Somewhat negative -- 11.2%
    4. Very negative -- 2.4%

  2. Over the next year, what do you expect to happen with your company's sales?
    1. Increase more than 10 percent -- 30.9%
    2. Increase 5 to 10 percent -- 32.7%
    3. Increase up to 5 percent -- 16.1%
    4. Stay about the same -- 12.7%
    5. Decrease up to 5 percent -- 3.0%
    6. Decrease 5 to 10 percent -- 2.7%
    7. Decrease more than 10 percent -- 1.8%
      Average expected increase in sales consistent with these responses = 5.5%

  3. Over the next year, what do you expect to happen with prices on your company's overall product line?
    1. Increase more than 10 percent -- 7.9%
    2. Increase 5 to 10 percent -- 23.9%
    3. Increase up to 5 percent -- 40.6%
    4. Stay about the same -- 22.4%
    5. Decrease up to 5 percent -- 3.9%
    6. Decrease 5 to 10 percent -- 0.9%
    7. Decrease more than 10 percent -- 0.3%
      Average expected increase in prices consistent with these responses = 3.4%

  4. Over the next year, what are your company's capital investment plans?
    1. Increase more than 10 percent -- 22.7%
    2. Increase 5 to 10 percent -- 16.4%
    3. Increase up to 5 percent -- 17.3%
    4. Stay about the same -- 35.2%
    5. Decrease up to 5 percent -- 3.9%
    6. Decrease 5 to 10 percent -- 1.5%
    7. Decrease more than 10 percent -- 3.0%
      Average expected increase in investment consistent with these responses = 3.4%

  5. Over the next year, what are your plans for inventories?
    1. Increase more than 10 percent -- 5.2%
    2. Increase 5 to 10 percent -- 9.7%
    3. Increase up to 5 percent -- 16.4%
    4. Stay about the same -- 50.6%
    5. Decrease up to 5 percent -- 9.4%
    6. Decrease 5 to 10 percent -- 4.8%
    7. Decrease more than 10 percent -- 3.9%
      Average expected increase in inventories consistent with these responses = 0.7%

  6. Over the next year, what do you expect in terms of full-time employment in your company?
    1. Increase more than 10 percent -- 7.0%
    2. Increase 5 to 10 percent -- 14.0%
    3. Increase up to 5 percent -- 35.4%
    4. Stay about the same -- 36.4%
    5. Decrease up to 5 percent -- 4.9%
    6. Decrease 5 to 10 percent -- 0.9%
    7. Decrease more than 10 percent -- 0.9%
      Average expected increase in full-time employment consistent with these responses = 2.4%

  7. Over the next year, what do you expect to happen to employee wages (excluding non-wage compensation such as benefits) in your company?
    1. Increase more than 5 percent -- 2.4%
    2. Increase 3 to 5 percent -- 25.5%
    3. Increase up to 3 percent -- 53.3%
    4. Stay about the same -- 17.3%
    5. Decrease up to 3 percent -- 0.9%
    6. Decrease 3 to 5 percent -- 0.3%
    7. Decrease more than 5 percent -- 0.3%
      Average expected increase in wages consistent with these responses = 1.8%

  8. Over the next year, what do you expect to happen with the level of exports from your company?
    1. Increase more than 5 percent -- 20.9%
    2. Increase 3 to 5 percent -- 11.7%
    3. Increase up to 3 percent -- 12.3%
    4. Stay about the same -- 52.6%
    5. Decrease up to 3 percent -- 1.2%
    6. Decrease 3 to 5 percent -- no responses
    7. Decrease more than 5 percent -- 1.2%
      Average expected increase in exports consistent with these responses = 1.1%

  9. Looking at the current business environment, which of the following is your top concern?
    1. Taxes -- 9.1%
    2. Regulation -- 12.7%
    3. Economy -- 28.5%
    4. Cost of Raw Materials -- 26.4%
    5. Attracting and Retaining Quality Workforce -- 8.2%
    6. Insurance Costs -- 7.9%
    7. Energy Costs -- 2.1%
    8. Other -- 5.2%

  10. Where is your business primarily located?
    1. Northeast -- 21.0%
    2. South -- 14.8%
    3. Midwest -- 54.3%
    4. West -- 9.9%

  11. What is your company's primary industrial classification?
    1. Food manufacturing -- 1.5%
    2. Beverages and tobacco products -- no responses
    3. Textile mills or textile products -- 1.2%
    4. Apparel and allied products -- 0.6%
    5. Leather and allied products -- no responses
    6. Wood products -- 2.1%
    7. Paper and paper products -- 0.6%
    8. Printing and related activities -- 1.5%
    9. Petroleum and coal products -- 0.9%
    10. Chemicals -- 4.6%
    11. Plastics and rubber products -- 8.5%
    12. Nonmetallic mineral products -- 1.8%
    13. Primary metals, or fabricated metal products -- 35.0%
    14. Machinery -- 10.9%
    15. Computer and electronic products -- 3.3%
    16. Electrical equipment and appliances -- 5.8%
    17. Transportation equipment -- 5.8%
    18. Furniture and related products -- 0.9%
    19. Miscellaneous manufacturing -- 14.9%

  12. What is the size of your firm (e.g., the parent company, not your establishment)?
    1. Less than 50 employees -- 28.1%
    2. 50 to 499 employees -- 54.7%
    3. 500 or more employees -- 17.2%
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