Overall, optimism about the U.S. and world economies' prospects over the next 12 months is on a major upswing, according to the PwC U.S. Manufacturing Barometer released on Jan. 27. Trends giving rise to this optimism include stronger revenue forecasts for the respondents' own companies and improved international revenue contributions, as indicated in the findings of the Q4 2010 report.
Looking at the next 12 months, 63% of industrial products manufacturers expressed optimism about the U.S. economys prospects, a sharp rise of 28 points from the prior quarter's 35%. This current level of optimism is 16 points higher than a year ago (47%), and has not been this high since Q2 2007 (62%).
Only 7% of industrial products manufacturers remain pessimistic, while 30% are uncertain. The 12-month outlook for the world economy also improved significantly, with 60% of those marketing abroad now optimistic about the world economys prospects, up 22 points from the prior quarter. Only 2% are pessimistic, while 38% remain uncertain.
In Q4 2010, the majority (61%) of panelists believed the U.S. economy was growing, representing a 34-point increase from the prior quarter. Only 2% believed it was declining. Thirty-seven percent believed the U.S. economy did not change from Q3 2010. With regards to international marketers, the majority (67%) viewed the world economy as growing in Q4, up 24 points from the prior quarter. Only 3 percent believed it was declining, and 30% felt it was unchanged.
"The major shift from uncertainty to optimism in this quarter's findings gives us good reason to be hopeful. We may now begin to see industrial manufacturers start making business decisions in a less guarded, more confident manner as we move into 2011," said Barry Misthal, U.S. industrial manufacturing leader for PwC. "The industry is looking quite strong and steady compared with the past couple of years, and manufacturers appear poised for a robust start to the new year."
For U.S.-based industrial manufacturers that sell abroad, international markets showed notable improvement in the fourth quarter of 2010, with 59 percent reporting an increase in sales, up 15 points quarter-to-quarter, and only 2% reporting a decrease. Additionally, the projected contribution of international sales to total revenue over the next 12 months came in at 38%, up 2 points from the prior quarter and a 4-point increase over a year ago (34%).
U.S. manufacturers will likely focus on emerging markets for growth opportunities in 2011, Misthal says.
"I expect companies with established operations in developing countries (BRIC) and Asia to see the most growth," he told IndustryWeek. "Growth in the U.S. and Europe will be smaller -- or neutral -- and more measured. In the U.S. and Europe, I think order growth will improve, including benefit from restocking inventory, but ending of government stimulus programs will have a negative effect."
Over the next 12 months, 48% of panelists plan to add employees to their workforce, up 6 points from last quarter and 18 points higher than a year ago (30%). Only 2% plan to reduce the number of full-time equivalent employees, while half plan to stay about the same. The net workforce projection is plus 1.2%, up from 0.4% both last quarter and a year ago, a sign of moderate new hiring growth. Of those planning to hire, the most sought-after employees will be professionals/technicians and skilled labor.
For the fourth straight quarter, legislative/regulatory pressures remained the highest-ranking perceived barrier to growth over the next 12 months, at 68%, declining 9 points from last quarter. While concern about demand remained high, at 63%, two other important potential barriers to growth declined as well, including concern about taxation policies, at 47% (down 13 points) and decreasing profitability, at 29% (down 11 points). Concern about competition from foreign markets also dropped, from 43% to 36%. In contrast, concern about lack of qualified workers rose 5 points to a still-limited 13%, the largest gain this quarter.
The projected average growth rate for own-company revenue over the next 12 months showed increasing strength, rising to 6.6%, up from 5% last quarter and well over double what it was a year ago (2.7%). Eighty-four percent of respondents expect positive revenue growth for their own companies in the year ahead, with 34% forecasting double-digit growth (up 16 points), and 50% forecasting single-digit growth. Additionally, calendar-year (full-year 2010) own-company revenue growth forecasts rose to a 5% rate, up from 4.5 percent in the prior quarter.
In the fourth quarter of 2010, gross margins remained positive -- up for 34% of panelists and down for 1%, for a net plus 15%, similar to last quarter's plus 17%. Costs and prices were both on the rise in the fourth quarter. Net costs were up for 26% and lower for 15%, for a net plus 11%. A notable increase was reported on the pricing side, with prices up for 32% and down for 11%, for a net plus 21% (up 14 points) -- the first strong sign in recent years of emerging price flexibility and pricing increases.
Looking at the next 12 months, 82% are planning to increase operational spending, led by increases in new product or service introductions (50% and research and development (45%). On the rise this quarter is prospective spending for geographic expansion, information technology, and for the first time, Internet commerce. Additionally, plans for M&A remain high (39%, and plans for new facilities abroad jumped 9 points to 27%.
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