Manufacturing Confidence Falls

Jan. 29, 2009
Few expect to hire over the next year, while more layoffs are planned.

About a third of U.S. manufacturers say they expect revenue will decline over the next 12 months, citing concerns over a lack of demand, lower profitability and capital constraints, according to a Pricewaterhouse Coopers report.

For the first time since the PwC Manufacturing Barometer began in 2003, more manufacturers are preparing for negative growth (33%) than those expecting positive revenue growth (25%). Another 34% percent are expecting flat growth.

"Industrial manufacturers are expressing significant concern over future revenue growth as worldwide markets face a recession and international sales continue to drop," said Barry Misthal, partner and industrial manufacturing sector leader at PricewaterhouseCoopers. "Their pessimism over revenue figures is being echoed in their anxiety over both the domestic and international economies, as global confidence levels reach an all-time low."

Over the next year, manufacturing executives anticipate revenue will fall an average of 2.4%. Last year, respondents forecasted a mean revenue growth of 5.4%.

Manufacturers report international sales decreased in the final three months of 2008, with only 28% reporting an increase and 44% reporting a decrease. Even so, manufacturers expect international sales will comprise 37% of total revenues over the next year, an increase from last quarter's 32%.

The economic slowdown is expected to impact employment figures, with only 10% of manufacturers planning to add new hires, and 35% anticipating layoffs.

Looking ahead, 85% of respondents cite lower demand as the No. 1 barrier to growth. Decreasing profitability was the second highest concern, cited by 62% of executives, and 37% identified capital constraints as a chief concern. Energy prices seemed to be less worrisome as crude oil prices continue to drop, with 25% of executives citing oil/energy costs as a concern.

"Industrial manufacturers may be able to take advantage of this period, when costs and interest rates are at all-time lows. However, a deflationary marketplace can also be detrimental to margins, so executives will need to hold their price points and continue to drive sales in order to stay successful," said Misthal. "Currently, there is a significant slowdown in industrial activities everywhere -- in both developed and emerging economies -- making it important for manufacturers to continue to harness international sales to remain competitive."

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