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Manufacturing Optimism Cools from Record Highs, NAM Survey Finds

Sept. 10, 2021
Majorities of respondents expect sales, production and prices to increase in the next year.

The latest survey from the National Association of Manufacturers shows that manufacturing optimism remained high in the third quarter of 2021, despite significant pressure from supply and labor bottlenecks.

On NAM’s Manufacturers’ Outlook Survey for the third quarter of 2021, published September 9, 52% of surveyed companies said their business outlook is “somewhat positive,” while an additional 36% said they are “very positive.” In all, 88% of respondents said conditions are at least somewhat positive, down only slightly from June’s 90.1%.

Based on the results, NAM set its manufacturing outlook index to 58.4%. The revised index for June’s report was 60.2%.

More than a quarter of respondents said they expected sales and production, respectively, to increase by more than 10%, while a plurality of responses for both questions expected growth between 5-10% for both measures. Roughly 20% of companies anticipated growth less than 5%, for both measures of manufacturing health.

Based on the optimistic figures, with 83% expecting at least slight sales increases and 79% expecting similar production increases, NAM predicted sales would grow by 5.64% and production would grow 5.4% on average over the next twelve months.

Breaking the results down by company size, small manufacturer optimism grew while medium and large manufacturers hedged their expectations somewhat. Positive outlooks among smaller manufacturers—companies with fewer than 50 employees, in NAM’s terms—rose about 3 points in the third quarter to 83.1%, while medium-sized manufacturers reporting good conditions fell 2.5 points to 88.6%.

Large-company optimism hit 88.1%, down 8.4 points from its June figure of 96.5%, an all-time high.

Despite the optimism on display in the survey, manufacturers are not without problems, many of them longstanding. On a list of business challenges, 86.4% of surveyed companies said they were having trouble with increased raw material costs, and more than 90% of respondents said they expected those prices to continue climbing. NAM estimated raw materials prices would rise about 6.48% based on those results.

Eighty percent of companies said they were having trouble attracting and retaining a quality workforce, even as 68.2% said they expected to increase full-time employment. Workforce shortages were seen by 81.5% of respondents as the biggest risk to the current economic outlook. Other current business challenges listed by manufacturers included supply chain difficulties (79.8%), transportation and logistics costs (69.1%), rising health care or insurance costs (52.2%) and unfavorable business climate (41.2%).

While less than 50% listed listed taxes and regulations as a primary business challenge, most manufacturers agreed that increased taxes on income from manufacturing activities would have a detrimental effect on their business. Nine out of ten said increased taxes would hinder hiring, wage increases, new equipment investments and expanded facilities.

In a statement released September 9, the same day as the survey, NAM CEO Jay Timmons said that tax increases proposed by Commerce Secretary Gina Raimondo would cause 1 million jobs lost in two years.

Timmons also noted that manufacturing wages have grown significantly over the last few years, including by 2.8% in 2019 and 3% in 2020. The September survey predicts wages will rise by 3.5% in the year to come, which would be a record high for the survey.

Rising COVID-19 cases, including due to the delta mutation of the virus, were seen as potentially perilous by just under 50%. More than half, 58.6%, of firms say their revenue has already returned to pre-pandemic levels.

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