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Industrial Manufacturers Cautiously Eye Future

March 1, 2004
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NEW YORK-Continuing with results seen in the third quarter, U.S. manufacturers remain upbeat and optimistic about the U.S. economy over the next 12 months, according to the PricewaterhouseCoopers Manufac-turing Barometer, a quarterly survey of executives in large, U.S.-based multinational industrial manufacturing businesses.

Nearly four-fifths, 78%, are optimistic about the U.S. economy's prospects over the next 12 months, up from 70% at the time of the third quarter assessment. Meanwhile, 60% are optimistic about the direction of the world economy, up from 46% at the third quarter

Only 44% of executives say their business expects to make major new investments of capital over the next 12 months, but this is up from 39% in the third quarter. The average spend rate is 6.0% of revenues. Among those planning new investments, new products and service introductions, business acquisitions and information technology are cited most often-48%, 36% and 34%, respectively. Increased investments in facility expansion, advertising and Internet commerce showed improvement from third quarter expectations.

When asked about business initiatives their company will consider over the next 12 months, more than one-half, 52%, cite some form of merger and acquisition activity. Other leading business initiatives under consideration include a new strategic alliance, cited by 48%, and expansion into new markets abroad, 33%.

More companies plan to add workers over the next 12 months than reduce them, 35% vs. 31%. As a group, however, these businesses expect to reduce their workforce by 1.7%. Apparently those making reductions will do so in greater numbers than those planning to add.

White-collar support jobs remain the most at risk, with 23% of businesses planning to reduce these jobs while only 9% plan to add them. It appears that prospects for production workers are looking up, however. Twenty-one percent cite plans to add production workers while 23% plan to reduce them, an improvement from the third quarter when only 15% planned to add and 29% planned to reduce.

When asked about potential barriers to growth over the next 12 months, 60% of the executives are concerned about foreign competition. Other leading barriers include lack of demand, cited by 39%, decreasing profitability, 34%, and legislative/

regulatory pressure, 33%. Concerns about the monetary exchange rate dropped from third quarter assessments, likely because of the continued rise in the dollar vs. foreign currencies, the survey concludes.

According to the survey, manufacturing executives are more optimistic about revenue growth over the next 12 months. When queried on this topic in the third quarter, only 79% were expecting positive revenue growth. Now that figure stands at 90%. The rate of growth appears to be expanding as well, now projected at 7.0% vs. a 4.4% projection in the third quarter.

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