Automotive / Aerospace / Energy / Management / Industry Headlines

U.S. Industrial Manufacturers Optimistic About Economy

April 16, 2013
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NEW YORK CITY-―Domestic industrial manufacturers remain positive regarding the outlook for the U.S. economy in the year ahead, while sentiment 
pertaining to the world economy remains guarded, according to the Q1 2013 Manufacturing Barometer, released today by PwC US. According to 
PwC’s survey, 55% of respondents expressed optimism about the 12-month outlook for the U.S. economy during the first quarter of 2013, 
up seven points from the fourth quarter, and only 5% were pessimistic. 
 
“Overall sentiment regarding the direction of the domestic economy remained upbeat among U.S. industrial manufacturers in the first quarter,” 
says Bobby Bono, U.S. industrial manufacturing leader for PwC. “However, management teams are taking a more conservative approach to forecasting 
top line performance for the year ahead, given the moderate recovery underway and uncertainty pertaining to fiscal policy.”
 
Reflecting the sustained level of optimism, 78% of respondents forecast revenue growth at their own companies for the next 12 months, 
while only five percent expect negative results. The projected average revenue growth rate in the year ahead also dropped to 4.3% in the 
first quarter of 2013, from 5.2% in the fourth quarter of 2012. Still, attitudes pertaining to the outlook for the U.S. continue to contrast 
with sentiment regarding the international markets, where optimism toward the 12-month outlook was relatively low at 36%, with 45% 
expressing uncertainty. In addition, the projected contribution of international sales to total revenue over the next 12 months declined to 32%, 
as compared to 38% in the fourth quarter of 2012.
 
“Views pertaining to the world markets have remained muted, with close to half of survey respondents expressing uncertainty," Bono adds. "As a result, we have 
witnessed a consistent pull back in overseas expansion plans during the past four quarters, with the first quarter of this year being at a low of 10 
percent, the lowest it has ever been in almost a decade. Instead, management teams are planning to spend more on research and 
development, new product launches and information technology as they focus on building market share and boosting revenues in a competitive domestic 
market.”
 
With regard to investment spending, 43% of U.S. industrial manufacturers said they were planning major new investments of capital over the 
next 12 months, off four points from the fourth quarter of 2012 and below a year ago (53%). Plans for operational spending also slowed in 
the first quarter survey, with 71% of respondents planning increases over the next 12 months, a nine point reduction from the fourth quarter 
of 2012. Areas where operational spending is expected to increase included research and development, up 14% to a high of 52%, followed 
by new product or service introductions (38%), and information technology (28%). Conversely, investment plans for geographic expansion hit a low of 
10%, off 18 points from the fourth quarter of 2012.
 
Plans for M&A activity over the next 12 months dropped to 19% in the first quarter survey, off 16 points from the fourth quarter of 2012.  
In addition, plans for expansion to new markets abroad decreased 14 points to nine percent, indicating a significant slowdown in investments in 
international markets. “Overseas expansion plans have fallen off notably during the past four quarters, with the first quarter survey showing a 
26-point reduction from last year,” says Bono. “It is clear that companies are keeping their cash closer to home and are waiting for clarity on 
the world stage before making decisions on investing internationally.”
 
According to the first quarter survey, new hiring plans over the next 12 months were reported by 45% of industrial manufacturers, off 13 
points from 58% in the fourth quarter of 2012. Still, overall composite workforce projections rose from 0.5% in the fourth quarter 
to 1% in the first quarter, as a few industrial manufacturers are planning to add large numbers of new employees over the next 12 months.   
 
In the first quarter of 2013, gross margins were higher for 29% and lower for 24% of survey respondents, off eight points from the 
fourth quarter of 2012. Costs were only moderately higher but prices rose more sharply. Looking ahead, 26% of survey respondents now view 
decreasing profitability as a barrier to growth over the next 12 months (off four points). 
 
With regard to headwinds to growth over the next 12 months, first quarter survey respondents highlighted legislative/regulatory pressures (55%,
 up eight points), lack of demand (48%, off four points) and taxation policies (45%, up 12 points). Taxation policies showed the 
greatest rise, up 25 points from a year ago (20%), reflecting the ongoing fiscal policy debates. In addition, legislative/regulatory 
pressures rose 15% from a year ago (40%). “There’s no doubt that management teams are apprehensive about the direction of tax policy 
and it’s causing them to take a more measured approach to decision making and investment planning,” adds Bono.
 
About the Manufacturing Barometer
PwC's Manufacturing Barometer is a quarterly survey based on interviews with 58 senior executives of large, multinational U.S. industrial 
manufacturing companies about their current business performance, the state of the economy and their expectations for growth over the next 12 
months. This survey summarizes the results for Q1 2013 and was conducted from January 14, 2013 to March 29, 2013. To view the complete 
Manufacturing Barometer report, visit http://www.pwc.com/manufacturing-barometer. For information about other Barometer surveys, including recent 
economic trend data and topical issues, visit http://www.barometersurveys.com.

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