Industry Headlines

Optimism for Domestic Economic Outlook among U.S. Industrial Manufacturers

Highest Level in Five Quarters, According to PwC’s Manufacturing Barometer

July 29, 2013
NEW YORK,  2013― Optimism among U.S. industrial manufacturers regarding the domestic economic outlook rose to 63 percent during the second quarter of 2013, up from 55 percent in the first quarter and representing the highest level since the first quarter of 2012, according to the Q2 2013 Manufacturing Barometer, released today by PwC US. In addition, 72 percent of respondents believed the U.S. economy grew in the second quarter, up 10 points from the prior quarter. At the same time, sentiment pertaining to the world economy remains guarded with only 31 percent expressing optimism and 59 percent voicing continued uncertainty.

The spread between those optimistic about the domestic economy versus those optimistic about the global economy over the next 12 months was 32 percent, representing the second highest quarterly total since these questions were first asked in the third quarter 2003 survey. At the same time, PwC’s Global Manufacturing Current Assessment and Outlook indices show a reduction in overall pessimism among manufacturing executives compared to the first quarter, which appears to be driven by more bullishness over total sales, driven by the U.S., offsetting in part increasing bearishness over international sales.

“There remains a persistent dichotomy in viewpoints regarding the outlooks for the U.S. and world economies. Optimism regarding the domestic economy has increased, while worldwide economic sentiment remains restrained, with global uncertainty reaching the highest level in the past 12 months,” said Bobby Bono, U.S. industrial manufacturing leader for PwC. “The U.S. is starting to show signs of healthy demand trends and improving pricing power, supporting positive overall sentiment in the year ahead. However, as a result of the mixed global outlook, combined with the moderate domestic recovery and the specter of increased legislative and regulatory pressures, management teams are continuing to carefully manage their costs, while maintaining a focus on growing profitably.”

Reflecting the healthy level of optimism pertaining to the domestic economy, 82 percent of industrial manufacturers surveyed expect positive revenue growth for their own companies in the next 12 months, with only three percent forecasting negative growth. The projected average revenue growth rate over the next 12 months was 4.6 percent, up from 4.3 percent in the first quarter, but down from 5.6 percent in last year’s second quarter. Despite the reduced rate of forecasted growth, the outlook for the U.S. continues to contrast with the international picture, where optimism regarding commerce in the next 12 months was only 31 percent, compared to 36 percent in the first quarter. In addition, the projected contribution of international sales to total revenue over the next 12 months remained low at 32 percent, consistent with the first quarter survey, but down from 37 percent in the second quarter of last year.

With regard to capital spending, 40 percent of respondents plan major new investments during the next 12 months, off three points from 43 percent in the first quarter, but well below the 55 percent recorded in the second quarter of 2012. The mean investment as a percentage of total sales of four percent was also lower than the prior quarter’s 4.8 percent, indicative of moderate spending among respondents, and reflecting in part a reduction in planned spending increases from the peak post-recessionary period, which benefitted from pent-up demand.

Plans for operational spending also remained notably below prior year levels. Looking at the next 12 months, 73 percent of respondents plan to increase operational spending, similar to 71 percent in the first quarter, but down from 87 percent in the second quarter of last year. Leading increased expenditures were new product or service introductions, 45 percent, and research and development, 38 percent. Plans for geographic expansion remained low at 15 percent, up from 10 percent in the first quarter, but down significantly from 33 percent last year.
 

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