NEW YORK, NY-The majority of U.S. industrial manufacturers who were surveyed remain optimistic regarding prospects for the U.S. economy, but sentiment about the global economic outlook continues to weaken, according to the Q2 2012 Manufacturing Barometer released today by PwC US. According to the survey, overall revenue projections among U.S. industrial manufacturers remain positive, with 88% of respondents expecting revenue growth at their own companies and only five percent expecting negative results. In addition, 87% of respondents said they were planning increases in operational spending in the year ahead.

“Despite the perception by some of the increasing challenges globally, sentiment regarding the direction of the U.S. economy among U.S. industrial manufacturers remained positive during the second quarter,” says Bobby Bono, U.S. industrial manufacturing leader for PwC. “Overall spending plans remain healthy with a focus on new product introductions in the face of a competitive environment across multiple sectors. However, we are seeing some moderation in planned outlays for R&D, as well as geographic expansion, which may portend a more conservative approach given worldwide economic conditions.”

Although optimism towards the U.S. economy dropped from 70% in the first quarter of 2012 to 52% in the second quarter, U.S. industrial manufacturers remain largely positive, recording only 7% being pessimistic and 41% uncertain. In contrast, only 13% of those selling abroad are optimistic about the world economy, a decline of 31 points from the first quarter. In addition, 20% are pessimistic and 67% are uncertain about worldwide business prospects.

Notwithstanding the respondents' comments on the global economy, the projected average revenue growth for the year ahead among those surveyed remained at 5.6%, consistent with the first quarter survey, but below last year’s 6.5% estimate. The respondents identified three key barriers to growth during the next 12 months, including legislative/regulatory pressures (58%, up 18 points from last quarter), lack of demand (48%) and oil/energy prices (48%).

In addition, the projected contribution from international sales among companies marketing abroad was 37%, relatively constant with the first quarter of 2012. The majority (55%) of U.S. industrial manufacturers surveyed plan major new capital investments in the year ahead, up slightly from the first quarter of 2012. The mean investment as a percentage of total sales remained moderately high at 5.3% but below last quarter’s 6%. In addition, 87% of respondents plan to increase operational spending, led by investment in new products or service introductions (52%) and information technology (50%). However, only 35% forecast increased spending on research and development, the lowest level since the second quarter of 2010.

“While U.S. industrial manufacturers are strengthening their spending plans, fewer are planning net new hiring during the next 12 months, slightly below last quarter,” continued Bono. “However, the next 12-month workforce projection is a slightly higher 0.9%, a sign that some companies will be adding at slightly higher rates.”

Gross margins constricted considerably in the second quarter of 2012, as only 27% of respondents reported higher gross margins, off 18 points from the first quarter. Cost pressures declined during the second quarter with 30% of respondents noting that costs rose, down 20 points from 50% during the first quarter. At the same time, pricing increases have also narrowed. Only 18%of respondents reported price increases during the second quarter, down 25 points from the previous quarter. This was the lowest level of reported price increases since the second quarter of 2010. Looking ahead, 28% of respondents now view decreased profitability as a barrier to growth during the next 12 months, up six points from the first quarter.

“Gross margins tightened during the quarter and both costs and prices decreased,” says PwC’s Bono. “If growth is slowed going forward, U.S. industrial manufacturers may continue to take a measured approach to pursuing growth opportunities with an emphasis on maintaining profitability and healthy cash reserves.”

PwC’s Q2 Manufacturing Barometer highlights that 40% of U.S. industrial manufacturers plan for merger and acquisition (M&A) activity during the next 12 months, and new strategic alliances increased seven points from last quarter to 42% in the second quarter of 2012. Expansion to new markets abroad also rose slightly to 37% from 35% in the first quarter, and new joint ventures rose five points from last quarter to 33% in the second quarter.