Manufacturers Are Optimistic About Global Economy, Less So About U.S. Economy

Despite the continued softening of the U.S. economy, which is causing industrial manufacturers to be less optimistic about the future business climate, more companies are planning to hire new employees, according to PricewaterhouseCoopers’ Manufacturing Barometer.

NEW YORK - Although industrial manufacturing executives are optimistic about the global economy over the next 12 months, they are less optimistic about the domestic business climate, in light of the continued slowing of the U.S. economy.

According to PricewaterhouseCoopers’ Manufacturing Barometer, a quarterly survey of U.S. industrial manufacturing executives, more than eight in 10 (83 percent) of industrial manufacturers are optimistic about the global economy over the next 12 months, but optimism about the domestic economy declined seven percentage points, from the previous quarter, to 57 percent.

And while the percentage of executives who expressed a belief that the domestic economy is growing dropped to 69 percent from 92 percent in the first quarter of 2006, only five percent of manufacturers said they were pessimistic about the current U.S. economy, the survey noted.

“Despite their concerns over the domestic economy, the outlook is not so bleak for the industrial manufacturing industry,” said Barry Misthal, PricewaterhouseCoopers' Industrial Manufacturing sector leader. “Higher levels of optimism about the world economy were reported among senior executives, supported by increased international sales and an expected increase in geographical expansion, including new markets.”

In the first quarter of 2007, over half (59 percent) of executives are increasing their international sales and are expecting 33.9 percent of their total revenues to come from abroad.

The level of planned investments rose to 7.4 percent of revenues compared to 6.5 percent in the previous quarter, as 56 percent of executives cite plans for major new investments of capital over the next 12 months, the survey showed.

Almost half (44 percent) of all industrial manufacturers are investing in geographic and facilities expansion, while 39 percent of manufacturers are considering expansion into new markets abroad, a six-point increase quarter-to-quarter, indicating a strong view of the world economy.

The percentage of manufacturers who expect to increase hiring rose 13 points, with 46 percent planning to grow their workforce over the next 12 months, compared to 33 percent of manufacturers from the previous quarter, according to survey respondents.

Even though manufacturers are moving forward with new hiring plans and expansion into new markets, there are doing so with some trepidation as reflected by 41 percent of industrial manufacturers who expressed concern over the lack of qualified workers and 39 percent who were concerned about competition from foreign markets.

The first quarter of 2007 also saw more cost and price increases from industrial manufacturers. According to the survey, 51 percent of industrial manufacturers cited cost increases, while 39 percent raised prices.

But for the coming year, only 21 percent considered decreased profitability as a potential barrier to company growth.

“Overall, this quarter’s data seems to support that notion that the world economy is not anticipated to turn down, while the U.S. economy stays soft,” said Misthal.

The Manufacturing Barometer is based on interviews with 61 senior executives of large, U.S. industrial manufacturers.