Manufacturers Remain Cautiously Optimistic, Concerns Linger Over Economy and Raw Material Prices
With so many gloomy economic indicators last week, it is sometimes easy to lose track of the fact that manufacturers continue to grow, albeit slower the past couple months than earlier this year. Many in the manufacturing industry are cautiously optimistic moving forward. We saw this in recent regional Federal Reserve Bank surveys, for instance, that manufacturers have favorable expectations of the next six months in terms of production, new orders, exports, etc. While the indices for these expectations might have fallen a little in the latest survey, they remain strong.
Today we rolled out the results of the National Association of Manufacturers (NAM)/IndustryWeek Survey of Manufacturers which paints a similar picture of cautious optimism. Over 86 percent of the respondents had a somewhat or very positive characterization of their business outlook. This was the highest reading in five years (see the accompanying chart below). Moreover, they are forecasting strong sales over the next year, with the average expected sales increase of 5.4 percent for the respondents.
With such high expectations of sales, manufacturers are also planning to hire additional workers, invest in new capital equipment, and pursue more export opportunities. Wages are expected to go up an average of 1.8 percent, with some firms predicting much higher increases.
Despite such positive news, manufacturers continue to worry about the economy, as it was their top concern. Note that, while this NAM/IndustryWeek Survey of Manufacturers has been conducted quarterly since 1997, the question about top concerns is new. Thus, we cannot say whether economic concerns have risen or fallen from prior surveys.
The next-highest top concern is the price of raw materials. This is definitely in line with other economic reports which indicate that manufacturers continue to be squeezed by higher costs. Many respondents to this survey cited specific examples of how rising raw materials were negatively impacting their businesses. In addition, nearly three-fourths of manufacturers filling out this survey suggested that they will need to raise prices this year.
There were also other findings of note. First, international trade represents a major opportunity for manufacturers, and nearly 45 percent of them said that they planned to increase exports over the next twelve months. Moreover, those entities which planned to increase their overseas presence were more likely to be positive in their business outlook. Second, smaller manufacturer with less than 50 employees were generally positive in their forecasts, but less so than their medium and large-size counterparts.
Overall manufacturers are optimistic about the future but also have voiced several reasons to remain cautious. I encourage you to take a look at the complete survey results and listen to my podcast on the results on the IndustryWeek site.
Chad Moutray is chief economist, National Association of Manufacturers.