Smaller manufacturers are feeling fairly optimistic about their growth prospects in the coming months, but taxes, health-care costs and legal fees are restraining their enthusiasm.
That's the finding of the National Association of Manufacturers' 2006 Small Manufacturers Operating Survey, which showed 63 percent of respondents expect their sales to grow more than five percent this year.
“This is the second most optimistic response in a decade and more positive than the expectations of sales growth in the later half of the 1990s,” said David Huether, chief economist at the NAM.
Meanwhile, a greater focus on foreign markets was also noted in the survey. More than one in 10 (10.7 percent) of the survey respondents say exports account for at least a quarter of their company’s sales, an improvement from 2001 when less than four percent of respondents got a quarter of their sales from exports.
“This shows the benefits that come from a lower dollar and solid growth abroad,” Huether said.
Forty-one percent of survey respondents expect they will increase capital investment in 2006 by more than five percent, "positive figures that point to increased capital spending and job growth,” Huether said. “This is the most optimistic outlook in eight years.”
But there were concerns among smaller manufacturers, chief among them rising health- care costs. Nearly half of respondents said their health-care costs have risen from 11 to 20 percent in the past year.
“They expect to cover these rising costs by asking employees to kick in more of their own money or by changing to a defined contribution or Health Savings Account (HSA) approach,” said Jeri Gillespie, the NAM’s director of human resource policy.
Legal fees and taxes are also taking a bite out of the industry.
“Legal fees, such as spending on death tax planning, continue to pose an unfair burden on small manufacturers,” said Bob Shepler, the NAM’s director of corporate finance and tax. “Congress’s inability to permanently repeal this onerous tax costs small manufacturers over $94,000 a year. This is money that cannot be used for capital investment, research and development, or hiring.”
The survey also showed that nearly half of respondents had "frivolous" lawsuits brought against them, costing small manufacturers an average of $195,000 a year, the NAM said.
The NAM’s 2006 Small Manufacturers Operating Survey is available at: http://www.nam.org/2006operatingsurvey.