Manufacturing sector financial officers not sure about 2009 recovery

Despite the recent layoffs at Whirlpool, Rheem, Trane, Riverside and other Fort Smith area manufacturers, the manufacturing sector remains an important part of the regional economy.

The future of that job sector is uncertain, but a survey released Dec. 10 by Bank of America Business Capital provides some insight into the thinking of financial officers at manufacturing companies.

Even in this economic downturn, half of manufacturing company CFOs surveyed expect their company’s revenues to increase in the coming year. Nearly four in ten (37%) predict increased profit margins. A majority (52%) of the CFOs say that the current state of the economy will have no impact on their growth plans.

Conducted by Granite Research Consulting from mid-August through mid-October 2008, the Bank of America Business Capital 2009 CFO Outlook surveys CFOs from 600 U.S. mid-size and large manufacturers with revenues ranging from $25 million to $2 billion.

“Overall, these results reflect the severity of the current economic downturn and the uncertainty about how long it will take to work our way out of it,” said Mickey Levy, chief economist for Bank of America. “But, CFOs are taking necessary steps such as trimming inventories and operating costs in order to remain competitive, as they try to weather the storm.”

Other survey results include:

• Manufacturing CFOs surveyed are evenly split on the question of whether the U.S. economy will expand in 2009, with 31% believing it will, approximately the same percentage that see the economy contracting (32%). This compares with 44% from last year’s survey who expected the economy to expand and 20% who saw it contracting.

• When asked which factors are of most concern in respect to their potential impact on the economy in 2009, more than nine in ten (92%) of CFOs surveyed cited the credit crisis. This was followed closely by the impact of the housing market, oil prices and the strength of the U.S. dollar, all at 85%.

• Fifty-six percent of manufacturing companies selling to foreign markets expect their sales to increase in 2009 — down from 71% last year.

• On the positive side, 64% of manufacturing company CFOs say the actions taken by the Federal Reserve Board over the past year have helped the U.S. economy. This compares to 58% last year.

• On the negative side, manufacturing company CFOs gave the current state of the U.S. economy an average score of "46," a significant drop from last year’s score of "64" on a scale ranging from 0 (extremely weak) to 100 (extremely strong).

• Eighty-three percent of CFOs surveyed expect rising energy costs to impact their product pricing in 2009. Eighteen percent expect energy costs to have a significant impact on their product pricing, up from 9% in 2008.

• Fifty-six percent of CFOs expect their labor costs to increase in the coming year, on par with the 55% reported last year.

• Among manufacturing companies with foreign operations, 56% report plans to expand them in 2008.