Manufacturing optimism

Despite the hits to U.S. manufacturing, 57% of manufacturing executives are cautiously optimistic about the outlook for the next six months and 70% are planning to keep staff levels steady, according to a survey released July 21 by Baker Tilly, the 17th largest CPA firm in the U.S.

However, survey results suggest the level of optimism is “shallow” and there are “deep pockets of pessimism,” especially among small companies.

“The deep uncertainly about the economic outlook is reflected in the manufacturing sector, which is divided on prospects for the rest of 2009,” Brad DeNoyer, partner and manufacturing industry lead at Baker Tilly, said in a statement. “Many manufacturers see reasons for cautious optimism but there is a pervasive ‘wait and see’ attitude regarding demand. The good news is manufacturers plan to delay more layoffs as long as possible, but they will need to find a way to aggressively cut costs if customer demand does not rebound soon.”

SURVEY FINDINGS
• The key factor dampening the manufacturing outlook is the lack of customer demand, which was cited by 45% as the greatest challenge to the expansion of their company.

• While nearly six in 10 manufacturing executives have a positive outlook for the U.S. economy for the next six months, 9% are very optimistic as compared with 15% who are very pessimistic.

• About half of executives (49%) said they expect their firm’s performance to decline, with 12% of those executives saying their firm is in danger of failing. Executives from small firms (14%) were much more likely to report a danger of failing than those from medium (2%) or large firms (3%).

• Seven in ten executives expect their firm to have no net change in staff while 20% plan to have a net reduction and 9% plan a net increase.

• Over the next year, executives will consider a wide range of actions in response to the current economy. Those actions include: Reduce operational costs (80% of executives); seek price reductions from suppliers (65%); reduce labor costs (51%); reduce production (41%); and, seek a business partner or investors (18%).

• The survey also measured the potential effect of a U.S. cap-and-trade program. Survey results indicate support among executives is surprisingly broad but not deep while opposition is sizeable and intense. If a cap-and-trade program increases energy costs, it could have a major effect on manufacturers with executives saying they would consider passing on costs to consumers, cutting back production, reducing employee benefits and laying off staff.

• Executives from large and medium firms said the poor economy has spurred them to consider global expansion. Four in ten executives from medium and large companies said the economic downturn has caused them to look for growth opportunities overseas and 42% of large firms are investing in foreign manufacturing capabilities.

• Executives involved in overseas activities said they plan to focus primarily on China (selected by 44% of executives) and Mexico (40%).