Better barometer

A new manufacturing sentiment index shows that 63% of respondents express optimism about the U.S. economy’s prospects for the year ahead with increased pricing and new hiring plans emerge.

The PwC U.S. Manufacturing Barometer suggests that the optimism includes stronger revenue forecasts for the respondents’ own companies and improved international revenue contributions.

The barometer is a quarterly survey based on interviews with 62 senior executives of large, multinational U.S. industrial manufacturing companies about their current business performance, the state of the economy and their expectations for growth over the next 12 months.

Looking at the next 12 months, 63% of industrial products manufacturers expressed optimism about the U.S. economy’s prospects, a sharp rise of 28 points from the prior quarter’s 35%. This current level of optimism is 16 points higher than a year ago (47%), and has not been this high since Q2 2007 (62%).

Only 7% of industrial products manufacturers remain pessimistic, while 30% are uncertain. The 12-month outlook for the world economy also improved significantly, with 60% of those marketing abroad now optimistic about the world economy’s prospects, up 22 points from the prior quarter. Only 2% are pessimistic, while 38% remain uncertain.

"The major shift from uncertainty to optimism in this quarter’s findings gives us good reason to be hopeful. We may now begin to see industrial manufacturers start making business decisions in a less guarded, more confident manner as we move into 2011," Barry Misthal, U.S. industrial manufacturing leader for PwC, said in a statement. "The industry is looking quite strong and steady compared with the past couple of years, and manufacturers appear poised for a robust start to the new year."

OTHER BAROMETER READINGS
• For U.S.-based industrial manufacturers that sell abroad, international markets showed notable improvement in the fourth quarter of 2010, with 59% reporting an increase in sales, up 15 points quarter-to-quarter, and only 2% reporting a decrease.

• For the fourth straight quarter, legislative/regulatory pressures remained the highest-ranking perceived barrier to growth over the next 12 months, at 68%, declining 9 points from last quarter.

• While concern about demand remained high, at 63%, two other important potential barriers to growth declined as well, including concern about taxation policies, at 47%(down 13 points) and decreasing profitability, at 29% (down 11 points).

• Concern about competition from foreign markets also dropped, from 43% to 36%.

• Concern about lack of qualified workers rose 5 points to a still-limited 13%, the largest gain this quarter.

• The projected average growth rate for own-company revenue over the next 12 months showed increasing strength, rising to 6.6%, up from 5% last quarter and well over double what it was a year ago (2.7%). Also, 84% of respondents expect positive revenue growth for their own companies in the year ahead, with 34% forecasting double-digit growth (up 16 points), and 50% forecasting single-digit growth.

• Over the next 12 months, 48% of panelists plan to add employees, up 6 points from last quarter and 18 points higher than a year ago (30%). Only 2% plan to reduce the number of full-time equivalent employees, while half plan to stay about the same. Of those planning to hire, the most sought-after employees will be professionals/technicians and skilled labor.

• Looking at the next 12 months, 82% plan to increase operational spending, led by increases in new product or service introductions (50%) and research and development (45%).

• On the rise this quarter is prospective spending for geographic expansion, information technology, and for the first time, Internet commerce. Additionally, plans for M&A remain high (39%), and plans for new facilities abroad jumped 9 points to 27%.