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Area Development - Site Selection, Facility Planning and Workforce Development

Barometer Shows Optimism Among U.S. Manufacturers

In late January, PricewaterhouseCoopers (PwC) released its Q4 2012 Manufacturing Barometer revealing U.S. industrial manufacturers’ increased optimism regarding the domestic economy with uncertainty for the world economy.

February 2013
Forty-eight percent of the industrial manufacturers responding to this latest PwC survey expressed optimism about the 12-month outlook for the U.S. economy during the fourth quarter of 2012, up 11 points from the third quarter, while only 7 percent were pessimistic. Additionally, 83 percent of respondents forecast revenue growth at their own companies for the first quarter of 2013, and only 3 percent expect negative results.

Along with greater optimism, indications regarding new hiring increased to 58 percent, up 21 points from the same quarter in 2011. In addition, the projected average growth rate for own-company revenue over the next 12 months increased to 5.2 percent in the fourth quarter of 2012 — up from a forecast of 4.6 percent in the third quarter of 2012 and 4.4 percent in the fourth quarter of 2011. However, when it comes to the international markets, optimism regarding the 12-month outlook remained low at 32 percent and uncertainty remained high at 53 percent.

“Overall sentiment among U.S. industrial manufacturers regarding the prospects for the domestic economy rose in the fourth quarter along with company growth projections, which trended higher as well,” said Bobby Bono, U.S. industrial manufacturing leader for PwC. “The improved sentiment regarding the domestic outlook contrasts with the continued high level of uncertainty concerning the international stage. This dichotomy appears to be playing out in the healthy indications for net new hiring and operational investment, which contrast with the pullback in plans for international expansion. Management teams are placing their bets on the U.S. economy as they seek avenues to strengthen their competitive positions and foster growth.”

These findings are in contrast to those gathered from the results of Area Development’s latest Annual Corporate Survey of its readers, which was conducted at end of November/early December. Those respondents were far less optimistic, with nearly half not expecting the economy to improve until 2015 or 2016.

According to the Q4 2012 Manufacturing Barometer, among the 58 percent of respondents who intend to hire over the next 12 months, the most sought-after employees are expected to be professionals/technicians (58 percent), skilled laborers (35 percent), and production workers (43 percent). All of these categories increased over the third quarter and only 7 percent of survey respondents plan to reduce the number of full-time equivalent employees. On the need for skilled labor, the respondents to Area Development’s Corporate Survey were in agreement — nearly 90 percent considered this factor very important or important in making their location and expansion decisions.

With regard to investment spending, 47 percent of PwC respondents plan major capital investments over the next 12 months, slightly below the third quarter of 2012 (49 percent) and well below 2011 projections (67 percent). Operational spending plans remained consistent in the fourth quarter of 2012, with 80 percent planning increased spending in the next 12 months, off slightly from 83 percent in the third quarter of 2012. The top categories for increased expenditures included facilities expansion (43 percent), new products or service introductions (40 percent), and R&D (38 percent).

“We are clearly seeing a pullback in overseas expansion planning, as management teams cautiously analyze the global outlook and keep their cash onshore,” Bono continued. “Bolstered by strong balance sheets, we can expect to see a reversal of these trends as the global macroeconomic climate improves and companies seek to more aggressively compete for business in international markets.” According to the Q4 Barometer, 87 percent of respondents are currently conducting business in the BRIC countries, with China leading the way at 79 percent, while expansion plans for the next one to two years are expected to focus on India and Russia.

With regard to barriers to growth during the next 12 months, industrial manufacturers continued to point to lack of demand (52 percent) as the greatest concern, as well as legislative/regulatory pressures (47 percent), and oil/energy prices (42 percent). Survey respondents also identified taxation policies as a barrier to growth at 33 percent, up 10 points from the third quarter of 2012. This notable spike can potentially be attributed to the growing uncertainty companies faced leading up to presidential election and impending fiscal cliff resolution.

Here again, the respondents to Area Development’s latest Corporate Survey agreed with those responding to PwC. Area Development’s respondents are also concerned about legislative/regulatory pressures and overall “economic instability.” The results of Area Development’s 27th Annual Corporate Survey will be posted online in mid-March.

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