PwC US has released its Q2 2014 Manufacturing Barometer, a report characterized by optimism amongst U.S. manufacturers. The sentiment is bolstered by a rise in capital spending plans by industrial manufacturers as they focus on utilizing their cash position to enhance their products, hire more personnel, and secure their technology in what is an increasingly complex and competitive market. Bobby Bono, PwC's U.S. industrial manufacturing leader, discusses the figures and expands upon their impact going forward.
Optimism regarding the prospects of the U.S. economy registered at 65 percent amongst participants, and yet signified a notable drop from the 71 percent figure reported in the first quarter.
Additionally, when polled on their outlook towards the world economy, 38 percent of U.S. manufacturers were optimistic, down slightly from 42 percent in the first quarter, but up from 31 percent a year ago. There also remained quite a bit of uncertainty about the global economic outlook, with 57 percent of respondents indicating uncertainty compared to 50 percent in the first quarter.
However, Bono remains confident, saying, “We continue to see that the majority of people are still optimistic about the U.S. economy.” What’s more significant, he says, is that “while we’re seeing uncertainty about the world economy, there wasn’t a single response reporting pessimism, which is a change from the first quarter.”
Bono says that two of the most significant factors driving this optimism in the report were found in participants’ response to activity in research and development, and mergers and acquisitions. Plans for spending on research and development rose strongly to 45 percent, up from 34 percent in the first quarter, and 38 percent from the second quarter in 2013. “It’s very encouraging to see investment into R&D on the rise, because to me it says that they’re willing to spend now for long-term revenue goals, which shows that they see a strong rebound coming and want to be ready to capitalize on it.”
With regards to M&A activity, the Q2 Manufacturing Barometer also reported a rise in plans for spending in the area, with 38 percent of respondents saying they expect to engage in M&A activity in the year ahead, compared to 28 percent in the first quarter, and 23 percent in the second quarter of 2013.
Within these numbers, the majority of the group said they were focused on purchasing another business, followed by the sale of part or all of their own business or a spin-off. “This rise in activity signals that these manufacturers currently have a lot of confidence, are predicting growth, and are ready to spend their capital,” Bono says, adding, “It’s an indicator that manufacturers here in the U.S. are looking around and saying to themselves, ‘What I have control over, I can drive growth and success in’.”
Bono’s words are further backed up by the fact that 77 percent of survey respondents expect positive growth for their own companies within the next 12 months, with nine percent forecasting double-digit gains and none expecting decreased revenues.
In terms of hiring, only 48 percent of respondents said that they plan to add employees to their workforce over the next 12 months, a drop from the 56 percent reported in the first quarter. Skilled labor (32 percent) continues to be the most highly sought after, followed by production workers (27 percent), and professionals/technicians (20 percent).
The report also attempted to identify the key obstacle hindering further growth over the next 12 months, and found that legislative and regulatory pressures were the strongest, with 47 percent of respondents attributing them to their uncertainty in certain areas going forward.
And yet, Bono says that the key takeaway is, despite some lingering uncertainty, companies are continuing positive revenue growth. “U.S. industrial manufacturers are confident in their ability to control and impact their business, despite external factors, and that to me is extremely significant and, perhaps, the most important finding in our report.”
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About the Manufacturing Barometer
PwC’s Manufacturing Barometer is a quarterly survey based on interviews with 60 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. This survey summarizes the results for Q2 2014 and was conducted from April 3, 2014 to June 27, 2014. To view the complete Manufacturing Barometer report, visit http://www.pwc.com/manufacturing-barometer. For information about other Barometer surveys, including recent economic trend data and topical issues, visit http://www.barometersurveys.com.