The outlook for the North American manufacturing sector is positive as the strength of the global economic recovery leads to steady gains in earnings, says Moody's Investors Service.

The positive outlook also reflects expectations for G-20 GDP growth and the bullish sentiment Moody’s has found among purchasing managers.

Moody’s projects median EBITDA growth of 3.5% in 2014, with a modest acceleration to 4% in 2015. Moody’s details the positive outlook in the report “North American Manufacturing: EBITDA to Grow on Strengthening Demand in Key Markets, Economic Recovery.”

“The continuing recovery of the global economy should provide a support for industrial activity,” says Moody’s Edwin Wiest, a Vice President- Senior Credit Officer. “Europe’s emergence from recession removes a key obstacle to demand growth, assuming tensions between Ukraine and Russia do not interfere with the growth.”

Moody’s expects demand to remain strong in key end-markets such as energy and commercial aerospace. Additional end-markets that should see continuing growth include building products/tools, heating, ventilation and air-conditioning (HVAC) and the automotive sector.

Prospects are improving for industrial automation and construction.

Purchasing managers’ indices show a bullish sentiment, supporting the positive outlook. Moody’s blended PMI, which includes weighted data for the US and major international markets, has a three month average of 54.2 points for April-June 2014, which points to a continued expansion in economic activity.

The new outlook report merges and replaces Moody’s previously separate industry outlooks for North American diversified manufacturers and capital goods companies. Moody’s outlook for North American manufacturing now includes capital goods because the drivers of the two sectors are very similar. Moody’s outlook for North American diversified manufacturers had been positive, since March 2014, while the outlook for capital goods had been stable.

Moody’s outlooks reflect the rating agency’s expectation for the fundamental business conditions in an industry for the next 12 to 18 months.

Moody’s would consider changing its outlook on the North American manufacturing sector to stable if Moody’s forecast for annual G-20 GDP growth in 2015 were to fall to between 1% and 3% and expectations for EBITDA growth were to slow to below 4%. Moody’s outlook also reflects trends in the blended PMI.

For more information, Moody’s research subscribers can access this report at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_173015.


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