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Survey: Industrial Manufacturers Pessimistic on Economy
May 5, 2008
In a recent survey by PricewaterhouseCoopers, the majority of U.S.-based industrial manufacturers said they are pessimistic about the prospects for the U.S. economy over the next 12 months, and most of the others said they are uncertain. Only 12% remain optimistic. Their overall uncertainty now includes the world economy where 21% say they are pessimistic and 41% say they are uncertain about the next 12 months.
Overall, U.S.-based industrial manufacturers will be readjusting to a slower-paced domestic economy for most of 2008, but with the continued strength of international sales, an uptick is anticipated as they move into the first months of 2009.
Key findings: Optimism drops dramatically. Those optimistic about the 12-month outlook for the U.S. economy fell to a low of 12%, off 17 points from its 29% low in the prior quarter. The majority is now pessimistic (52%) about the U.S. economy, and 36% remain uncertain. Far fewer are optimistic about the prospects for the world economy this quarter, dropping from 64% the prior quarter to 38% in 1Q 2008.
Revenue projections are lowered. Own-company revenue projections remain positive for 70% (off 11 points). However, in the face of growing pessimism, senior executives of U.S.-based industrial manufacturers have reset their targets, lowering them, on average, nearly a full point from 5.4% in the prior quarter to 4.6%. Largely responsible for these lowered projections, the oil/energyvulnerable segment plans a 3.9% revenue growth rate vs. 6.1% for its non-vulnerable peers, or 36% lower.
International sales remain brisk for those selling abroad. In 1Q 2008, 63% of international marketers reported increased sales abroad, and 37% reported about the same. Looking ahead over the next 12 months, the contribution of international sales to total revenues projects to 35%.
Fewer new workforce additions are expected. Overall, fewer companies plan to add employees over the next 12 months, a drop from 36% the prior quarter to 32% in 1Q 2008. Conversely, 15% expect a reduction in workers, which is similar to the prior four quarters. The net workforce projection is a negative 0.3%, below last quarter's plus 0.1% and last year's plus 0.7%.
Investments are up, but M&A plans cool. Currently, 52% plan major new investments of capital, up from 41% last quarter. Two types of increased expenditures continue to lead the way: information technology (40%) and new product or service introductions (38%). M&A plans are off from the prior quarter, 37% vs. 44%, respectively.
Gross margins show strain. Gross margins became an issue for industrial manufacturers in 1Q 2008, turning directionally net negative: 23% up, 35% down -or net minus 12% (vs. plus 14% in the prior quarter). Both costs and prices were higher in 1Q 2008.
Growth concerns emerge. Potential barriers to company growth over the next 12 months were again led by oil/energy prices and market demand. On the monetary side, concern about decreasing profitability and monetary exchange rates were on the rise, while capital constraints also began to emerge. The profitability issue must be carefully monitored in 2008, as higher prices may have limits in chasing higher costs.