The 2020 Mid-Year Economic Update_long

Report: Industrial Markets Expect Strong Year

Economic recovery reflected in increased sales, hiring.
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The year ahead should be a strong one for industrial manufacturers and distributors, according to results from the 2014 McGladrey Manufacturing and Distribution Monitor survey. The report surveyed over 900 industrial executives from small- to mid-sized distributors and manufacturers.

The survey found that 88 percent of respondents expect sales growth in the next 12 months, with the average projected growth at 8 percent. Additionally, 67 percent expect EBIT to rise over the next year, with nearly 25 percent expecting bottom-line growth of over 10 percent.

“This year’s survey suggests that we will be celebrating more than just improved balance sheets over the next twelve months,” says Karen Kurek, national industrial products practice leader for McGladrey. “Not only are we seeing a healthy majority of executives planning to turn improved financial results into more jobs, we are seeing a significant drop in the number of companies expecting to cut employees for the first time in several years, suggesting that the influence of the economic downturn may truly be waning.”

This sentiment is also reflected in our 2014 Distribution Trends Report. While records aren’t being set right now, business has been strong for many, as reported in Leaving Economic Uncertainty Behind.

According to Daniel Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation, investment will be driving this economic growth in the next couple years. The three factors driving the increased investment are historically low interest rates, accelerating growth in the economy and pent-up demand finally being realized, he says.

This expected economic growth bodes well for the job market as well, with 67 percent of respondents to the McGladrey survey expecting to increase hiring in the U.S. over the next year, up from 62 percent the year before. Average workforce expansion is 6 percent, up from 4 percent in 2013.

Not only are companies hiring more, but they are also cutting less; only 5 percent of respondents are planning on reducing employment over the next year, down significantly from the 9 percent to 11 percent seen the past three years.

While hiring is on the upswing, companies are still having a hard time finding qualified applicants; 50 percent of respondents are expecting growth to be "limited or significantly limited" by the availability (or lack thereof) of skilled workforce personnel.

According to a recent study from Accenture and The Manufacturing Institute, this "skills gap" is expected to get worse. The report states that this lack of qualified workers could cost manufacturers up to 11 percent in earnings annually.

"Five years from now, our biggest problem is not going to be unemployment, it's going to be a lack of labor," says Mark Zandi, chief economist at Moody's Analytics. Zandi spoke with MDM Editor Jenel Stelton-Holtmeier in the May 25 issue of MDM Premium in Zandi: Economy to Pick Up Through 2015.

With this demand-driven workforce, employee costs are expected to increase; 95 percent of respondents expect to see wage increases, 92 percent expect health care costs to increase and 73 percent expect an increase in employee training costs.

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