PricewaterhouseCoopers second-quarter Manufacturing Barometer report showed that industrial manufacturing executives are optimistic about the international economy, but have lower expectations for the domestic economy’s performance over the next 12 months.
Industrial manufacturers have lowered their 12-month growth projections, citing oil/energy costs and competition from foreign markets among their top concerns, as well as the strength of the U.S. dollar and higher interest rates.
However, they remain optimistic that U.S. and global economies will grow and expect international sales to increase to 35 percent of total revenue over the next 12 months. This is an increase from 27 percent in the survey at the same time last year.
The majority plan to increase capital investments and add new workers, but are also becoming more concerned about the potential for higher interest rates and unfavorable exchange rates in the months to come.
Consistent with the last several quarters, revenue projections continue to edge downward. Revenue projections now average 5.7 percent for the next 12 months. This is a 16 percent drop from the prior quarter and a 30 percent drop from a high of a year ago. Rising top-of-mind concerns that impact growth include oil/energy costs, competition from foreign markets, the strength of the US dollar and higher interest rates.
Fifty-seven percent of industrial manufacturers are planning new investments of capital over the next 12 months. The mean investment as a percent of revenue is expected to be 9.4 percent, the highest projection for this number in the last five quarters, partly due to strong merger and acquisition plans.
Costs continue to rise for a large number of industrial manufacturers. Forty-six percent said that costs increased in the second quarter and only 13 percent reported a decrease. Thirty-eight percent said that, in turn, their prices rose. Overall, gross margins appeared to fare well, with 31 percent citing higher gross margins while only 16 percent reported lower gross margins.
