The 2020 Mid-Year Economic Update_long

Outlook: Lower Raw Material Cost, New Products Expected to Trigger Growth for Industrial Manufacturers

Industrial manufacturers remain optimistic about growth in 2015.
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Industrial manufacturers know what must happen for their companies – and the U.S. economy – to improve over the next 12 months.

Manufacturers overwhelmingly think a lower cost of raw materials will fuel own-company growth in the coming year, according to the third-quarter Manufacturing Barometer Business Outlook Report, a quarterly report from PricewaterhouseCoopers LLP.

Of the industrial manufacturers polled by PwC, 51 percent cited that as a major trigger for increased investment and growth, while more than 70 percent view it as either a major or moderate growth trigger.

Next, manufacturers look to new products or service innovations to spark growth for their companies, with 43 percent of them seeing it as a major need and 60 percent seeing it as a major or moderate need.

Some of the other triggers cited by survey respondents include market expansion, fewer government regulations and increased access to capital.

As for overall U.S. economic growth during the next 12 months, manufacturers said a different set of triggers is needed. Topping the list for growing the economy was a manufacturing resurgence, with 59 percent viewing it as major and 83 percent viewing it as major or moderate.

Other overall U.S. economic triggers include:

  • Greater CapEx spending among public and private businesses.
  • A revival of the U.S. housing market.
  • Increased middle-class income, spending and new hiring.
  • Reduced uncertainty about global markets (China, India, Western Europe).
  • Less government regulation in industry.
  • Lower healthcare costs/fewer regulations.
  • Infrastructure spending by government and industry.
  • Stabilization of international “troublespots.”
  • Increased development of all forms of U.S. energy.
  • Lower corporate taxes.

Though industrial manufacturers aren’t quite as bullish about the U.S. economy as they were during the summer or at this time in 2013, they remain optimistic about their industry and the overall financial outlook for the coming year.

Optimism about the economy’s 12-month prospects among the industrial manufacturing panel remained relatively high but slipped to 57 percent for the quarter, down 8 percentage points from the previous quarter and 3 percentage points from 3Q2013.

Respondents that sell internationally also were polled on their optimism for the global economy’s 12-month prospects, and those results showed a slight drop as well. Just 30 percent of industrial manufacturers are optimistic about the world’s financial outlook, down 8 percentage points year over year.

“Executives continued their relative optimism toward the U.S. economy during this quarter,” the report reads. “The spread of executives who believe that the U.S. economy is growing (over those who believe the global economy is growing) reached a new high. The percentages of respondents who are optimistic about the U.S. economy over the next 12 months were almost double those who were optimistic over the global economy.”

One especially bright note from the report: Industrial manufacturers raised their own-company 12-month growth forecasts to 5.6 percent from 4.2 percent the same quarter a year ago and 5.2 percent the previous quarter. And 86 percent of manufacturers expect positive revenue growth, up 9 percentage points from 3Q2013, while only 6 percent expect negative growth.

Another positive is that companies are looking to hire. According to the report, 52 percent are planning net additions to their workforces over the next 12 months, a 4 percent improvement. However, the 9 percent of employers planning net reductions does represent a 2 percent increase, as well.

But economic headwinds do persist, highlighted by capital expenditure pullback, as fewer companies are planning major new investments after last quarter’s bullish expectations.

More details from the latest Manufacturing Barometer are available from pwc.com.

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