New York, February 23, 2005 -- PricewaterhouseCoopers'' Manufacturing Barometer spoke with 155 senior executives about the business climate, including 76 in large, U.S.-based industrial manufacturing companies, and 79 of their peers in a cross-section of all other business sectors. Interviewing for the 4th calendar quarter was completed on January 28, 2005. The full report is available at www.pwc.com/mb. Key findings are summarized below.
U.S. industrial manufacturers remain upbeat about the economy; in fact, 84% believe it is growing. However, foreign competition, oil/energy prices, exchange rates, and decreasing profitability are increasing concerns for manufacturers causing them to scale back revenue targets, new investments, and hiring projections, according to PricewaterhouseCoopers'' Manufacturing Barometer.
"Large U.S. industrial manufacturers are optimistic about the opportunities they see in our growing economy," said Jorge Milo, U.S. leader of PricewaterhouseCoopers'' industrial manufacturing practice. "However, they have also become more sensitive to a number of factors that individually, or in combination, could shunt their company''s performance."
According to the barometer, 82% of manufacturers said they are optimistic about the economy''s prospects over the next 12 months, compared to 78% from all industries; 66% said they are optimistic about the world economy''s prospects in 2005, compared to 63% across all industries.
Nevertheless, industrial manufacturers report a slight drop in average operating capacity in the fourth quarter, to 80.9% from 82.0%. In addition, potential growth pitfalls have been identified and are being closely monitored by manufacturers. They include:
- Competition from foreign markets: 42% of industrial manufacturing executives see foreign competition as a potential roadblock to growth, versus only 30% across all industries.
- Oil/energy prices: 36% say oil/energy prices could thwart their growth plans -- compared to only 26% for the benchmark group.
- Monetary exchange rates: 32% cite concern about the relative value of the dollar, versus 24% across-the-board. International sales are expected to contribute 31.8% of revenues for industrial manufacturers marketing abroad -- well above the all-industries consensus of 26.2%.
- Decreasing profitability: 30% see shrinking margins as a potential barrier, compared to 26% across all industries.
Alert to heightened vulnerabilities, industrial manufacturers also have turned more cautious in their plans for the upcoming year. They are projecting average revenue growth of 7.8% for the next 12 months -- a retreat from their high-water-mark estimate of 9.0% in the prior quarter, and well below the all-industries target of 9.6%.
In addition, only 45% expect to make major new investments of capital over the next 12 months, off from 56% last quarter -- and below the cross-industry benchmark of 50%. These investments are expected to average 7.9% of revenues, also lower than the consensus level of 9.3%.
Although the number of industrial manufacturers expecting net hiring rose sharply to 53%, this remains below the consensus view of 57%. Industrial manufacturers now expect to increase their current workforce by an average of 0.8% over the next 12 months, off from a high of 1.7% estimated in the prior quarter, and well below the increase of 2.4% expected by their cross-industry colleagues.
"Industrial manufacturers are taking a more conservative view of the future, including reductions in projected revenue growth, plans for new investments, and hiring," said Milo. "Adjustments appear to be tied to heightened concerns about one or more of the growth inhibitors of relevance to this industry sector."
PricewaterhouseCoopers'' Manufacturing Barometer is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.