US Industrial Manufacturers Remain Optimistic About The Economy.

U.S. industrial manufacturers remain upbeat about the economy; in fact, 84 percent 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 percent of manufacturers said they are optimistic about the economy’s prospects over the next 12 months, compared to 78 percent from all industries. Sixty-six percent said they are optimistic about the world economy’s prospects in 2005, compared to 63 percent across all industries.

Nevertheless, industrial manufacturers report a slight drop in average operating capacity in the fourth quarter, to 80.9 percent from 82.0 percent. In addition, potential growth pitfalls have been identified and are being closely monitored by manufacturers. They include:

Competition from foreign markets: Forty-two percent of industrial manufacturing executives see foreign competition as a potential roadblock to growth, versus only 30 percent across all industries.

Oil/energy prices: Thirty-six percent say oil/energy prices could thwart their growth plans– compared to only 26 percent for the benchmark group.

Monetary exchange rates: Thirty-two percent cite concern about the relative value of the dollar, versus 24 percent across-the-board. International sales are expected to contribute 31.8 percent of revenues for industrial manufacturers marketing abroad—well above the all-industries consensus of 26.2 percent.

Decreasing profitability: Thirty percent see shrinking margins as a potential barrier, compared to 26 percent 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 percent for the next 12 months—a retreat from their high-water-mark estimate of 9.0 percent in the prior quarter, and well below the all-industries target of 9.6 percent.

In addition, only 45 percent expect to make major new investments of capital over the next 12 months, off from 56 percent last quarter—and below the cross-industry benchmark of 50 percent. These investments are expected to average 7.9 percent of revenues, also lower than the consensus level of 9.3 percent.

Although the number of industrial manufacturers expecting net hiring rose sharply to 53 percent, this remains below the consensus view of 57 percent. Industrial manufacturers now expect to increase their current workforce by an average of 0.8 percent over the next 12 months, off from a high of 1.7 percent estimated in the prior quarter, and well below the increase of 2.4 percent 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.”

For more information at http://www.barometersurveys.com