While one report expects less manufacturing growth in coming months…
PricewaterhouseCoopers’ Manufacturing Barometer reports that U.S. industrial manufacturers lowered their average revenue growth projections for the next 12 months from the 6.8% reported in the first quarter to 5.7%, a 16% reduction. Additionally, executives are only expecting a 3% revenue growth rate for the industrial manufacturing sector as a whole in the 2007 calendar year.
While optimism in the global economy remains high, more than half %%MDASSML%% 53% %%MDASSML%% of manufacturing executives cite competition from foreign markets as one of the leading barriers to achieving revenue targets.
“Most U.S. manufacturers believe that the world economy will grow faster than the domestic economy, and in order to grow their business they need to compete successfully outside the United States,” said Barry Misthal, partner and industrial manufacturing sector leader, PricewaterhouseCoopers . “As more and more of their sales come from abroad, however, it’s also apparent that they are keeping a keen eye on foreign competition, which continues to intensify.”
The leading threat to revenue growth is the oil/energy impact on increased costs. Competition from foreign markets follows closely and is up significantly from last quarter. Monetary exchange rates and interest rates pose additional cause for concern among senior executives, as nearly one-third of the respondents cited exchange rates as a future barrier to growth. Twenty-eight percent considered higher interest rates as another possible barrier to growth.
Yet, despite these threats, 62% of those surveyed are optimistic about the domestic economy, and 69% believe the U.S. economy grew during the second quarter. In fact, 90% of executives think the world economy expanded in the second quarter.
For those industrial manufacturing companies selling overseas, the majority increased international sales during the second quarter. Looking ahead over the next 12 months, international marketers expect 35% of their total revenue to come from abroad.
During the second quarter, a little under half of industrial manufacturers experienced increased costs and 38% decided to raise their prices. Overall, gross margins appeared to fare well, with 31% citing higher gross margins while only 16% reported lower gross margins.
Plans for major new investments of capital are also on the rise, with 57% of companies looking to invest in a variety of business initiatives, including new product/service introductions, information technology and research and development. Executives anticipate spending 9.4% of revenues on such investments.
“Overall, these results indicate that manufacturing executives are expecting slower, but still positive, growth over the next year,” said Misthal. “International sales are up, margins are steady and new capital investments are in the works. At the same time, however, they are concerned about continued high energy costs, fluctuating monetary exchange rates and higher interest rates.”