PwC Finds Manufacturer’s Forecast Shifts Upward

PwC Finds Manufacturer’s Forecast Shifts Upward

PwC just sent over its latest Industrial Manufacturers forecast survey—Q4 Manufacturing Barometer. PwC surveyed US industrial manufacturers on their sentiment in the fourth quarter of last year, and one thing was clear – optimism regarding the prospects of the U.S. economy surged in Q4. This was due to an improved outlook by industrial manufacturers, citing higher company forecasts and increased capital spending plans.

Economic Sentiment Shifts Upward as Industrial Manufacturers Forecast Higher Growth Rates Ahead

Optimism regarding the prospects of the U.S. economy surged in our fourth quarter Manufacturing Barometer survey, as industrial manufacturers pointed to an improved outlook, including higher company revenue forecasts and increased capital spending plans. The renewed sense of optimism regarding the direction of domestic commerce raises the question of whether an inflection point has taken place in attitudes among industrial manufacturers.  The overall rise in economic sentiment occurred despite continued uncertainty regarding the state of the global economy.

Attitudes concerning the domestic economy soar

Highlighting the positive findings, 78 percent of the survey respondents believed the domestic economy was growing. This elevated level of sentiment is a dramatic increase from only 38 percent two quarters ago, representing an increase of 40 points. These levels were only 14 to 16 points below the highs of 94 percent back in the second quarter of 2004 and 92 percent in the first quarter of 2006.   Moreover, optimism about the domestic economy’s prospects over the next 12 months rose, increasing to 57 percent, up from 35 percent two quarters, a notable 22-point gain.

While international sentiment remains depressed

Conversely, these same industrial manufacturing panelists remain consistently low in their outlook for the world economy. Only 13 percent cited growth in the fourth quarter of 2016, down from 20 percent at mid-year. Their level of optimism about the world economy’s prospects over the next 12 months was only 30 percent, largely in line with the 29 percent level two quarters ago. The majority, 54 percent, remained uncertain, while 16 percent were pessimistic. These numbers tell us that the persistent dichotomy between perceptions of the health of the domestic and worldwide economies has not only lingered among industrial manufacturers, but has become even more dramatic. As prospects for U.S. commerce improve, continued uncertainty regarding the global stage has kept a lid on overseas sentiment.

Company revenue forecasts increase

On the heels of the increase in domestic economic sentiment, industrial manufacturers also raised their forecasts regarding average own-company revenue growth to 4.6 percent, up considerably from 3.6 percent a year ago, with 85 percent of industrial manufacturers expecting positive growth in 2017, and only 4 percent expect negative or zero growth. It is also important to note that a consistency in their expected revenue contribution from international sales to total revenues remained high at 33 percent, despite their general feelings of uncertainty toward the world economy.

Leading to a plan to increase spending

The increased level of optimism regarding the domestic economy supported an uplift in forecasted spending over the next 12 months among industrial manufacturers. Plans for increased capital spending rose to the 60 percent level, close to the manufacturing panel’s high of 67 percent in the fourth quarter of 2011. Increased budget spending was also found for most areas, led by new products or service introductions, 67 percent, up 23 points from a year ago. Still, the capital spending forecasts represented only 2.2 percent of projected sales. In addition, plans for new hiring remained fairly stable at 35 percent, compared to 32 percent two quarters ago, and down from 42 percent in the fourth quarter of 2015.

While headwinds to growth remain the same

Headwinds to growth over the next 12 months remained consistent, led by monetary exchange rate barriers (48 percent), lack of demand (43 percent), and legislative/regulatory pressures (43 percent).

Sentiment points to a brighter future for industrial manufacturers

We certainly welcome the renewed sense of optimism regarding the domestic economy uncovered in our fourth quarter survey. Expectations for higher growth and increased investment spending bode well for the year ahead. The U.S. remains the bright spot in a persistently challenged and uncertain global economy. Time will surely tell if we have entered an inflection point in the industrial manufacturing sector.

Manufacturers Bracing for Slower Growth Environment

Just in from PwC–results of its latest manufacturers survey. And it sort of fits with this week’s stock market news–not all that optimistic right now.

Sentiment regarding the direction of the domestic economy moderated further among U.S. industrial manufacturers, according to the Q4 2015 Manufacturing Barometer, released by PwC US today. A number of factors ranging from concerns about the global economy, particularly China, to the impact of the strong dollar and weak energy prices, have prompted manufacturers to reign in growth forecasts, while taking a more measured approach to hiring and capital spending outlays.

During the fourth quarter of 2015, optimism regarding the direction of the domestic economy over the next 12 months dropped to 46 percent from the prior quarter’s 60 percent, and 22 points below a year ago (68 percent). This represented the lowest level of optimism since 37 percent was recorded in the third quarter of 2012. Looking at the world stage, only 27 percent of industrial manufacturers expressed optimism regarding the global economy over the next 12 months, 11 points below a year ago (38 percent).

As a result of the decreased economic sentiment, the projected average revenue growth rate over the next 12 months among panelists declined to 3.6 percent, representing a significant deceleration from the prior quarter’s 5.3 percent. The benchmark represented the lowest revenue growth rate since three percent was recorded in the first quarter of 2011. Despite the lower rate, 70 percent of panelists still expect positive revenue growth for their own companies in the year ahead, with the majority (65 percent) forecasting single-digit growth.

“Sentiment among U.S. industrial manufacturers decelerated in the fourth quarter, primarily reflecting the uncertain outlook for the global environment,” said Bobby Bono, PwC’s U.S. industrial manufacturing leader. “The overall economic picture has become more complex as management teams navigate slower growth in China, coupled with a stronger dollar and weak energy prices. Nearly one-third of annual revenue among survey panelists is derived internationally, reflecting the significant exposure of domestic industrial manufacturers to the world economy. Turning more cautious, they are prudently dialing back on the overall level of capital spending and hiring as they prepare to transition to a more challenging business climate. However, a healthy majority still anticipate revenue growth, albeit at a more moderate pace, in the year ahead.”

Barriers to Growth and Challenges

Looking at perceived barriers to growth, monetary exchange rate has become the leading headwind over the next 12 months, up 11 points sequentially to 49 percent in the fourth quarter. A year ago, it was 15 percent, 34 points lower. Other barriers included lack of demand (39 percent), oil/energy prices (32 percent), decreasing profitability (29 percent) and legislative/regulatory pressure (22 percent). In addition, competition from foreign markets rose to 22 percent, up 10 points from the previous quarter.

PwC also surveyed respondents on the most prominent challenges in preparing for the year ahead. At the top of the list was the condition of the world economy, which was cited by 80 percent of respondents, while 67 percent rated it as a top-three issue. This was significantly higher than the last time this special survey was conducted in 2011. At that time, only 64 percent cited the condition of the world economy and only 18 percent listed this challenge among the top-three. Conversely, 71 percent of panelists flagged higher costs of goods and services as a major challenge, down from 92 percent in 2011. Additional major challenges cited by panelists included greater opportunities for new product and service introductions (67 percent), increased price flexibility (62 percent) and strength of the US dollar (53 percent).


As a result of the pullback in growth forecasts, manufacturers have continued to take a more conservative approach to hiring. In total, 42 percent plan to add employees to their workforce over the next 12 months, up from the low of 37 percent in the third-quarter of 2015, but down from 60 percent reported a year ago. The total net workforce growth projection was flat this quarter, below last year’s 1.1 percent, indicating continued cutbacks in hiring among these manufacturing firms.

Among the 42 percent of panelists planning to hire within the next 12 months, the most sought-after employees will be blue collar/skilled labor (29 percent) and professionals/technicians (27 percent). Among professionals/technicians, hiring of technology/engineering employees led the way, while hiring in the blue collar category was split between skilled/specialized workers and semi-skilled workers.

“Industrial manufacturers are continuing to seek avenues to improve productivity, while favoring professionals with strong technical skills,” Bono added. “In a slower growth environment, management teams appreciate the benefits of staying lean while ensuring they have the right talent to harness continued advances in engineering, technology and supply chain management.”


The tempered global outlook has also served to moderate the total level of capital spending plans among U.S. industrial manufacturers. They are continuing to spend, but they are spending less. Overall, 49 percent plan major new investments of capital during the next 12 months, up from the prior quarter’s 37 percent, and above last year’s 43 percent. However, the mean investment as a percentage of total sales dropped to 1.9 percent, sharply down from last quarter’s 5.6 percent and the 3.3 percent a year ago.

Conversely, 86 percent of respondents plan to increase operational spending over the next 12 months, up four points from both the previous quarter and the comparable period last year. Leading categories were new product or service introductions (44 percent), research and development (41 percent), business acquisitions (34 percent) and information technology (36 percent). “Given the prospects for a less robust economic climate, management teams continue to focus on investing in what they do best, while fostering innovation in an effort to strengthen their competitive positions,” Bono added.

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