by Gary Mintchell | Oct 24, 2014 | Commentary, News
I always look forward for the manufacturing barometers from PwC. This one is interesting. Following is directly from PwC.
Optimism regarding projected company revenue growth increased among U.S. industrial manufacturers during the third quarter of 2014, according to the Q3 2014 Manufacturing Barometer, released today by PwC US. Survey respondents forecast an average growth rate of 5.6 percent over the next 12 months, up from 5.2 percent in the second quarter and 4.2 percent a year ago. The positive revenue outlook ran counter to a notable softening in sentiment regarding the future direction of the U.S. and global economies overall, coupled with increased concerns about the potential impacts of legislative/regulatory and tax policies.
Optimism regarding the prospects of the U.S. economy during the next 12 months dropped among U.S. industrial manufacturers to 57 percent during the third quarter of 2014, compared to 65 percent in the previous quarter and 60 percent in the third quarter of 2013. While the indicator remained solidly in positive territory, it represents the lowest level in the past six quarters. At the same time, optimism about the world economy dropped to 30 percent, down from 38 percent in the second quarter — a modest reading that was the lowest in eight quarters.
Growth rate rose
“The projected revenue growth rate among industrial manufacturing companies rose during the third quarter, indicating increased levels of confidence in company fundamentals and competitive positioning,” said Bobby Bono, PwC’s U.S. industrial manufacturing leader. “The improved outlook for company performance ran counter to a decline in sentiment regarding the direction of the economic environment, particularly on the international stage. At the same time, we saw a notable uptick in caution regarding the potential impacts of legislative/regulatory and taxation policies. This tells us management teams believe they are making the right decisions to grow, but remain leery of external factors beyond their control, resulting in some abatement in the level of near-term spending and investment plans.”
Among the major findings of the survey, 59 percent of respondents singled out legislative/regulatory pressures as the major headwind to growth over the next 12 months, up from 47 last quarter and 58 percent in the third quarter of 2013. This was followed by lack of demand, which was cited by 43 percent of respondents, in line with 42 percent during the second quarter and down slightly from 45 percent last year. In addition, concerns regarding taxation policy jumped to 31 percent of respondents, compared to 25 percent in the second quarter and 22 percent last year.
“As the year progresses, we’ve seen an elevation of geopolitical concerns across the world, which is adding complexity to management decision-making,” Bono continued. “Despite notable growth thus far for the industrial manufacturing industry and many bright spots regarding company performance, we believe management teams are taking a more conservative approach to cash outlays as they assess recent events and seek to gauge the direction of the global economy. However, balance sheets remain strong across the sector, boding well for future investment activity as the macro-environment becomes clearer.”
However plans down
The decreased sentiment regarding the economic outlook overall coincided with a moderation in plans for new investments of capital, with 36 percent of respondents indicating increased outlays in the next 12 months, down from 52 percent in the previous quarter and 48 percent in the third quarter last year. However, the mean investment as a percentage of sales remained at 5.7 percent, identical to th previous quarter.
Operational spending plans also declined with 69 percent of respondents indicating increased short-term spending in the next 12 months, down from 75 percent in the second quarter, and 78 percent in the third quarter of 2013. Plans for spending on research and development declined t0 36 percent, from 45 percent in the second quarter of 2014, while plans for new product or service introductions remained at 43 percent, level with the second quarter.
Most other spending categories showed quarter-over-quarter declines, with plans for investing in business acquisitions recording a considerable drop compared to the previous quarter but in line with prior year levels. Consistent with this finding, the Q3 Manufacturing Barometer also indicated a considerable decrease in plans for M&A spending. Twenty-six percent of respondents planned M&A activity in the year ahead, compared to 38 percent in the second quarter, but up from 22 percent in the third quarter of 2013. The majority of that group is focused on purchasing another business, followed by the sale of part/all of their own business or a spin-off.
Despite decreased spending plans, sentiment regarding hiring remained steady in the Q3 Manufacturing Barometer, with 52 percent of U.S. industrial manufacturers indicating plans to add employees to their workforce over the next 12 months. Consistent with the previous quarter, the most sought-after employees will be skilled labor (33 percent), followed by production workers (26 percent) an professionals/technicians (26 percent). Plans to hire white collar support ticked up modestly to 10 percent in the third quarter from eight percent in the second quarter, but remained well below the 17 percent level recorded in the third quarter of 2013.
Special Topic: Triggers to Growth
The latest Manufacturing Barometer revealed that the top potential trigger of increased investment and growth for respondents’ own companies over the next few years was lower costs of raw materials, cited by 51 percent of respondents as a major trigger. The second most important trigger to growth was listed as new products or service innovations, cited by 43 percent of respondents. Market expansion in the U.S. and less government regulations in industry were also cited as major growth triggers by one-in-four of industrial manufacturers.
Increased availability of capital to middle-sized businesses also came through as a growth trigger, cited by 25 percent of respondents. Market expansion abroad was cited as a major growth trigger by 19 percent, followed by costs of energy reduced (13 percent), and strategic alliances or joint ventures (11 percent).
by Gary Mintchell | Oct 31, 2013 | Commentary, News
I’ve had a bunch of things to report and analyze, just very little time. Travel and meetings are thought killers. Also, I try out so many tools that I sometimes sit and wonder whether to use my outliner (currently fargo.io from Dave Winer), or a text editor (recently I like Quip—quip.com–which is also a great collaboration tool) Quip or Write Pad or Write Room (never Word, by the way, too busy). Where do I store thoughts—outliner, Nozbe my GTD app or Evernote. I’m starting to settle into Nozbe just for GTD and lists, Quip for text, Fargo for longer things that need to be outlined.
Recently I talked with Bobby Bono, US Industrial Manufacturing Leader for PwC, about its latest Manufacturing Outlook survey and report. Notable are the comments about a skills gap.
I heard Rodney Brooks, founder of iRobot, talk about how we are asking the wrong question about whether automation (robots) are replacing jobs. That is very short-term thinking. In the longer term, we need to think about the skills shortage and people shortage as the later generations which are smaller in number than the boomer generation which is about to retire (although I figure I have a few years left).
This report, among other things, highlights that skills gap. Below is an edited version of the press release that went out regarding the report.
Optimism among U.S. industrial manufacturers regarding the global economic outlook reached the highest level since the first quarter of 2012, according to the Q3 2013 Manufacturing Barometer, released today by PwC US. In the third quarter of 2013, 40 percent of respondents expressed optimism regarding the world economy for the next 12 months, up from 31 percent in the prior quarter and 29 percent from the third quarter of 2012.
The primary growth driver remains the U.S. economy, with 60 percent expressing optimism about the domestic outlook. In addition, 78 percent believe the U.S. economy grew in the third quarter, up six points from the prior quarter and representing the highest level since 2006. The outlook for the U.S. continues to contrast with the international picture, where optimism regarding actual revenue contributions in the next 12 months remained low at 30 percent, down two points from the second quarter and off eight points from last year’s third quarter.
“The divergence in viewpoints regarding the U.S. and world economic outlooks narrowed somewhat in the third quarter. Optimism regarding the global economy improved, but uncertainty remained prevalent, marked by persistently low expectations regarding the level of international revenue contributions going forward,” said Bono. “Despite the uptick in global economic sentiment, the U.S. remains the growth driver in the industrial manufacturing sector, with continued signs of healthy demand, pricing strength, new product investment and hiring. Overall top line growth expectations remain moderate and management teams are continuing to take a careful approach to capital allocation and cost management, while preserving liquidity.”
Reflecting the healthy level of optimism pertaining to the domestic economy, 82 percent of U.S. industrial manufacturers surveyed expect positive revenue growth for their own companies in the next 12 months, with only two percent forecasting negative growth. The projected average revenue growth rate over the next 12 months remained moderate at 4.2 percent, down from 4.6 percent in the second quarter and last year’s third quarter. Only seven percent forecast double-digit growth, while 75 percent expect single digit growth.
With regard to capital spending, 48 percent of industrial products manufacturers surveyed plan major new investments of capital during the next 12 months, up eight points from the prior quarter’s 40 percent, and on par with a year ago (49 percent). The mean investment as a percentage of total sales was 6.5 percent, higher than the prior quarter’s four percent, and representing the highest level in the past nine quarters.
Plans for operational spending also rose. Looking at the next 12 months, 78 percent of respondents plan to increase operational spending, up five points from the second quarter. Leading increased expenditures were new product or service introductions at 55 percent, up 10 points from the second quarter and representing the highest level in the past seven quarters. This was followed by research and development (R&D) (38 percent) and information technology (35 percent). Plans for new joint ventures and strategic alliances also rose, while spending forecasts for M&A and overseas expansion remained low. In fact, the number of respondents indicating the potential to acquire another business was 17 percent, less than half the level of last year’s third quarter.
“Management teams are continuing to focus on boosting organic growth, with an emphasis on new product launches and investment in R&D and technology,” Bono continued. “This is indicative of the mixed global outlook and overall moderate revenue growth expectations. In an uncertain environment, industrial manufacturers are managing risk and concentrating on strengthening their products and services. They are doubling down on what they do best in a quest to expand market share.”
The latest Barometer also showed that hiring plans are on the rise, with expectations reaching the highest level in five years and the second highest quarterly percentage in the past 10 years. The majority, 58 percent of U.S. industrial manufacturers surveyed, plan to add employees to their workforce over the next 12 months, up 16 points from second quarter 2013 estimates. Only three percent plan to reduce the number of full-time equivalent employees, and 39 percent will stay about the same. The most sought-after employees will be skilled labor (35 percent), professionals/technicians (35 percent), and production workers (30 percent).
Despite healthy hiring expectations, the survey identified headwinds in securing qualified workers. Three-fourths (77 percent) of respondents cited a need to fill certain skill gaps over the next 12-24 months, with only 23 percent claiming to have all the right skills needed at present. The biggest skill gaps were in middle management (70 percent) and skilled labor (67 percent). At the same time, half of U.S. industrial product organizations admitted to having open positions that they were unable to fill with skilled employees.
“In a limited job market, it is troublesome that three-fourths of panelists have reported a skill gap, with half of those companies acknowledging difficulty in filling these key positions,” Bono commented.
Regarding potential growth barriers over the next 12 months, legislative/regulatory pressures were the most cited at 58 percent. Lack of demand was the second most cited barrier at 45 percent, but it was down from 67 percent a year ago when it was the chief barrier to growth. Competition from foreign markets was also high at 32 percent. Other potential barriers on the rise in the third quarter included lack of qualified workers (22 percent), capital constraints (20 percent) and oil/energy prices (28 percent).
by Gary Mintchell | Jul 23, 2013 | News
PwC Bobby Bono
The spread between those optimistic about the domestic economy versus those optimistic about the global economy over the next 12 months was 32 percent, representing the second highest quarterly total since these questions were first asked in the third quarter 2003 survey. At the same time, PwC’s Global Manufacturing Current Assessment and Outlook indices show a reduction in overall pessimism among manufacturing executives compared to the first quarter, which appears to be driven by more bullishness over total sales, driven by the U.S., offsetting in part increasing bearishness over international sales.
Views on US and World diverge
“There remains a persistent dichotomy in viewpoints regarding the outlooks for the U.S. and world economies. Optimism regarding the domestic economy has increased, while worldwide economic sentiment remains restrained, with global uncertainty reaching the highest level in the past 12 months,” said Bobby Bono, U.S. industrial manufacturing leader for PwC. “The U.S. is starting to show signs of healthy demand trends and improving pricing power, supporting positive overall sentiment in the year ahead. However, as a result of the mixed global outlook, combined with the moderate domestic recovery and the specter of increased legislative and regulatory pressures, management teams are continuing to carefully manage their costs, while maintaining a focus on growing profitably.”
Reflecting the healthy level of optimism pertaining to the domestic economy, 82 percent of industrial manufacturers surveyed expect positive revenue growth for their own companies in the next 12 months, with only three percent forecasting negative growth. The projected average revenue growth rate over the next 12 months was 4.6 percent, up from 4.3 percent in the first quarter, but down from 5.6 percent in last year’s second quarter. Despite the reduced rate of forecasted growth, the outlook for the U.S. continues to contrast with the international picture, where optimism regarding commerce in the next 12 months was only 31 percent, compared to 36 percent in the first quarter. In addition, the projected contribution of international sales to total revenue over the next 12 months remained low at 32 percent, consistent with the first quarter survey, but down from 37 percent in the second quarter of last year.
With regard to capital spending, 40 percent of respondents plan major new investments during the next 12 months, off three points from 43 percent in the first quarter, but well below the 55 percent recorded in the second quarter of 2012. The mean investment as a percentage of total sales of four percent was also lower than the prior quarter’s 4.8 percent, indicative of moderate spending among respondents, and reflecting in part a reduction in planned spending increases from the peak post-recessionary period, which benefitted from pent-up demand.
Operational spending to grow
Plans for operational spending also remained notably below prior year levels. Looking at the next 12 months, 73 percent of respondents plan to increase operational spending, similar to 71 percent in the first quarter, but down from 87 percent in the second quarter of last year. Leading increased expenditures were new product or service introductions (45 percent) and research and development (38 percent). Plans for geographic expansion remained low at 15 percent, up from 10 percent in the first quarter, but down significantly from 33 percent last year.
“Sustained global uncertainty has likely led the way in fostering a more measured approach to capital spending, in conjunction with a return to more normalized spending patterns commensurate with the current stage of the post-recession cycle,” continued Bono. “We are also continuing to see little enthusiasm for overseas expansion, while management teams target spending primarily on R&D, new product launches and IT. This suggests they are focusing inward on innovation and leveraging their core strengths in a competitive domestic environment.”
According to the latest survey, 42 percent of industrial manufacturers plan to add employees to their workforce over the next 12 months, off three points from the first quarter. Only five percent plan to reduce the number of fulltime equivalent employees, and 53 percent will stay about the same. The net workforce projection stayed at plus 0.9 percent, similar to last quarter’s plus one percent, indicating some new hiring continuity among several of these industrial manufacturing companies. The most sought-after employees will be production workers (23 percent), skilled labor (23 percent) and professionals/technicians (18 percent).
Similar to levels recorded in the first quarter, second quarter survey respondents highlighted legislative/regulatory pressures (53 percent) and lack of demand (47 percent) as the biggest barriers for growth over the next 12 months. Oil/energy prices were viewed by 22 percent as a barrier to growth, a significant drop from 35 percent in the first quarter and 48 percent in last year’s second quarter.
“We’re seeing a significant moderation in concerns regarding energy costs among industrial manufacturers, consistent with other recent PwC studies. It appears that the increase in shale oil and gas production domestically is having a positive effect on energy costs and is now impacting strategic planning among some industrial manufacturers. This is a welcome development for management teams given the moderately growing economy and the continued emphasis on controlling costs,” added Bono.
