U.S. Manufacturers Remain Largely Optimistic Amid Weakening Sentiment Toward World Economy

The majority (55 percent) of U.S. industrial manufacturers surveyed plan major new capital investments in the year ahead, up slightly from the first quarter of 2012. The mean investment as a percentage of total sales remained moderately high at 5.3 percent, but below last quarter’s six percent. In addition, 87 percent of respondents plan to increase operational spending, led by investment in new products or service introductions (52 percent) and information technology (50 percent). However, only 35 percent forecast increased spending on research and development, the lowest level since the second quarter of 2010.

“While U.S. industrial manufacturers are strengthening their spending plans, fewer are planning net new hiring during the next 12 months, slightly below last quarter,” continued Bono. “However, the next 12-month workforce projection is a slightly higher 0.9 percent, a sign that some companies will be adding at slightly higher rates.”

Gross margins constricted considerably in the second quarter of 2012, as only 27 percent of respondents reported higher gross margins, off 18 points from the first quarter. Cost pressures declined during the second quarter with 30 percent of respondents noting that costs rose, down 20 points from 50 percent during the first quarter. At the same time, pricing increases have also narrowed. Only 18 percent of respondents reported price increases during the second quarter, down 25 points from the previous quarter. This was the lowest level of reported price increases since the second quarter of 2010. Looking ahead, 28 percent of respondents now view decreased profitability as a barrier to growth during the next 12 months, up six points from the first quarter.

“Gross margins tightened during the quarter and both costs and prices decreased,” said PwC’s Bono. “If growth is slowed going forward, U.S. industrial manufacturers may continue to take a measured approach to pursuing growth opportunities with an emphasis on maintaining profitability and healthy cash reserves.”

PwC’s Q2 Manufacturing Barometer highlights that 40 percent of U.S. industrial manufacturers plan for merger and acquisition (M&A) activity during the next 12 months, and new strategic alliances increased seven points from last quarter to 42 percent in the second quarter of 2012. Expansion to new markets abroad also rose slightly to 37 percent from 35 percent in the first quarter, and new joint ventures rose five points from last quarter to 33 percent in the second quarter.

PwC’s Manufacturing Barometer is a quarterly survey based on interviews with 60 senior executives of large, multinational U.S. industrial manufacturing companies about their current business performance, the state of the economy and their expectations for growth over the next 12 months. This survey summarizes the results for Q2 2012 and was conducted from April 25, 2012 to July 10, 2012. To view the complete Manufacturing Barometer report, visithttp://www.pwc.com/manufacturing-barometer.

This report was first issued by the Material Handling Institute of America at www.mhia.org.