3Q 2008 Manufacturing Barometer: Global Economic Concern Runs High Amidst U.S. Industrial Manufacturers

Download Business outlook 3Q 2008 (325kb)

In 3Q 2008, PricewaterhouseCoopers interviewed 50 US based industrial manufacturing executives about their current business performance, the state of the economy, and their expectations for business growth over the next 12 months. We then compared their responses to the prior quarter’s results to see how the panel’s 12-month outlook changed. The final step was to compare their views with a wider panel to show how the industry differs from the broader population.

Overall, US-based industrial manufacturers are contracting in the face of the global credit crisis and economic slowdown. Two-thirds are pessimistic about the US economy’s prospects, and nearly as many have turned pessimistic about the world economy’s prospects. Own-company growth is projected at a slower pace for the next 12 months, but most expect positive growth. International sales, although strong, have slowed in their overall contribution to revenue.

Key findings:

• Pessimism takes hold. Sixty-six percent of seniorexecutives interviewed are pessimistic about the USeconomy’s prospects over the next 12 months. Only 6percent are optimistic that the US economy will grow. Withthe global credit crisis, those marketing abroad havebecome nearly equally pessimistic. Sixty-three percent arepessimistic about its prospects over the next 12 months.
• Growth loses momentum.
• Senior executives of US-basedindustrial manufacturers project slower own-companyaverage revenue growth of 2.8 percent over the next 12months, down from 3.7 percent in the prior quarter and 6.5percent a year ago. Fifty-four percent expect positivegrowth over the next 12 months, but 38 percent areprojecting zero or negative growth.
• International sales falter, but projections remainsteady. Over the next 12 months, international sales areprojected to contribute 32 percent to total revenue for thoseselling abroad, off 6 points from the 38 percent high lastquarter but only slightly off from last year’s 35 percent. In3Q 2008, 45 percent of international marketers reported anincrease in sales from abroad. Although positive, it is 21points down from the prior quarter’s 66 percent.
• Investments, M&A activity hit a lull. Plans for major newinvestments of capital over the next 12 months dropped 16points to 34 percent and came in well below last year’s 42percent. The mean investment as a percentage of totalsales remained at a moderate 6.1 percent, below last year’s8.7 percent. Operational spending increases also declined,dropping 13 points from the prior quarter to 64 percent and down 21 points from last year's 85 percent.
• Lack of demand stunts growth. Among panelists,concern about lack of demand is the chief potential barrierto growth over the next 12 months, cited by 82 percent ofthose interviewed. Concern about oil/energy prices as abarrier to growth dropped 16 points to 62 percent.
• Decreasing profitability looms. Nearly two-thirds of senior executives cite concern about decreasing profitability as a leading barrier to company growth over the next 12 months, rising 14 points from 50 percent last quarter to 64 percent (a year ago, it was 48 percent).
• Workforce reductions on the table. Only 12 percent plannet new hiring, while 40 percent will be reducing theirworkforces. Composite new hiring has turned negative forthe next 12 months, with workforces contracting 4 percentor more.