4Q 2008 Manufacturing Barometer: Business outlook report, January 2009

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In the fourth quarter of 2008, PricewaterhouseCoopersinterviewed 60 US-based industrial manufacturing executivesabout their current business performance, the state of theeconomy, and their expectations for business growth over thenext 12 months. We then compared their responses with theprior quarter’s results to see how the panel’s 12-monthoutlook changed. The final step was to compare their viewswith a wider panel to show how the industry differs from thebroader population.Overall, US-based industrial manufacturers are expecting anaverage negative revenue growth over the next 12 months.Demand is the overwhelming concern, as oil/energy priceshave plummeted and are no longer a major drag on growth.In the fourth quarter, the yearlong pattern of increasinglyhigher costs and prices reversed. An increase in marketdemand will be critical in the year ahead, either frominternational or domestic markets. International marketersremain hopeful that sales abroad will be a primary contributorto revenue.Key findings:

• Industry growth stalls. Senior executives of US-basedmanufacturers project an average minus 2.4 percent growthover the next 12 months. Twenty-five percent expectpositive growth, but 34 percent are projecting zero growth,and 33 percent expect negative growth.
• Pessimism continues to spread. Pessimism toward theUS and world economies over the next 12 months is insync, with 70 percent pessimistic toward the US economyand 69 percent pessimistic toward the world economy.Most others are uncertain. Those who are optimistic aboutthe US and world economy is at a survey low of 5 percentand 4 percent, respectively.
• International sales preserve hope. International salesturned negative in the fourth quarter for industrialmanufacturers: up for 28 percent, but down for 44 percent.However, industrial manufacturers selling abroad project asolid 37 percent contribution to total revenue over the next12 months, above last quarter and last year. These seniorexecutives seem hopeful that sales abroad will hold fastand not slip as badly as domestic sales.
• Market demand stunts growth. Among panelists, concernabout lack of demand is the overwhelming potential barrierto growth over the next 12 months, cited by 85 percent.Concern about decreasing profitability is next, cited by 62percent. Higher interest rates weighed less on thosesurveyed, but concerns about available capital and taxationpolicies were on the rise as potential barriers to growth overthe next 12 months.
• Cost-price spiral ends. Notably lower oil/energy pricesand commodity prices in the fourth quarter helped break theyearlong cost-price climb. Only 25 percent reportedincreased costs, while 32 percent reported decreases — anet of 7 percent reporting decreased costs. Similarly, only15 percent raised their prices, and 33 percent lowered them— a net of 18 percent decreasing prices.
• Investments, M&A activity idle. Plans for major newinvestments of capital over the next 12 months continuedon pace with the prior quarter, dropping one point to 33percent. Operational spending increases were cited by 57percent of industrial manufacturers, a drop-off from 64percent in the prior quarter and well below last year’s 83percent. Projected M&A activity was constant with the priorquarter, and positive initiatives over the next 12 monthsinclude plans to expand to new markets abroad (32percent) and to form new strategic alliances (30percent).
• More workforce reductions slated. Only 10 percent plannet new hirings, while 35 percent will be reducing theirworkforces. Composite new hiring plans for the next 12months are negative, with workforces contracting 3.2percent or more.

A quarter-over-quarter comparison of key indicators showsthe business outlook for the next 12 months and how theviews of the panel have changed each quarter (see chart 1.1).The pages that follow provide a detailed look at each questionfor the past five quarterly surveys.