Manufacturers optimistic despite growing concerns

According to PricewaterhouseCoopers' Manufacturing Barometer, U.S. industrial manufacturers remain upbeat about the economy. 84 percent believe it is growing. However, foreign competition, oil/energy prices, exchange rates, and decreasing profitability are increasing concerns, causing manufacturers to scale back revenue targets, new investments, and hiring projections.

Eighty-two percent said they are optimistic about the U.S. economy's prospects over the next 12 months, compared to 78 percent from all industries. Sixty-six percent said they are optimistic about the world economy's prospects in 2005, compared to 63 percent across all industries.

Industrial manufacturers reported a slight drop in average operating capacity in the fourth quarter, to 80.9 percent from 82.0 percent. Potential growth pitfalls have been identified and are being monitored. They include:

• Competition from foreign markets: Forty-two percent of industrial manufacturing executives see foreign competition as a potential roadblock to growth.
• Oil/energy prices: Thirty-six percent said oil/energy prices could thwart their growth plans.
• Monetary exchange rates: Thirty-two percent cited concern about the relative value of the dollar. International sales are expected to contribute 31.8 percent of revenues for industrial manufacturers marketing abroad.
• Decreasing profitability: Thirty percent see shrinking margins as a potential barrier.

Alert to heightened vulnerabilities, industrial manufacturers also have turned more cautious in their plans for the upcoming year. They are projecting average revenue growth of 7.8 percent for the next 12 months—a retreat from their high-water-mark estimate of 9.0 percent in the previous quarter.

Forty-five percent expect to make major new capital investments over the next 12 months, off from last quarter's 56 percent.

The number of industrial manufacturers expecting net hiring rose to 53 percent. They expect to increase their current workforce by an average of 0.8 percent over the next 12 months, off from last quarter's 1.7 percent.