PwC's 2011 Manufacturing Barometer reports revenue growth projections for U.S. manufacturers

Source: PricewaterhouseCoopers

May 10, 2011

The latest edition of the PwC US Manufacturing Barometer reports that despite the ongoing uncertainty about the U.S. and world economies’ prospects over the next 12 months, a vast majority of U.S. industrial manufacturers expect positive revenue growth for 2011. However, concerns over high oil and energy costs top the list of potential barriers to growth this year while higher overall costs are driving industrial manufacturers to proactively respond to pricing challenges, according to PwC’s Q1 2011 report.

The projected average growth rate for own-company revenue over the next 12 months rose to 7% in the first quarter of 2011 from 6.6% in the fourth quarter of 2010. The Q1 2011 rate more than doubles the 3% projected average growth rate reported in the first quarter of 2010. Eighty-nine percent expect positive revenue growth for their own companies in the year ahead, an increase of 14 points over first quarter 2010 and 5 points over the fourth quarter. Thirty-three percent are forecasting double-digit growth, a significant increase of 21 points over first quarter 2010, while 56% are forecasting single digit growth. Only 5% forecast negative growth and another 2% are forecasting zero growth.

Looking at the next 12 months, 57% of industrial manufacturers expressed optimism about the U.S. economy, down 6 points from the fourth quarter of 2010, but 4 points higher than the same period in 2010. Uncertainty about the U.S. economy was cited by 38% of panelists, an increase of 8 points, while only 5% remain pessimistic versus 7% last quarter. Forty-four percent of panelists were optimistic about projections for the 12 month outlook for the world economy, a decline of 16 points from the fourth quarter 2010. The majority (51%) are uncertain, up 13 points, while only 5% are pessimistic about the global economic outlook.

In the first quarter of 2011, 65% of respondents believed the U.S. economy was growing, up 4 points from the final quarter of 2010. For the first time in five years, no panelist believed it was declining. Thirty-five percent believed the U.S. economy did not change from last quarter. Gross margins for the first three months also remained positive. They were higher for 37% of panelists and lower for 29%, for a net plus 8%, which is below the fourth quarter's plus 15%.

A surge in oil and energy prices contributed to 65% of respondents citing oil and energy prices as the greatest potential barrier to own-company revenue growth over the next 12 months, rising 38 points from the fourth quarter as the cost per barrel of oil surged above $100. In 2008, when the cost of oil reached $145 per barrel, a survey high of 78% of panelists rated oil and energy prices as the leading barrier. The increased price of oil and energy surpassed legislation and regulatory pressures (54%), which had topped the list of barriers for the past year. Concerns about demand plummeted 22 points to 41% and concern about a lack of qualified workers rose for a second quarter, up 12 points to 25%.

In the first three months of 2011, a majority (51%) of U.S.-based industrial manufacturers reported higher costs, and 8% reported lower costs for a net plus 43%. Forty-three percent raised prices, and only 11% lowered them, for a net of plus 32%.

U.S.-based industrial manufacturers that sell abroad continued to grow revenue in the first quarter of 2011, with 59% reporting an uptick in sales, while 39% responded that sales remained the same over the prior quarter. Only 2% reported a decrease. The projected contribution of international sales to total revenue, however, declined to 34% from the prior quarter’s 38%, possibly a reflection of growth in domestic revenue.

Over the next 12 months, nearly half of the panelists (49%) are planning major new investments of capital, an increase of five points over last quarter and 21 points higher than last year. The increase marks the fifth straight quarterly increase in spending projections. Operational spending is also expected to increase, with 86% planning an increase, up from 82% in the fourth quarter and 70% in the first quarter of 2010. Operational spending plans are led by new product or service introductions (49%), research and development (46%), business acquisitions (41%), and information technology (41%).

Fifty-one percent of respondents plan to add employees to their workforce over the next 12 months, up three points from the fourth quarter and 24 points higher than the first quarter of 2010. Only 3% plan a net reduction, compared to 17% last year, while 46% will stay about the same. The net workforce composite projection is plus 1.3%, well-above the 0.5% from the first quarter of 2010.

Learn more about the PwC US Manufacturing Barometer.