U.S. industrial manufacturers expect continued domestic and international growth in 2012, although forecasts have fallen below 2011 actual growth rates, according to the findings of the Q4 2011 Manufacturing Barometer released by PwC US. While uncertainty still prevails and own-company revenue expectations have moderated, optimism about the worldwide economy rose in the fourth quarter of 2011, including a notable improvement in sentiment regarding prospects for the U.S., as compared to an all-time low in domestic sentiment in the third quarter of 2011. In addition, U.S. industrial manufacturers continue to forecast increased investment spending in the year ahead, including major outlays in operational spending. Plans for merger and acquisition (M&A) activity also increased, and there was significant emphasis on expansion into new markets.
Optimism regarding the prospects of the U.S. economy over the next 12 months rose to 30% in the fourth quarter of 2011 - up from only 5% in the third quarter of 2011 - and 28% of respondents believe that the U.S. economy grew in 4Q 2011, up 21 points from the prior quarter. However, the majority of respondents, 57%, remain uncertain, rather than outright pessimistic. Among U.S. industrial companies operating abroad, uncertainty also remains high at 64%, with 36% believing that the world economy is declining and 48% reporting that they saw no change. However, 16% of respondents marketing abroad view the world economy as growing in the fourth quarter of 2011, up 9 points from the prior quarter.
Although the projected average growth rate for own-company revenue for 2012 was lowered from 5.0% in the prior quarter to 4.4% in the fourth quarter of 2011, 83% of respondents expect positive revenue growth for their own companies in the year ahead, while 7% expect growth to be negative and 10% expect no growth. With regard to the international contribution, industrial manufacturers continue to expect international sales to deliver 38% of total company revenue in 2012, the same as the prior quarter and one year ago.
Looking back at full year 2011, the composite average growth estimate for own-company calendar year revenue growth was 5.3%, down slightly from 5.6% projected in the third quarter survey. Eighty-seven percent of respondents said they had positive own-company growth in 2011, with 19% forecasting double digit gains and 68% projecting single digit gains. Eight percent were negative, while only 5% had zero growth.
Over the next 12 months, 67% of industrial manufacturing panelists plan major new capital investments, up 12 points from the third quarter of 2011. The level represents the highest in the past five quarters, with two-out-of-three U.S. industrial manufacturers planning spending. However, the average level of new investment spending is expected to be lower at 4.2% of sales, in comparison to 5.9% in the third quarter of 2011. Ninety percent of respondents plan to increase operational spending, an increase of 5 points from the previous quarter. Increased operational spending is cited for new product or service introductions (57%), information technology (50%) and business acquisitions (40%). Forecasts for research and development spending declined 8 points to 40% from 48% in the third quarter of 2011, while spending forecasts pertaining to marketing, sales promotion and advertising remained low.
Looking at the employment pict ure, 37% of respondents plan to add employees to their workforces over the next 12 months, off 1 point from the third quarter of 2011. However, the net workforce composite projection rose from a minus 0.2% in the prior quarter to a plus 0.7%, representing modest gains and a break from what had been a declining hiring pattern in past surveys. Among those respondents planning to hire, the most sought after employees will be professionals and technicians (28%) and skilled workers (23%). Interest in production workers declined to 13%, off 14 points from the third quarter of 2011.