Manufacturing Looks Strong, or Does It?

 Post from Alan  Brown

Alan Brown

Two recently released surveys show how the economy continues to unsettle manufacturers and business owners.

The first, ThomasNet.com’s Industry Market Barometer, focused exclusively on product and custom manufacturers. It was taken in January and February, and included more than 1,600 professionals, mostly from small companies with less than 100 employees and less than $10 million in revenue.

Most were optimistic about the future. Nearly half said their business grew in 2011, and 70 percent expected it to grow this year. Top growth markets included aerospace/defense, energy, fabricated metals, medical equipment, and instrumentation, automotive, and construction.

Investment and hiring reflect growth. An impressive 83 percent said they would invest in new production capacity. An additional 71 percent planned to upgrade facilities, and another 66 percent planned to add new product lines or services. Only 28 percent of respondents had trouble borrowing capital for these investments, a source of contention for many small companies during this prolonged recession.

Four out of 10 product and custom manufacturers planned to add employees in 2012, while another five of 10 expected to keep their workforce level. Less than one out of 10 companies foresaw workforce reductions.

Among companies planning to hire 52 percent expected to add line workers; 48 percent, skilled trade workers; 39 percent, engineers; 31 percent sales and marketing personnel; and 27 percent, customer service representatives. Nearly six out of 10 companies said it was hard to find qualified workers.

Despite the upbeat outlook, 61 percent of respondents said they struggle with pricing pressures, and nearly half were concerned about customers cutting back or going out of business. While 39 percent worried worry overseas competition, nearly as many, 36 percent, fretted about domestic competitors.

One way companies respond to competitive threats is by reevaluating their supply chains. Nearly all respondents—85 percent—planned to do this, and more than half will put more effort into that process. This may result in more companies sourcing products in the United States. In fact, 31 percent expect to buy more U.S. products than last year.

ThomasNet, the online version of that old standard, the Thomas Register, trumpets the results as proof that American manufacturers are “laying out an agenda for restoring their industry to its earlier glory.”

Yet the survey was at the start of the year, when the economy was rebounding and U.S. exports were soaring. A more general survey of business executives taken by McKinsey in June paints a more clouded picture.

A lot happened between February and June. Questions about European sovereign debt and the future of the euro have dominated economic news. The economies of China, Brazil, and India showed signs of slowing, as did smaller emerging markets. Uncertainty, slower growth abroad and shaky consumer confidence has caused the U.S. economy to slow.

Only 20 percent of respondents expected the global economy to improve over the next six months. In Europe, 32 percent of executives expect a recession, while 35 percent see a minimal economic contraction. Executives in developing markets and North America are the most optimistic, yet only 38 and 36 percent, respectively, see better conditions in six months.

And manufacturing? Among executives in this sector, 24 percent expected demand to decrease, compared with 13 percent three months ago.

3 Responses to “Manufacturing Looks Strong, or Does It?”

  1. July 5, 2012 at 10:02 pm

    Many businesses are feeling the instability of the market right now. At this point, it seems demand will remain the same or increase. It is always a juggling act to remain competitive and profitable.

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The Editor

John G. Falcioni is Editor-in-Chief of Mechanical Engineering magazine, the flagship publication of the American Society of Mechanical Engineers.

July 2012

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