Manufacturers are upbeat about the United States' economic prospects for the next 12 months, despite ongoing concerns about global economic growth, legislative pressure, and lack of demand.
The attitude has notably improved compared to last year, and optimism for economic outlook among US industrial manufacturers is at its highest level in five quarters, according to the recently released PwC Manufacturing Barometer quarterly survey.
This renewed confidence is impacting industrial manufacturers directly in terms of current and expected revenue growth and could trickle down further into the electronics supply chain.
PwC reported that while industrial company revenue forecasts are projected to stabilize in the next 12 months, about 82 percent of the 60 US-based industrial manufacturers surveyed expect to have positive revenue growth in the coming quarters; only 3 percent forecast negative growth for their own companies, and 8 percent expect zero growth (the remaining 7 percent did not report their revenue projections).
The US-centric hopefulness, however, was tempered by guarded caution related to other key areas. The two main barriers to growth are linked to legislative and regulatory pressures and lack of global demand, and survey respondents also appear worried about competition from foreign markets and the lack of qualified workers, which was indicative of the potential softness in new hiring during the second quarter, PwC found.
Said Bobby Bono, US industrial manufacturing leader for PwC, in a press release:
There remains a persistent dichotomy in viewpoints regarding the outlooks for the U.S. and world economies. Optimism regarding the domestic economy has increased, while worldwide economic sentiment remains restrained, with global uncertainty reaching the highest level in the past 12 months. The U.S. is starting to show signs of healthy demand trends and improving pricing power, supporting positive overall sentiment in the year ahead. However, as a result of the mixed global outlook, combined with the moderate domestic recovery and the specter of increased legislative and regulatory pressures, management teams are continuing to carefully manage their costs, while maintaining a focus on growing profitably.
Some of the dichotomy is already playing out beyond industrial manufacturers and with international companies. Just look at the news coming out of Royal Philips NV this week, for instance.
Philips, Europe's largest electronics company, saw its second-quarter profit jump 30 percent, an increase fueled by growth within its consumer and healthcare units and a pick up in orders from North America and emerging economies, Bloomberg reported. This was the fifth straight quarter the company's profit improved, and a focus on higher-margin lighting and healthcare products, in addition to its legacy consumer-electronic businesses, seems to have helped boost the bottom line, the paper said.
While it's uncertain exactly how the industrial manufacturing sector's economic outlook will influence the rest of the supply chain, you can bet there will be shakeout related to corporate compliance with the Dodd-Frank Act, and specifically Section1502 involving conflict minerals, PwC noted.
Since the act requires, by May 2014, assessment, new procedures and disclosure requirements for companies whose products contain conflict minerals from the Democratic Republic of Congo and its adjoining countries, companies across all industries have started to beef up compliance efforts. More than half of the industrial companies PwC surveyed have taken either some steps to prepare for compliance or are actively engaged in or leading compliance efforts. How these efforts play out will surely impact sourcing and purchasing strategies and protocols and require new standards suppliers will have to follow, PwC suggested.
What does the industrial sector's optimism about the US economy mean for your company?