January 26, 2015
Manufacturer operational spending plans highest in two years
U.S.--The business outlook improved notably among U.S. industrial manufacturers during the fourth quarter of 2014, according to the’ Q4 2014 Manufacturing Barometer’, released by PwC US. A wide range of key indicators posted improvement during the fourth quarter, including the positive company forecasted average growth rate for the year ahead, while concerns about legislative and regulatory policies and lack of demand declined.
Optimism regarding the prospects of the U.S. economy during the next 12 months increased among U.S. industrial manufacturers to 68 per cent during the fourth quarter of 2014, up 11 points from 57 per cent in the previous quarter. At the same time, optimism about the world economy improved to 38 per cent, up eight points from 30 per cent in the third quarter, but still down from 47 per cent in last year’s fourth quarter.
“Economic sentiment has improved among U.S. manufacturers and we are seeing an upswing in their confidence levels, leading to increased plans for hiring and operational spending,” said Bobby Bono, PwC’s U.S. industrial manufacturing leader. “Management teams are primarily focusing on hiring skilled workers, developing new products and investing in research and development, in an effort to further strengthen core competencies, support growth and build market share. However, management teams still remain guarded on the world stage where a high level of uncertainty has prevailed.”
According to the latest Manufacturing Barometer, 60 per cent of U.S. industrial manufacturers indicated plans to add employees to their workforce over the next 12 months, up from 52 per cent in the third quarter and in line with last year’s fourth quarter. Overall, the total net workforce growth projection rose to 1.1 per cent in the fourth quarter, up from 0.4 per cent in the third quarter and 0.5 per cent in the fourth quarter of 2013.
The latest report includes a special section on human capital, which reveals a continued shortage of skilled workers across the U.S. industrial manufacturing sector, as two-thirds (64 per cent) of respondents cited a need to fill certain skill gaps in their businesses over the next 12-24 months. The biggest skill gaps identified were in skilled labor (75 per cent) and in middle management (41 per cent). Further highlighting the issue, over the past year, two-thirds of U.S. industrial manufacturers also reported having open positions that they were unable to fill with experienced or skilled employees. In order to begin filling the gap, 78 per cent of U.S. industrial manufacturers plan to hire new skill function employees over the next 12-24 months with the broadest needs in engineering/design (62 per cent), manufacturing (44 per cent) and R&D (28 per cent).
According to the survey, plans for operational spending rose to 82 per cent of respondents, the highest level in nine quarters and up 13 points from 69 per cent recorded in the third quarter and 73 per cent in last year’s fourth quarter. Plans for new product or service introductions increased to 52 per cent, up significantly from 43 per cent in the third quarter, while plans for spending on research and development increased 11 points t0 47 per cent from 36 per cent in the third quarter. At the same time, sentiment regarding plans for new investments of capital remained healthy with 43 per cent of respondents indicating increased outlays in the next 12 months, up from 36 per cent in the previous quarter and in line with the fourth quarter of last year.
“Dovetailing with gains in operational spending forecasts, plans to hire more workers rose to the highest level in the past four quarters, pointing to increased comfort with business prospects in the year ahead,” Bono added. “Management teams appear to be shifting outlays from capital spending to investing in people and products. However, they have continued to highlight concerns regarding the lack of qualified workers, particularly in skilled labor. This is a longstanding issue that will need to be addressed through improved worker training and resources as industrial manufacturing processes around new and disruptive technologies become increasingly complex.”
Despite uncertainty regarding the global economic outlook, 18 per cent of respondents indicated plans to develop new facilities abroad, up from nine per cent in the third quarter and eight per cent in the fourth quarter of 2013. “The 10 point year-over-year gain in planned international facilities expansion may represent a harbinger for more international business activity in the year ahead,” added Bono. “This is an indicator we will be watching closely as we monitor sentiment among industrial manufacturers regarding the global outlook.”
With regard to perceived headwinds, 32 per cent of respondents singled out legislative/regulatory pressures as the major headwind to growth over the next 12 months, a sharp 27-point drop from 59 per cent last quarter and 15-point drop from 47 per cent in the fourth quarter of 2013. This decrease was followed by lack of demand, which was cited by 35 per cent of respondents, down from 43 per cent during the third quarter. Conversely, concerns regarding the lack of qualified workers increased to 33 per cent during the fourth quarter, compared to 26 per cent in the third quarter and 20 per cent last year.