While the majority of industrial manufacturers continue to view the U.S. and world economies as declining in the second quarter of the year, their overall outlook through the second quarter of 2010 shows improvement, according to PricewaterhouseCoopers LLP.

In the previous four quarters, an overwhelming majority of manufacturing executives’ outlooks naturally took a hit due to the declining United States and world economies. However, according to the latest edition of the PricewaterhouseCoopers LLP (PwC) Manufacturing Barometer, the outlook began to shift in Q2, with only 63 percent of industrial manufacturing executives maintaining the U.S. economy is in decline, a 30 percent drop from the first quarter.

Moreover, 66 percent of respondents doing business abroad continued to view the world economy as declining in the second quarter, “a marked improvement compared to the first quarter when nearly all (98 percent) viewed the world economy as declining,” according to an announcement from PwC.

The Manufacturing Barometer is one in a series of quarterly business outlook surveys from PwC. The survey provides a view on the 12-month outlook for revenue growth, new investments, emerging business barriers and more.

Although the majority of industrial manufacturers continue to view the U.S. and world economies as declining in the second quarter of the year, their overall outlook for the next 12 months shows improvement. In fact, the latest PwC report shows the lowest levels of pessimism and the highest levels of optimism seen in the past five quarters for both the U.S. and world economies.

“Forty-three percent of respondents are optimistic about the U.S. economy, up 27 points from Q1,” according to the latest edition of the Manufacturing Barometer. “Only 18 percent are pessimistic, down 37 points from the prior quarter.”

Among those respondents doing business abroad, 43 percent were optimistic about the world economy, up 31 points from last quarter, and only 18 percent were pessimistic, which was down significantly from the 58 percent reported in the first quarter.

“Despite a slightly more optimistic view of the economy for the next 12 months, industrial manufacturers are still very concerned about lack of future demand,” Barry Misthal, partner and industrial manufacturing sector leader at PwC, explains. Although concern about market demand dropped, it remains the chief potential barrier to growth over the next 12 months, cited by 82 percent (down 13 points), followed by decreasing profitability and concern about new taxation policies.

The recent increase in American consumer confidence has raised the prospect of a spending rebound.

The U.S. Department of Commerce last week reported that consumer spending rose 0.4 percent, boosted by expenditures on nondurable goods, after a revised 0.1 percent increase in May.

New orders for manufactured goods, up four of the last five months, increased $1.4 billion, or 0.4 percent, in June, the U.S. Census Bureau reported last week. Shipments, up following 10 consecutive monthly decreases, increased $4.9 billion (1.4 percent) to $358.3 billion.

In the Institute for Supply Management’s (ISM) latest manufacturing Report on Business, the manufacturing index had its strongest showing since September. The index of new export orders shows growth following nine consecutive months of decline.

International sales for U.S.-based industrial manufacturers selling abroad showed a slight upturn in Q2 after dropping consecutively for the past four quarters. Approximately 24 percent of PwC respondents reported an increase in international sales in Q2, up from 19 percent in Q1. Companies reporting a decrease in international sales fell from 60 percent in the first quarter to 47 percent in Q2.

“However, the 12-month forecast for the contribution of international sales to total revenue dropped from 36 percent in the prior quarter to 30 percent, well below the 38 percent projected a year ago,” the PwC report points out in the executive summary.

Despite the optimism, companies remain wary.

In late July, Nucor Corp., the second-largest U.S.-based steel producer, reported its second-ever loss as the global recession cut demand for industrial steel.

“[T]he uncertainty in our economy is still very high,” Nucor said in a statement. “Currently we are concerned that the marginal uptick in orders is not representative of an increase in ‘real’ demand but more a result of both inventory adjustments and concern over rising prices.”

Resources

Manufacturing Barometer: Business Outlook Report, Second Quarter 2009
PricewaterhouseCoopers LLP, Aug. 7, 2009

Pessimism Over the U.S. and Global Economies Declines Among U.S. Industrial Manufacturers…
PricewaterhouseCoopers LLP, Aug. 7, 2009

Personal Income and Outlays: June 2009
U.S. Department of Commerce, Aug. 4, 2009

Manufacturers’ Shipments, Inventories and Orders
U.S. Census Bureau, Aug. 5, 2009

July 2009 Manufacturing ISM Report On Business
Institute for Supply Management, Aug. 3, 2009

Nucor Reports Results for Second Quarter and First Half of 2009
Nucor Corporation, July 23, 2009

JPMorgan Global Manufacturing PMI: Upturn in Output Gained Traction as New Orders Recovered
JPMorgan and Markit Economics, Aug. 3, 2009