Manufacturers Optimistic About Business Outlook and Hiring

March 30, 2011

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Manufacturers have grown noticeably more positive about near-term business activity, with major improvements in the outlook for employment conditions, according to new findings.

Business prospects for the year ahead have strongly improved among manufacturers worldwide, with United States manufacturing executives forecasting particularly promising near-term results, new survey findings suggest. As revenues and profits are expected to rise over the next 12 months, manufacturers also anticipate that hiring will follow.

In KPMG International's latest Global Business Outlook survey, released this week, 68 percent of U.S. manufacturing executives said they expect improved business activity over the next 12-month period, up from 57 percent who said the same in the previous survey in October. Sixty-five percent forecast higher revenues, compared with 52 percent in October, while 62 percent believe profits will increase, up from 47 percent in October.

The tax advisory and research firm's Global Business Outlook survey is based on responses from 6,247 companies representing manufacturing and service providers in 17 countries, including 263 U.S. manufacturers and 263 U.S. service-industry professionals.

According to the new findings, the most dramatic improvements in the manufacturing outlook involve employment conditions, as stronger prospects for revenues and profits may encourage companies to increase their payrolls. The survey found that 41 percent of manufacturing executives plan to increase employment in the year ahead, compared with 28 percent who said the same in October.

General economic conditions for the global manufacturing industry are also on a noticeable upswing. According to KPMG, four of the five top manufacturing indicators reached record highs since the survey became global in October 2009. The net balances for business activity and new orders both surpassed +50, while revenues reached +49. Employment optimism also reached a record high of +25, while optimism about rising profits hit +36, a nine-point improvement in the net balance since winter 2010.

"I think the most encouraging aspect of these numbers is that the recovery is worldwide," Alan Buckle, global head of advisory at KPMG, said in an announcement of the findings. "China and the other high-growth economies are no longer alone to blaze the recovery trail. As long as that was the case, the economic recovery always felt somewhat fragile as it lacked wholesale support from the world's two biggest economic blocs. With Europe and the U.S. now appearing to be properly on board, the recovery feels more robust."

The largest gains during the latest reporting period were among U.S. manufacturing and services executives, who express greater optimism in every category than their international counterparts.

"Among rich countries, U.S. businesses are most confident about output growth," the Financial Times reports (registration required). "With a net 64-point balance of optimists in manufacturing and 62 in services, confidence is close to where it was early last year, when the U.S. economy looked like it might enjoy a strong rebound from the recession."

While the U.S. may be leading in net positive expectations for the future, manufacturing and services remain strong in emerging markets, particularly those that rebounded swiftly from the global economic downturn.

"[O]ptimism is also getting better in the BRIC countries — Brazil, Russia, India and China," CNBC.com explains. "Then there's Europe. Despite debt problems in Portugal and Ireland, manufacturers are also seeing a brighter future on the continent."

Despite the widespread gains, there are causes for concern as inflation pressures continue to mount. The percentage of U.S. manufacturers expecting to see output prices increase more than doubled from 22 percent in October to 45 percent in the latest KPMG survey. Likewise, 50 percent of manufacturers expect an increase in input prices, up from 25 percent in October.

It is important to note that the survey results were collected before the disasters in Japan and before the latest developments in the political turmoil in the Middle East and North Africa.

"While the impact of these events is a challenge to predict, our survey found business leaders have clearly shifted focus from cost cutting to growth in a post-recession environment, though some remain cautious about hiring and are not convinced improved business conditions will result in higher prices," Mark A. Goodburn, U.S. vice chairman and head of advisory at KPMG LLP, said. "This is consistent with the continued emphasis on increased productivity we're seeing throughout the marketplace, as businesses work to leverage new operations and IT models that improve efficiencies within their organizations."

Earlier: Devastation in Japan to Have Far-Reaching Effects

Resources

Manufacturing Executives More Positive on Jobs Outlook KPMG International (via PRNewswire), March 28, 2011

Prospects for Full Global Economic Recovery Rebound Strongly KPMG International/Markit Economics, March 28, 2011

Survey Finds Global Business Optimism by Martin Sandbu Financial Times, March 28, 2011

U.S. Economy over the Worst: KPMG Executive Survey by Jason Gewirtz CNBC.com, March 28, 2011

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