Rising confidence among executives at small and midsized North American manufacturers is prompting increased capital spending and hiring, although concerns over rising costs threaten to hinder growth, according to new survey findings.

The number of small and midsized manufacturing executives expecting revenue increases in 2011 has doubled over the past six months, according to new findings from Prime Advantage. The buying consortium’s latest Group Outlook (GO) Survey indicates that 72 percent of respondents expect revenue increases for their companies in 2011, with 24 percent of small and midsized North American manufacturers expecting increases of more than 10 percent.

Only three percent anticipate a drop in revenues, a notable decline from the 18 percent that expected decreasing revenues for the second half of 2010.

“Our members, who represent a diverse cross section of manufacturing industries, are experiencing stronger growth and plan to invest back in their businesses, whether through capital expenditures or hiring more employees,” Louise O’Sullivan, founder and CEO of Prime Advantage, said in an announcement of the findings.

Not only do 41 percent of small and midsized manufacturing executives expect an increase in capital spending from 2010 levels, but 65 percent plan to invest in manufacturing equipment this year. More than 80 percent of respondents also believe federal business investment tax credits were responsible for their planned capital improvement purchases.

Moreover, nearly half of respondents think hiring will increase over the next six months, while 49 percent expect employment to remain at 2010 levels. Just three percent forecast a reduction in current workforce levels. These findings reflects more optimism among Prime Advantage members than respondents to KPMG’s spring 2011 survey of U.S. manufacturing executives, in which only 37 percent expected employment to rise in their companies over the next year.

The GO Survey results support Prime Advantage’s latest Group CFO Survey findings, which showed optimistic expectations for revenue growth, hiring and capital spending despite growing concerns over rising costs.

Yet while small and midsized manufacturers appear more optimistic, they are also concerned about three cost pressures. Ninety-six percent cited raw materials costs among the top three concerns for the next six months, with 76 percent considering it the No. 1 concern, followed by inflation (52 percent citing it as a top cost pressure) and health care expenses (37 percent citing it as a top cost pressure).

“What’s unique and challenging about this rebound is the rate at which firms must address pricing inflation in both raw materials and components,” O’Sullivan added.

When asked about potential obstacles that could prevent their companies from achieving their purchasing goals, survey respondents overwhelmingly cited the ability to maintain forecast accuracy and demand variability (76 percent), followed by the ability of suppliers to keep pace with predictable demand (41 percent) and to manage understaffed purchasing departments (39 percent).

Related: CFOs Cite Top Concerns of 2011

Resources

Group Outlook (GO) Survey (free with request)
Prime Advantage, April 2011

Capital Spending and Hiring on the Rise for Midsized Manufacturers, but Increasing Costs Cause Concern
Prime Advantage, April 25, 2011

Pulse: KPMG Global Business Outlook Survey (Spring 2011)
KPMG, March 28, 2011

Small and Midsized Industrial Manufacturing CFOs Reveal their Top Concerns of 2011
Prime Advantage, March 18, 2011

Industrial Manufacturers Show Confidence in a Sustained Recovery in 2010
Prime Advantage, Sept. 17, 2010