Uncertainty about both the U.S. and world economies persists among industrial manufacturers, yet they remain upbeat about their own companies and have plans to spend accordingly, a new report indicates.

Industrial manufacturers’ outlook for the next year is a mixture of economic uncertainty and continued optimism for their own companies, according to new findings from PricewaterhouseCoopers (PwC) last week.

Based on responses from 60 industrial manufacturing executives in the U.S., PwC’s Q3 2011 Manufacturing Barometer reports that only 5 percent of U.S. industrial manufacturers are currently optimistic about the prospects of the U.S. economy over the next 12 months.

At the same time, however, the majority (77 percent) are “uncertain” rather than outright “pessimistic” (18 percent).

The uncertainty derives from a perceived lack of political ability to solve economic and overspending problems in the U.S., as well as in the European Union. Among manufacturers selling abroad, 7 percent are optimistic about prospects for the world economy, while most are uncertain (72 percent). Approximately 21 percent are pessimistic.

“There has been a significant shift away from optimism for the U.S economy among U.S. industrial manufacturers over the past three months. Yet they aren’t pessimistic, which aligns with how they positively view their own revenue prospects and are positioning and driving their businesses for growth in the next 12 months,” Barry Misthal, global industrial manufacturing leader for PwC, said in an announcement of the results. “The findings of the Q3 Barometer suggest that the strategic investments and plans being made by U.S. industrial manufacturers are strengthening their company’s potential in the face of an uncertain economic environment.”

Despite their doubts, U.S. industrial manufacturers remain upbeat about their own companies and have plans to spend accordingly. Over the next 12 months, manufacturers expect positive growth for their own companies, are planning major new investments of capital and are forecasting international sales to more heavily contribute to their bottom lines.

Looking ahead, 75 percent of industrial manufacturing executives expect revenue growth, with 22 percent forecasting double-digit growth and 53 percent single-digit growth. Another 20 percent expect zero growth, while only 5 percent expect sales to decline.

“Despite fears of a double-dip recession, soaring oil prices and legislative uncertainties, companies have performed surprisingly well,” the report states. “So well, in fact, that some panelists say this year’s numbers will be tough to beat in 2012.”

Meanwhile, U.S.-based industrial manufacturers selling abroad expect international sales to contribute 38 percent of their total revenue over the next 12 months. Forty-eight percent expect an increase in international sales, 44 percent expect about the same level of sales as in the previous quarter and only 8 percent anticipate lower numbers.

“More than 90 percent of respondents noted international sales were either up or the same compared to three months ago and projections continue to rise, demonstrating that they are finding good opportunities to expand their businesses overseas to confront concerns over a retrenching U.S. economy,” Misthal added.

Over the next 12 months, 55 percent of respondents plan major new investments of capital. Eighty-five percent of manufacturers surveyed will increase operational spending over the next 12 months, with R&D rising to the top position (48 percent), followed by increases in new products or services (43 percent) and IT (42 percent), business acquisitions (37 percent) and geographic expansion (37 percent). Plans for marketing and sales promotion and advertising remain low. Among new business initiatives, expansion to new markets abroad leads the way at 40 percent.

“Operational spending on R&D and IT has been very limited over the past three years as U.S. industrial manufacturers took a conservative spending approach in the face of poor economic conditions,” Misthal said. “The uptick is not surprising given the importance of funding initiatives to build the pipeline of new products and continuing need to expand information technology processes and systems to better enable operational effectiveness and customer information.”

PwC’s findings indicate that 38 percent of industrial manufacturers plan to add employees to their workforces over the next 12 months. Approximately 55 percent will keep staff levels the same, while 7 percent plan to reduce the number of full-time employees. The net workforce projection is -0.2 percent, down from Q2′s +0.3 percent, a sign of hiring flatness in the manufacturing sector.

Demand concerns are partly to blame for the slowdown in hiring, as 57 percent of respondents cited lack of demand as a potential barrier to growth over the next 12 months. Concerns about demand had previously declined for two consecutive quarters.

“There is a direct correlation between a majority of respondents citing a lack of demand as the biggest barrier to growth and their staff levels staying the same,” Misthal said. “When there are concerns about the trend of customer orders, companies are generally cautious about bringing in additional workers.”

Resources

Manufacturing Barometer: Business Outlook Report
PricewaterhouseCoopers, October 2011

Optimism for the U.S. and World Economy Hits All-Time Low…
PricewaterhouseCoopers, Oct. 26, 2011

Additional

NAM/IW Q3 Survey: Manufacturers Outlook Still Positive, but Optimism Wanes
by Chad Moutray
National Association of Manufacturers/IndustryWeek, Sept. 13, 2011

…Business Outlook: Despite Economic Turmoil, Manufacturing Shows Strength
Manufacturers Alliance/MAPI, Oct. 15, 2011

McGladrey Manufacturing & Distribution Monitor Shows Cloudy Mood, Some Rays of Sunshine
McGladrey, Aug. 31, 2011