What Manufacturers Expect in 2011

The nation's manufacturing sector has held up better than other sectors during an uneven economic recovery and is expected to continue expanding. Economic forecasters and business leaders are boosting their year-end and 2011 estimates for United States growth, prompted by higher demand and increased production. Moreover, manufacturers are more optimistic about an economic uptick for their businesses in 2011, according to a spate of new data.

International trade data for October provided a surprise to many, with the U.S. trade deficit falling to its lowest level in nine months due to a surge in exports and a drop in imports. Department of Commerce Secretary Gary Locke said the trade numbers are a "sign that we're moving in the right direction" toward the Obama administration's goal of doubling exports in coming years.

The nation's manufacturing leaders are also optimistic about their own companies' business over the coming year.

When the U.S. economy officially entered a recession three years ago, 70 percent of respondents to the IndustryWeek/National Association of Manufacturers (NAM) Manufacturing Index had a positive business outlook. By the first quarter of 2009, the level of optimism had fallen to just 28 percent. By the third quarter of 2010, the share of survey respondents with a positive business outlook had improved to 75 percent — the highest level of confidence since the second quarter of 2007.

In the three months ending October 2010, manufacturing industrial production grew at a 3 percent annual rate, after expanding at an 8 percent annual rate in the three months ending July 2010. According to MAPI's latest quarterly industrial outlook, manufacturing production is forecast to increase 4 percent in 2011 and 5 percent in 2012.

"[N]on-high-tech manufacturing production is expected to increase 3 percent in 2011 and 4 percent in 2012," according to a statement from MAPI last month. "High-tech industrial production rose at a 4 percent annual rate in the August-October 2010 time frame. MAPI anticipates this sector will post strong 12 percent growth in 2011 and 15 percent growth in 2012."

MAPI's quarterly industrial outlook report forecasts 19 of the 24 industries surveyed will show gains in 2011, led by housing starts with an expected 34 percent growth, albeit from extremely depressed levels, followed by engine, turbine and power transmission equipment with 16 percent growth.

Overall, manufacturers "are optimistic about their organizations' prospects as they consider the first half of 2011, and they are even more positive about the second half," Norbert J. Ore, chair of the Institute for Supply Management's (ISM) Manufacturing Business Survey Committee, said last month. Manufacturing purchasers forecast strong exports and imports in 2011, according to ISM's end-of-year forecast. They also expect the U.S. dollar to weaken on average against the currencies of major trading partners.

Highlighting positive prospects in 2011, the manufacturing sector expects revenues to increase in 16 of 18 industries, according to ISM's panel of purchasing and supply executives, who project a 5.6 percent net increase in overall revenues for 2011, with business capital investments forecast to jump 14.5 percent this year. According to the results of the NAM/IndustryWeek survey, too, manufacturers expect their sales and capital investment expenditures to increase in 2011.

The gains in sales and investment exceed projected increases in payrolls, indicating the labor market will be slow to improve. Manufacturers expect employment in their sector will increase by 1.8 percent, while labor and benefits costs are expected to increase an average of 1.9 percent in 2011.

Despite the optimism, ISM respondents expect cost pressures in 2011 to be somewhat greater than in 2010. The panel forecasts the prices they pay will increase 2.7 percent during the first four months of 2011, increasing an additional 1.3 percent during the balance of the year, for an overall 4 percent increase in 2011.

The latest quarterly NAM/IndustryWeek survey offers findings similar to ISM's: "While sales and investment prospects improved slightly, expectations for pricing power, employment and wage growth slowed while inventory investment expectations deteriorated."

According to Grant Thornton LLP survey findings announced last month, nearly half (49 percent) of manufacturing leaders believe the U.S. economy will improve in the next six months and 81 percent are optimistic about their companies' growth during the same period.

Likewise, the American Society for Quality's second annual Manufacturing Outlook Survey also shows "a vast majority of manufacturers" are optimistic about an economic uptick in 2011 at their organizations. In a survey of more than 1,200 manufacturers conducted in October and November, 68 percent of respondents said they expect their organizations to experience revenue growth this year.

MAPI expects the recovery will continue in 2012, with growth likely in 23 of 24 industries, including seven industries that are forecast to grow at double-digit rates, again led by housing starts (53 percent) and engine, turbines and power transmission equipment (18 percent). Public works construction is the only industry anticipated to decline, by 2 percent, in 2012.

"Though it appears the manufacturing sector is still facing some challenges on the road to full economic recovery, the incremental gains shown in [ASQ's] survey are very promising," ASQ Chairman Peter Andres said in a statement. "However, organizations still need to focus on and increase customer satisfaction, and implement continuous improvement practices to remain competitive."

Resources

U.S. International Trade in Goods and Services Highlights

U.S. Census Bureau, Dec. 10, 2010

U.S. Commerce Secretary Gary Locke Statement on October 2010 U.S. International Trade in Goods and Services Report

U.S. Dept. of Commerce, Dec. 10, 2010

NAM/IndustryWeek Manufacturing Index -- Sales Predicted to Grow 3.5% Over Next 12 Months (Q3 2010)

by David Huether

National Association of Manufacturers and IndustryWeek, 2010

MAPI U.S. Industrial Outlook: Moderate Manufacturing Recovery and Expansion

Manufacturers Alliance/MAPI, Dec. 17, 2010

U.S. Industrial Outlook: A Moderate Manufacturing Recovery

by Dan Meckstroth

Manufacturers Alliance/MAPI, December 2010

Semiannual Economic Forecast: Economic Growth Continues in 2011

Institute for Supply Management, Dec. 7, 2010

Growing Optimism in Manufacturing as 49% Plan to Increase Hiring in Next Six Months

Grant Thornton LLP, Dec. 13, 2010

ASQ 2011 Manufacturing Outlook Shows Growth

American Society for Quality, Nov. 16, 2010

Additional Resources

Trade, Tax Cuts, Boost Growth Forecasts

by Howard Schneider

The Washington Post, Dec. 10, 2010

MFGWatch Quarterly Survey of North American Manufacturers (Q3 2010)

MFG.com, November 2010

...Fourth Quarter 2010 CEO Economic Outlook Survey

Business Roundtable, Dec. 14, 2010

...Business Outlook: Index at 77 Percent, Slight Decline but Sector Still Shows Strength

Manufacturers Alliance/MAPI, Sept. 14, 2010

Survey on the Business Outlook - -September 2010

by Don Norman

Manufacturers Alliance/MAPI, September 2010

Industrial Manufacturers Show Confidence in a Sustained Recovery in 2010

Prime Advantage, Sept. 17, 2010



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