The manufacturing sector posted steady growth through most of 2011, both on a global level and in the U.S. While there are serious concerns about economic instability from the European debt crisis and a still-weak housing sector, the outlook for manufacturing in the new year is largely positive.
Despite fears of another recessionary dip, worldwide manufacturing production continues to perform well, recently posting strong quarterly gains in major economies. This continued resilience and growth in manufacturing indicates that a global downturn in industrial production is not imminent and that the factory sector will retain its position at the forefront of the rebound.
According to a December report from the United Nations Industrial Development Organization (UNIDO), global manufacturing output increased in the third quarter of 2011, rising 5.5 percent above Q3 2010. The majority of the growth was attributed to developing economies, which posted an average output gain of 13 percent. China's manufacturing industry, which accounts for nearly half that of all developing countries combined, increased 14.5 percent in the third quarter.
Manufacturing production in industrialized nations grew an average of 3.3 percent in the third quarter, with the United States manufacturing sector still the largest in the world outpacing the average at 4.1 percent growth. Although developing markets outpaced industrialized nations in year-over-year output growth, industrialized economies posted a 1.1 percent manufacturing production gain between the second and third quarters, compared to a 0.6 percent decline among the developing world.
"During the first months of 2011, the level of world manufacturing output reached the pre-crisis manufacturing level and there are clear indications that the yearly growth is also returning to pre-crisis levels," the UNIDO notes. "If the current trend prevails, it would be fair to make an optimistic projection that world industrial production is likely to stabilize in 2012."
According to MAPI's latest quarterly industrial outlook, U.S. manufacturing production growth will outpace growth in the overall economy over the next few years, climbing 4 percent in 2011, 3 percent in 2012 and 4 percent in 2013. By comparison, gross domestic product (GDP) is forecast to grow 2.1 percent in 2012 and 3.3 percent in 2013.
MAPI forecasts that 18 of the 24 industries surveyed will expand in 2012, led by housing starts with 20 percent growth. In 2013, 23 industries are expected to grow, again led by housing starts with a 32 percent increase. Over the next five years, high-tech manufacturing is forecast to grow at an average annual rate of 14 percent, while non-high-tech manufacturing will grow at 3 percent.
"The growth is being led by the energy, transportation and industrial equipment industries. We believe the continuing pickup in domestic auto production will also be a major driver of overall economic growth next year," Daniel J. Meckstroth, chief economist at MAPI, said. "In addition, firms are profitable and have the need to spend more for both traditional and high-tech business equipment, and reasonably strong growth in emerging economies is still driving U.S. exports."
U.S. manufacturers remain optimistic about their business prospects for the new year. At the recessionary low point in 2009, 46.3 percent of respondents to the National Association of Manufacturers (NAM)/IndustryWeek Survey of Manufacturers had a positive business outlook, but by Q4 2011 the proportion of optimistic manufacturers had risen to 80.2 percent, comparable to pre-recessionary figures.
Moreover, approximately 72 percent of manufacturers expect sales to increase over the next 12 months, with an average expected sales gain of 4.4 percent. Roughly half forecast sales to grow by at least 5 percent, while one-in-five expect sales to climb by more than 10 percent.
Revenues are also on an upswing. The Institute for Supply Management's latest semiannual economic forecast found that 69 percent of manufacturers expect revenues to be greater in 2012 than in 2011, with a 5.5 percent net increase in overall revenues forecast for 2012, compared to a 7 percent increase in 2011.
"[Manufacturing executives] are optimistic about their overall business prospects for the first half of 2012, and are even more optimistic about the second half of 2012," Bradley J. Holcomb, chair of the ISM Manufacturing Business Survey Committee, said. "Manufacturing has demonstrated its resilience throughout this challenging economic recovery period with consistent growth dating back to August of 2009...and our forecast calls for a continuation of that growth in 2012."
Purchasing and supply executives expect capital expenditures to increase 1.9 percent in 2012, while employment will grow 1.3 percent and labor and benefit costs are expected to increase an average of 2.4 percent. Purchasers forecast increases in both exports and imports in the next twelve months, and the U.S. dollar is expected to weaken "very slightly" against major foreign trading partners' currencies.
Despite the generally positive outlook, there are some challenges ahead. Respondents to the ISM survey cited their top concerns for 2012 as: poor sales (43.9 percent); government regulations (22 percent); inflation (17.4 percent); cost of labor (4.5 percent); quality of labor (4.5 percent); taxes (4.5 percent); and interest rates and finance (3 percent).
Workforce issues are also likely to be problematic in the new year. In a recent survey from the American Society for Quality, 44 percent of manufacturing professionals said they are worried about finding qualified applicants to fill vacant positions, and 27 percent said budget constraints will be a major hurdle to meeting staffing needs.
Meanwhile, mounting financial difficulties in European economies may cause significant instability in global markets, which could impede business activity among U.S. manufacturers and aggravate existing domestic problems.
"The main risk is that the European sovereign debt crisis may cascade from European banks to the U.S. banking system and interfere with interbank lending and, ultimately, credit availability. Another concern is that job growth will stop. U.S. economic growth is already at a 'stall speed' of 2 percent or less, and if we had a major shock it could precipitate a major crisis," Meckstroth explained in a separate MAPI report. "Additionally, there is already a shift from fiscal government stimulus to austerity that we expect to last the next five years or more, as U.S. politicians attempt to get control of our unwieldy public debt."
It remains to be seen how U.S. policymaking or the European debt crisis will affect domestic manufacturing industries in 2012, but for the time being, most indicators for the near-term future are relatively positive and manufacturing continues to be resilient in the face of a rapidly changing economic landscape.
Earlier:What Manufacturers Expect in 2011ResourcesWorld Manufacturing Production: Statistics for Quarter III, 2011
United Nations Industrial Development Organization, December 2011
World Industrial Output Grows in the Third Quarter, Despite Eurozone Financial Instability...
United Nations Industrial Development Organization, Dec. 1, 2011
...Current Rebound Will Give Way to Slight Deceleration in 2012
MAPI, Dec. 14, 2011
NAM/IW Survey: Manufacturers Optimism Spikes
by Chad Moutray
National Association of Manufacturers/IndustryWeek, Dec. 13, 2011
Economic Growth Continues in 2012
Institute for Supply Management, Dec. 6, 2011
...Unstable Economy Remains Chief Concern for Manufacturers
American Society for Quality, Nov. 23, 2011
MAPI Economic Forecast: Rebalancing Growth with More Investment, Exports
MAPI, Nov. 22, 2011