U.S. industrial manufacturers expect continued domestic and international growth in 2012, although forecasts have fallen below 2011 actual growth rates, according to the findings of the Q4 2011 Manufacturing Barometer released today by PwC US ( www.pwc.com), the U.S. arm of PricewaterhouseCoopers. While uncertainty still prevails and own-company revenue expectations have moderated, optimism about the worldwide economy rose in the fourth quarter of 2011, including a notable improvement in sentiment regarding prospects for the U.S., as compared to an all-time low in domestic sentiment in the third quarter of 2011. In addition, U.S. industrial manufacturers continue to forecast increased investment spending in the year ahead, including major outlays in operational spending.  Plans for merger and acquisition (M&A) activity also increased, and there was significant emphasis on expansion into new markets.

Optimism regarding the prospects of the U.S. economy over the next 12 months rose to 30 percent in the fourth quarter of 2011 - up from only 5 percent in the third quarter of 2011 - and 28 percent of respondents believe that the U.S. economy grew in 4Q 2011, up 21 points from the prior quarter. However, the majority of respondents, 57 percent, remain uncertain, rather than outright pessimistic.  Among U.S. industrial companies operating abroad, uncertainty also remains high at 64 percent, with 36 percent believing that the world economy is declining and 48 percent reporting that they saw no change.  However, 16 percent of respondents marketing abroad view the world economy as growing in the fourth quarter of 2011, up 9 points from the prior quarter. 

“While forecasts remain guarded with growth rates trailing prior year actual performance, optimism about the worldwide economy increased among U.S. industrial manufacturers in the fourth quarter of 2011," said Barry Misthal, global industrial manufacturing leader for PwC.  “Despite the improved sentiment, however, the majority of U.S. industrial manufacturers remain cautious regarding the outlook ahead.  Expectations for moderate growth in 2012 appear to be balanced by healthy cash levels, improving gross margins and continued strategic investment spending among the major industrial manufacturers.  Management teams continue to seek avenues to expand globally and gain market share, while carefully managing their risk exposure.”

Growth
Although the projected average growth rate for own-company revenue for 2012 was lowered from 5.0 percent in the prior quarter to 4.4 percent in the fourth quarter of 2011, 83 percent of respondents expect positive revenue growth for their own companies in the year ahead, while 7 percent expect growth to be negative and 10 percent expect no growth. With regard to the international contribution, industrial manufacturers continue to expect international sales to deliver 38 percent of total company revenue in 2012, the same as the prior quarter and one year ago.

“While optimism about the international economy remains well below sentiment recorded in last year’s fourth quarter, expected sales contributions from overseas operations remain identical with prior year levels,” added Misthal.  “At the same time, plans for spending and M&A activity continue to be a major international focus over the next 12 months.  Given ongoing issues facing Asia and Europe, these findings may point to a stabilization of sentiment regarding the global outlook.”

Looking back at full year 2011, the composite average growth estimate for own-company calendar year revenue growth was 5.3 percent, down slightly from 5.6 percent projected in the third quarter survey.  Eighty-seven percent of respondents said they had positive own-company growth in 2011, with 19 percent forecasting double digit gains and 68 percent projecting single digit gains.  Eight percent were negative, while only 5 percent had zero growth. 

Spending
Over the next 12 months, 67 percent of industrial manufacturing panelists plan major new capital investments, up 12 points from the third quarter of 2011.  The level represents the highest in the past five quarters, with two-out-of-three U.S. industrial manufacturers planning spending.  However, the average level of new investment spending is expected to be lower at 4.2 percent of sales, in comparison to 5.9 percent in the third quarter of 2011.  Ninety percent of respondents plan to increase operational spending, an increase of 5 points from the previous quarter.   Increased operational spending is cited for new product or service introductions (57 percent), information technology (50 percent) and business acquisitions (40 percent).  Forecasts for research and development spending declined 8 points to 40 percent from 48 percent in the third quarter of 2011, while spending forecasts pertaining to marketing, sales promotion and advertising remained low.

M&A
On the M&A front, 38 percent of industrial manufacturers say they ...