Some optimism in manufacturing, but negligible growth so far this year

On Sept. 18, results were released from the Business Roundtable’s (BRT) third quarter 2013 CEO Economic Outlook Survey, and it shows a small decline in CEO economic expectations for expansion over the next six months. Overall CEO expectations for the U.S. economy dropped modestly in the third quarter, as reflected in the composite BRT CEO Economic Outlook Index, which fell to 79.1 to 84.3 in the previous quarter. CEO expectations for 2013 GDP growth matched the 2.2% annual rate reported in last quarter’s survey, said a summary from the BRT.

“CEO expectations for the next six months remain essentially the same with some downside bias. Expectations for sales and capital investment both declined modestly in this survey,” said Jim McNerney, chairman of BRT, and chairman, president and CEO of The Boeing Company. “While U.S. business performance remains strong, as evidenced by robust recovery in the automotive sector, business leaders still see headwinds preventing a more sustained, robust recovery.”

Respondents to the BRT (www.brt.org) survey generally agree that the stalemate in Washington over the 2014 budget and the debt ceiling is “having a negative impact on their plans for hiring additional employees over the next six months.” Overall, hiring expectations are essentially flat, ticking up only slightly from the previous quarter due to fewer CEOs expecting a decrease in hiring.

Seventy-one percent of the respondents to BRT’s survey expect an increase in their company’s sales over the next six months, down from 78% in Q2. Capital spending over the next six months will be sluggish, with only 27% of respondents expecting capital spending to increase; 73% said there would be “no change” (62%) or a decrease (11%) in their capital spending.

Hiring expectations for the next six months showed that 32% expect an increase in hiring, with 44% responding that there would be “no change” and 24% saying there would be a decrease in hiring.
   
Prime Advantage, a buying consortium for midsized manufacturers with more than 750 members and more than 130 Endorsed Suppliers, (www.primeadvantage.com) released its twelfth semi-annual Group Outlook Survey. A summary of the findings show that 97% of respondents reported they expect second-half 2013 revenues to be better than or equal to the first half of 2013.

Forty-two percent anticipate revenue growth will be higher in the second half than in the first half of 2013 due to a “surge in customer demand (55%) and launch of new product lines” (48%).
   
With respect to hiring, 47% of companies expect to hire in the next six months, the highest level seen in these second-half surveys since the start of the recession. Fewer than 3% of the respondents are planning layoffs.
   
Concerns about the upward cost pressures on raw materials abated somewhat to 63%, down from 90% in February 2013, the second most-frequently cited concern is focusing on procurement processes. However, healthcare cost pressures remain a “strong concern” among Prime Advantage’s member companies, as indicated by 61% of respondents (up from 57% in February 2013 and 58% a year ago).
   
Fiscal policy uncertainties still plague small-to-midsized manufacturers, with 62% responding that this was negatively impacting their business and the overall economy. Most respondents (58%) anticipate the negative impact to continue into the next 12 months.
   
The Manufacturers Alliance for Productivity and Innovation (MAPI) Quarterly Economic Forecast predicts that, after a slow first half of 2013, survey respondents expect the U.S. economy to gradually return to moderate growth in the second half and through 2014. The forecast predicts that inflation-adjusted GDP will expand 1.6% in 2013 and 2.8% in 2014, the former down from 1.8% and the latter showing no change from MAPI’s May 2013 report.
   
“The outlooks for both the U.S. economy and the global economy are falling into place," stated MAPI Chief Economist Daniel J. Meckstroth, PhD. “First-half GDP growth in the U.S. was slow because of a number of factors – an increase in the payroll tax, the early effects of sequestration, and states’ austerity – taking a substantial amount out of the growth rate. But the payroll tax effect is diminishing and the sequester effect was not as disruptive as forecast; the government seems to be working around it. Additionally, Europe appears to be coming out of recession.”
   
MAPI (www.mapi.net) also projects that production non-high-tech industries is expected to increase 2.1% in 2013 and 3.1% in 2014. High-tech manufacturing production, which accounts for less than 5% of all manufacturing, is anticipated to grow 5.2% in 2013 and 7.6% in 2014.
   
The Federal Reserve’s (www.federalreserve.gov) most recent report revealed that U.S. factories increased August’s output by the most in eight months, helped by the significant rebound in automotive manufacturing. Manufacturing production rose 0.7% in August, after a 0.4% decrease in July, with automakers increasing production 5.2%, after a 4.5% decline in July. Other manufacturing sectors that showed an increase in production included computers and electronics, furniture and business equipment.

With respect to capacity utilization, the Federal Reserve’s August report show the actory operating rate up 0.4% to 76.1%, 2.6 percentage points below its long-run average.