Overall manufacturing activity has weakened significantly as the year has progressed, mirroring challenges in the larger macroeconomic environment. Some of the headwinds were temporary, including the supply chain disruptions stemming from the Japanese disaster and dramatically higher energy costs resulting from Middle East unrest and rising global demand. While many of these transitory factors have abated, the economy remains stuck in neutral.
Recent economic events have not helped matters, with businesses and individuals expressing rising anxieties in light of financial concerns in Europe, a highly-charged debate over raising the debt ceiling, continued high unemployment and wild gyrations in global equity markets. In light of these developments, economists and business leaders have downgraded their expectations for growth for the remainder of this year and next.
The NAM/IndustryWeek Survey of Manufacturers reflects this much-weaker sentiment. When asked about the current business outlook, manufacturers were generally positive, but they were significantly less optimistic than just three months ago. Whereas 86.4% of respondents were either very or somewhat positive in their business outlook in the June survey, only 65.4% said the same in the third quarter — a drop of over 20 percentage points. Many responders shifted from “somewhat positive” to “somewhat negative.” Nonetheless, it is important to note that nearly two-thirds of manufacturers had a positive outlook on the economy.
Even with an upbeat assessment for manufacturing activity, individuals responding to this survey clearly downgraded their expectations for growth moving forward. For example, in the June survey, nearly 80% manufacturers predicted higher sales over the course of the next year, with the average expected increase being 5.5%. Today, almost 58% forecasted higher sales, with an average expected increase of 3.2%. That is a sizable drop in sales levels in such a short period of time. Given that a company’s sales help drive so many other decisions, it is not surprising that other indicators are much lower, as well.