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Manufacturer Outlook Guardedly Optimistic: Survey

Alexandra Klein|CNBC.com
Tuesday, 21 Jul 2009 | 1:38 PM ET

A majority of manufacturing executives are guardedly optimistic about the mid-year economic outlook and 70 percent plan to keep staff levels steady, a recent survey by CPA firm Baker Tilly found.

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In spite of the optimism expressed by executives, the survey found it is generally shallow and there are deep pockets of pessimism, especially among small companies.

Executives are more pessimistic about the outlook for the manufacturing sector than the economy with slightly less than half (47%) expressing optimism. The key factor dampening the manufacturing outlook is the lack of customer demand, which was cited by nearly half of respondents (45%) as the greatest challenge to the expansion of their company.

About half of executives (49%) said they expect their firm’s performance to decline, with 12% of those executives saying their firm is in danger of failing. Executives from small firms (14%) were much more likely to report a danger of failing than those from medium (2%) or large firms (3%).
(Read the full Baker Tilly report)

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“The deep uncertainly about the economic outlook is reflected in the manufacturing sector, which is divided on prospects for the rest of 2009,” Baker Tilly partner Brad DeNoyer said in their press release. “Many manufacturers see reasons for cautious optimism but there is a pervasive ‘wait and see’ attitude regarding demand. The good news is manufacturers plan to delay more layoffs as long as possible, but they will need to find a way to aggressively cut costs if customer demand does not rebound soon.”

Over the next year, executives will consider a wide range of actions in response to the current economy:

  • Reduce operational costs (80% of executives)
  • Look for tax advantages (66%)
  • Increase diversity of products or customers (65%)
  • Seek price reductions from suppliers (65%)
  • Reduce labor costs (51%)
  • Reduce production (41%)
  • Reduce marketing and advertising (21%)
  • Seek a business partner or investors (18%)

Support for Cap-and-Trade Program

The survey also measured the potential effects of a national cap-and-trade program, which is a key component of HR 2445, The American Clean Energy and Security Act of 2009, recently passed by the House of Representatives.

One in three executives (32%) expressed support for a cap-and-trade program in which firms would be required to purchase credits for any pollution they emit. However, the support is soft with only 7% of all executives expressing strong support.

Executives said they would consider a wide range of responses if a cap-and-trade program was implemented and increased energy costs. The most popular option was trying to pass on costs to customers (82%) and delaying new capital investments (70%).

Executives also said they would consider:

  • Taking a hit on revenue (57%)
  • Reducing employee benefits (39%)
  • Laying off staff (39%)
  • Cutting back on production (31%)
  • Move production elsewhere in world where there are few energy restrictions (24%)

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