Optimism Fades Among US Manufacturers: Survey

U.S. manufacturers are much more pessimistic about the U.S. economy and the direction of their businesses than they were three months ago, according to a quarterly survey of senior industrial executives released Tuesday.

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Only 12 percent of manufacturing executives said they are optimistic about the U.S. economy over the next 12 months, according to the PricewaterhouseCoopers Manufacturing Barometer, while 36 percent said they are uncertain.

That compares with 29 percent who said they were optimistic in the fourth quarter, and is down from 57 percent a year ago. Among a control group of executives in other sectors, 18 percent were optimistic and 39 percent not sure.

Optimism about the world economy is also waning, according to the survey. Thirty-eight percent of respondents said they are optimistic, down from 64 percent a quarter ago and 83 percent in the first quarter of 2007.

The declines come amid a U.S. credit crunch and housing downturn that have threatened to tip the economy into recession, said Barry Misthal, the consultancy's industrial manufacturing sector leader.

"The question becomes: How long is the downturn and how far will it reach across the seas?" Misthal said. "To the extent that it starts to hit their international markets, then they can be in for a difficult time."

Executives have lowered their estimates for sales and industry growth this calendar year, and more of them said gross margins are falling, while almost two-thirds said their costs are rising.

As a result, fewer manufacturers are planning to hire new workers or increase operational spending, according to the survey of 60 manufacturing executives at companies with an average market capitalization of about $10 billion.

More than half cited energy prices, lack of demand, and the weak U.S. dollar as barriers to growth. Falling profitability and regulatory pressures were also among top concerns.

The proportion of those who cite capital constraints as a barrier to growth more than doubled, to 32 percent from 15 percent last quarter. The shift in part reflects less free cash flow from operations, Misthal said.

Fewer executives, however, were concerned about foreign competition, interest rates or tax policies than in previous surveys.