www.pwc.com

Manufacturing
Barometer
Business outlook report
October 2013

Special topic:
Human capital
Contents

1 Quarterly highlights
1.1 Key indicators for the business outlook
1.1 Manufacturing current assessment and outl...
Quarterly highlights
Key findings:
In the third quarter of 2013, PwC interviewed 60 US-based
industrial manufacturing exec...
at 38 percent (same), followed by IT at 35 percent (up 7
points) and facilities expansion, 30 percent (up 10 points).
Also...
Special topic:
Human capital

• Need to fill skill gaps. Significantly, more than

three-fourths (77 percent) of US indust...
Key indicators for the business outlook

Chart 1.1 Key indicators for the business outlook
A quarter-over-quarter comparis...
PwC global manufacturing current assessment and outlook indices

The manufacturing outlook index was up sharply in the thi...
PwC global manufacturing current assessment and outlook indices

Background/methodology
PwC has surveyed global manufactur...
Economic views
Economic views

View of the US economy, this quarter

Which best describes your view of the US economy
this quarter?

Char...
Economic views

View of the US economy, next 12 months

Looking at the next 12 months, how do you feel about the
prospects...
Economic views

View of the world economy, this quarter

Which best describes your view of the world
economy this quarter?...
Economic views

View of the world economy, next 12 months

Looking at the next 12 months, how do you feel about
the prospe...
Company performance
Company performance

Company revenue growth, calendar year

What is your company’s estimated revenue growth rate
for the c...
Company performance

Industry growth, calendar year

What is your industry’s estimated growth rate for the
calendar year?
...
Company performance

International sales

Are international sales up, down, or the same compared
with three months ago? (i...
Company performance

Changes in gross margins

Are gross margins up, down, or the same compared with
three months ago?

Ch...
Company performance

Changes in costs and prices

Are costs up, down, or the same compared with three
months ago? prices?
...
Company performance

Inventory movement

Are finished inventories as a percentage of sales up,
down, or the same compared ...
Company performance

Level of operating capacity

What is your organization’s current operating capacity?
Operating capaci...
Business outlook,
next 12 months
Business outlook, next 12 months

Revenue growth, next 12 months

What is your organization’s estimated revenue growth
rat...
Business outlook, next 12 months

International sales, next 12 months

What percentage of your business’s total revenue ov...
Business outlook, next 12 months

Percent planning to hire

Do you plan to add or reduce the number of full-time
equivalen...
Business outlook, next 12 months

Percent planning to hire by type of employee

What types of employees do you plan to add...
Business outlook, next 12 months

Percent planning major new investments of capital

Are you actively planning any major n...
Business outlook, next 12 months

Percent planning to increase operational spending

Over the next 12 months, where do you...
Business outlook, next 12 months

Expected barriers to business growth

Chart 4.7 Expected barriers to business growth

Ov...
Business outlook, next 12 months

Plans for M&A and other business initiatives

Over the next 12 months, do you expect to ...
Special topic:
Human capital

Manufacturing Barometer: Business outlook report
PwC
Special topic: Human capital

Current skill gaps and hiring plans

Do you believe that your organization’s workforce has a...
Special topic: Human capital

Plans to fill skill gaps

To fill your company’s skill gaps over the next 12-24
months, what...
Special topic: Human capital

Talent management

Where does talent management – the development of
talented/skilled worker...
Survey demographics and research methodology

Demographics
Who

Senior executives of US-based industrial manufacturing org...
www.pwc.com/manufacturing
Industry contacts:
Bobby Bono
US Industrial Manufacturing Leader
+1 704 350 7993
Jennifer Flunke...
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Manufacturing Barometer: Business outlook report, January 2013

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Find out what this quarterly survey reveals about US-based executives in multinational industrial manufacturing businesses. We asked 60 US executives about their multinational manufacturing businesses this quarter. Optimism about the US economy increased — though the most frequently mentioned barrier to growth was lack of demand. Nearly half these companies plan major new investments this year, and both hiring and profit margins increased.

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Manufacturing Barometer: Business outlook report, January 2013

  1. 1. www.pwc.com Manufacturing Barometer Business outlook report October 2013 Special topic: Human capital
  2. 2. Contents 1 Quarterly highlights 1.1 Key indicators for the business outlook 1.1 Manufacturing current assessment and outlook indices Page 6 7 2 Economic views 2.1 View of US economy, this quarter 2.2 View of US economy, next 12 months 2.3 View of world economy, this quarter 2.4 View of world economy, next 12 months 10 11 12 13 3 Company performance 3.1 Company revenue growth, calendar year 3.2 Industry growth, calendar year 3.3 International sales 3.4 Changes in gross margins 3.5 Changes in costs and prices 3.6 Inventory movement 3.7 Level of operating capacity 15 16 17 18 19 20 21 4 Business outlook, next 12 months 4.1 Revenue growth, next 12 months 4.2 International sales, next 12 months 4.3 Percent planning to hire 4.4 Percent planning to hire by type of employee 4.5 Percent planning major new investments of capital 4.6 Percent planning to increase operational spending 4.7 Expected barriers to business growth 4.8 Plans for M&A and other business initiatives 23 24 25 26 27 28 29 30 5 Special topic: Human capital 5.1 Need to fill skill gaps 5.2 Where are biggest skill gaps? 5.3 Skill functions planning to hire 5.4 Plans on how to fill skill gaps 5.5 Investment areas to attract/retain talent 5.6 Is talent management a company priority? 5.7 Open positions unable to fill this past year 32 32 32 33 33 34 34 6 Survey demographics and research methodology 35 Manufacturing Barometer: Business outlook report PwC 2
  3. 3. Quarterly highlights Key findings: In the third quarter of 2013, PwC interviewed 60 US-based industrial manufacturing executives about their current business performance, their views on the state of the economy, and their expectations for business growth over the next 12 months. We then compared their responses with results from prior quarters to see how the panel’s 12-month outlook has changed. Overall, optimism among US industrial products manufacturers surveyed remained at a high 60 percent level, and optimism about the world economy’s prospects over the next 12 months rose from 31 percent to 40 percent among those selling abroad – its first positive upward swing since 1Q 2012 when optimism was at 44 percent. Moderate own company revenue forecasts were predicted for the next 12 months at a 4.2 percent pace, off slightly from the prior quarter and a year ago (4.6 percent). Looking ahead, 82 percent expect positive results for their companies, and only 9 percent forecast negative growth or zero growth. International sales were off slightly to 30 percent as a contribution to total revenues among those selling abroad. Hiring plans remained moderate, although the majority (58 percent) now report net new hiring over the next 12 months. In sharp contrast, spending plans were notably higher: both for major new investments of capital and for increased operational budgets. Increased investment on new product or service introductions was cited by 55 percent. Finally, gross margins improved in 3Q 2013, and relatively few cite decreasing profitability as a potential headwind to growth (only 15 percent, off 9 points). • Optimism high in the US and rises worldwide. Optimism among industrial manufacturers about the US economy’s prospects over the next 12 months remained high among industrial manufacturers, at 60 percent, similar to last quarter’s 63 percent, and notably higher than a year ago (37 percent, 23 points lower). Only 5 percent are pessimistic and 35 percent uncertain. Nearly 4 in 5 (78 percent) of panelists believed the US economy was growing in 3Q 2013. A rise in optimism about the world economy’s prospects over the next 12 months among those selling abroad was found – rising 9 points quarter-to-quarter to 40 percent – its highest level since 1Q 2102. A year ago, 29 percent were optimistic (11 points lower). Only 12 percent are now pessimistic, but 48 percent remained uncertain. • Moderate own-company revenue forecasts. The projected average growth rate for own-company revenue over the next 12 months remained a moderate 4.2 percent, off slightly from the prior quarter and a year ago (4.6 percent level). Looking ahead, 82 percent expect positive revenue growth, with 7 percent expecting double-digit growth and 75 percent single-digit growth. Only 2 percent forecast negative growth for their own companies, and 7 percent expect zero growth. The remaining 9 percent were not reported. Manufacturing Barometer: Business outlook report PwC • International sales a mixed picture. While optimism about the world economy rose to the 40 percent level among those selling abroad, the expected contribution to total revenue from international sales over the next 12 months was off slightly from 32 percent to 30 percent (an actual drop of 1½ points). A year ago, the contribution was a notably higher 38 percent. The implication here is that the US revenues have gone up, but that rise has not as yet been matched by increased international revenue growth. In fact, quarterly sales for international were mixed, only 18 percent higher but 18 percent lower, and 64 percent about the same – reflecting a static condition at present. • Headwinds to business growth. Concern about legislative/regulatory pressures is the most cited barrier to growth over the next 12 months, up 5 points to 58 percent – and is notably higher than a year ago (44 percent, 14 points lower). Lack of demand is next at 45 percent, but down from 67 percent a year ago when it was the chief barrier to growth and legislative/regulatory pressure was in second place. Potential barriers on the rise this quarter are lack of qualified workers (22 percent, up 9 points), capital constraints (20 percent, up 7 points) and oil/energy prices (28 percent, up 6 points from its recent low). In contrast, concern about taxation policies (22 percent) and decreasing profitability (15 percent) were off ten and nine points, respectively. Competition from foreign markets remained moderately high at 32 percent (in third place). • More hiring but at moderate rates. The majority, 58 percent, of US industrial product manufacturers surveyed are planning net new hiring over the next 12 months, a notable increase of 16 points over the prior quarter’s 42 percent, and 11 points higher than a year ago. While more firms plan to be hiring, the net workforce additions over the next 12 months was off slightly from 0.9 percent to 0.7 percent – indicating moderate hiring continuity but among more firms. Only 3 percent plan to reduce the number of full-time equivalent employees, and 39 percent will stay about the same. Most sought are professionals/technicians, skilled labor and production workers. Sales/marketing remained quite low. • A boost in spending plans. It is noteworthy that 48 percent of US industrial product manufacturers are planning major new investments of capital over the next 12 months, up 8 points from the prior quarter. Also, the mean investment as a percentage of total sales was sharply higher at 6.5 percent versus 4.0 percent last quarter and 5.8 percent a year ago. Operational spending increases over the next 12 months are planned by 78 percent (up 5 points). Leading this increase is new product or service introductions, up 10 points to 55 percent. R&D maintained second position, 3
  4. 4. at 38 percent (same), followed by IT at 35 percent (up 7 points) and facilities expansion, 30 percent (up 10 points). Also on the increase are plans to increase geographic expansion, up 8 points to 23 percent. Still on the low side were marketing and sales promotion and advertising – 15 percent and 8 percent, respectively. More are planning new joint ventures (33 percent) and new strategic alliances (27 percent) over the next 12 months. But plans for M&A activity remained at a similar 22 percent, with purchase of another business at a moderate 17 percent. Expansion to new markets abroad continued at 18 percent (same), while new facilities abroad dropped to 8 percent. On the debit side, a net 10 percent were reducing their footprints abroad, with closing/reducing facilities cited by 8 percent. Manufacturing Barometer: Business outlook report PwC • Margins improve in 3Q 2013. Gross margins were higher for 33 percent and lower for 15 percent– a net plus 18 percent higher (11 points above the prior quarter). In 3Q 2013, both costs and prices were notably higher: net 20 percent with increased costs and net 27 percent with raised prices. Importantly, only 15 percent cite decreasing profitability as a headwind to growth over the next 12 months, off 9 points from last quarter’s 24 percent. A quarter-over-quarter comparison of key indicators shows the business outlook for the next 12 months and how the views of the panel have changed each quarter (see chart 1.1). The pages that follow provide a detailed look at each question for the past five quarterly surveys. 4
  5. 5. Special topic: Human capital • Need to fill skill gaps. Significantly, more than three-fourths (77 percent) of US industrial products manufacturers surveyed cite a need to fill certain skill gaps in their businesses over the next 12-24 months. Only 23 percent claim to have all the right skills needed at present. • Where are biggest skill gaps? The biggest skill gaps indentified were in middle management (70 percent) and skilled labor (67 percent). Senior management is cited by 15 percent. • Skill functions planning to hire. Virtually all US industrial products manufacturers (87 percent) will be hiring new skill function employees over the next 12-24 months. The broadest needs are in engineering and design (48 percent) and in manufacturing (45 percent). Next are research and development (33 percent), financial and bookkeeping (32 percent), marketing and sales (27 percent), and IT (18 percent). • Plans on how to fill skill gaps. To fill the company’s skill gaps over the next 12-24 months, panel companies cite several plans: Hire new talent, 85 percent (a 55 percent major initiative), and train/develop existing talent, 85 percent (a 37 percent major initiative). Sixty-eight percent will use outside contractors, and 48 percent will redeploy talent from different functions/areas. • Investment areas to attract/retain talent. Three critical investment areas are cited by US industrial product Manufacturing Barometer: Business outlook report PwC manufacturer panelists to attract and retain talent. They are in-depth training programs, 47 percent (22 percent a great deal of investment); formal career-path development, 47 percent (12 percent a great deal); and healthcare/benefits programs, 45 percent (3 percent a great deal). Also noted were formal mentoring/coaching (28 percent), special incentive programs (22 percent), and flexible work arrangements (20 percent). • Is talent management a company priority? Significantly, nearly all US industrial product manufacturers (89 percent) currently rank talent management – the development of talented/skilled workers – as a top 10 priority (47 percent as one of their top 5 priorities, and 42 percent as priorities 6 through 10). Another 7 percent believe it important but not a high priority, and only 2 percent rank it as a non-priority. • Open positions unable to fill this past year. Over the past year, half (50 percent) of US industrial product organizations admit to having open positions that they were unable to fill with experienced or skilled employees. Another 12 percent were uncertain, while 37 percent claim to have had no open positions. In sum, in a limited job market, it is troublesome that threefourths of panelists report a skill gap, and half those companies report an inability to fill certain skill gaps over the past year. 5
  6. 6. Key indicators for the business outlook Chart 1.1 Key indicators for the business outlook A quarter-over-quarter comparison of the survey’s key indicators shows how the 12-month outlook has changed each quarter. The change column indicates the movement of opinion of those surveyed over the past two quarters. Business outlook, next 12 months among industrial manufacturers 2012 3013 Change Page 3Q ’12 4Q ’12 1Q ’13 2Q ’13 3Q ’13 2Q’13 – 3Q’13 Optimistic about US economy 37% 48% 55% 63% 60% = 10 Optimistic about world economy 29% 32% 36% 31% 40%  12 Expect positive revenue growth 82% 83% 78% 82% 82% = 22 Average growth rate expected 4.6% 5.2% 4.3% 4.6% 4.2%  22 Planning major new investments 49% 47% 43% 40% 48%  26 New investments as a % of sales 5.8% 5.3% 4.8% 4.0% 6.5%  26 Planning to hire 47% 58% 45% 42% 58%  24 New workers as a % of workforce (net) 0.7% 0.5% 1.0% 0.9% 0.7% = 24 • Legislative/regulatory pressures 44% 47% 55% 53% 58%  28 • Lack of demand 67% 52% 48% 47% 45% = 28 • Competition from foreign markets 23% 20% 19% 30% 32% = 28 • Oil/energy prices 33% 42% 35% 22% 28%  28 • Taxation policies 23% 33% 45% 32% 22%  28 • Lack of qualified workers 23% 25% 19% 13% 22%  28 • Capital constraints 18% 12% 17% 13% 20%  28 • Decreasing profitability 21% 30% 26% 24% 15%  28 • Monetary exchange rate 23% 18% 12% 15% 13% = 28 • Higher interest rates 5% 8% 7% 10% 13%  28 • Pressure for increased wages 7% 18% 10% 10% 8% = 28 Expected barriers to growth: Manufacturing Barometer: Business outlook report PwC 6
  7. 7. PwC global manufacturing current assessment and outlook indices The manufacturing outlook index was up sharply in the third quarter, with executives sharing the belief that business conditions over the next twelve months will improve. The current assessment index also moved upward, but does not yet indicate that same level of optimism in regard to recent business conditions. In fact, the outlook index has moved ahead of the current assessment for the first time since early 2012, and the spread between the two is at the highest level since 2011. Respondents seem to be saying that the minor deterioration in the recent environment is starting to reverse and that they are confident of better times ahead. The trend of manufacturer’s relative optimism toward the US economy continues. We noted in the last update that the spread of enthusiasm over the future prospects of US economy relative to the global economy was at a historical high. It remains near this high, but it is interesting that the percentage of executives who believe that the US economy is currently growing is now at the highest level since 2006. In addition, the excess of this number over those that believe that the global economy is growing is at the highest level since we first started asking for perceptions of current global growth in 2006. This confidence is shown in manufacturer plans to increase both their operating and capital expenditures. And perhaps the most encouraging sign from the sector is that hiring expectations have risen significantly. In fact, the percentage of companies that plan to add workers over the next twelve months is at a five-year high, representing the second highest quarterly percentage over the last ten years. Manufacturer hiring plans are diversified among both production and nonproduction workers. Looking forward, this seems to indicate that assessments of manufacturing conditions in upcoming quarters may be driven by performance within the US. If the US economy stumbles, then absent some outperformance in global economic output, we could see a breakout of more negative sentiment. However, should the US perform as manufacturers expect, it is likely that we could see these recent optimistic expectations for spending and employment play out within the sector. 80 70 60 50 40 30 20 10 2007-2Q 2007-3Q 2007-4Q 2008 -1Q 2008 -2Q 2008 -3Q 2008 -4Q 2009 -1Q 2009 -2Q 2009 -3Q 2009 -4Q 2010 -1Q 2010 -2Q 2010 -3Q 2010 -4Q 2011 -1Q 2011 -2Q 2011 -3Q 2011 -4Q 2012 -1Q 2012 -2Q 2012-3Q 2012-4Q 2013-1Q 2013-2Q 2013-3Q 0 Global Manufacturing Current Assessment Manufacturing Barometer: Business outlook report PwC Global Manufacturing Outlook 7
  8. 8. PwC global manufacturing current assessment and outlook indices Background/methodology PwC has surveyed global manufacturing executives since 2003 with the results published in our Manufacturing Barometer publication. The responses to these survey questions have been used to measure the sentiment of manufacturers by creating current assessment and outlook indices. The Global Manufacturing Current Assessment Index measures current trends in pricing, margins, employment, and capital expenditures; while the Global Manufacturing Outlook Index measures expectations for revenue, employment, operational spending, and capital expenditures. These results are calculated as a four-quarter moving average of diffusion indices which measure the degree to which their equalweighted components move in the same direction at the same time. The indices are scaled between 1 and 100 with above 50 indicating more positive sentiment and below 50 indicating more negative sentiment. Manufacturing Barometer: Business outlook report PwC 8
  9. 9. Economic views
  10. 10. Economic views View of the US economy, this quarter Which best describes your view of the US economy this quarter? Chart 2.1 View of the US economy, this quarter In third-quarter 2013, 78 percent of US industrial manufacturers surveyed believed the US economy was growing, up 6 points from the prior quarter’s 72 percent. None believed it was declining, and 22 percent saw no change from second-quarter 2013. Industrial manufacturers 100% Growing Unchanged 80% 46 Declining 52 62 72 78 60% 40% 45 40 36 20% 26 9 8 3Q '12 4Q '12 2 0% 1Q '13 22 0 2 2Q '13 3Q '13 Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 10
  11. 11. Economic views View of the US economy, next 12 months Looking at the next 12 months, how do you feel about the prospects for the US economy? Chart 2.2 View of the US economy, next 12 months Looking ahead, 60 percent of respondents expressed optimism about the 12-month outlook for the US economy, off 3 points from the prior quarter’s 63 percent. Five percent were pessimistic (off 2 points), while 35 percent were uncertain. Industrial manufacturers 100% Optimistic Uncertain 80% 37 Pessimistic 48 55 63 60 30 35 60% 40% 54 45 40 20% 9 7 5 7 5 3Q '12 4Q '12 1Q '13 2Q '13 3Q '13 0% Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 11
  12. 12. Economic views View of the world economy, this quarter Which best describes your view of the world economy this quarter? (international marketers only) Chart 2.3 View of the world economy, this quarter In third-quarter 2013, 31 percent of the panelists marketing abroad viewed the world economy as growing, off 4 points from the prior quarter. Ten percent believed it was declining (12 points less), and 59 percent said they saw no change. Industrial manufacturers 100% Growing Unchanged 25 36 41 43 23 39 80% 35 22 1Q '13 2Q '13 31 Declining 60% 38 29 40% 20% 37 59 32 10 0% 3Q '12 4Q '12 3Q '13 Note: In 3Q 2013 those marketing abroad = 58 Manufacturing Barometer: Business outlook report PwC 12
  13. 13. Economic views View of the world economy, next 12 months Looking at the next 12 months, how do you feel about the prospects for the world economy? (international marketers only) Looking ahead, 40 percent of US-based industrial manufacturers who market abroad are optimistic about the prospects for the world economy over the next 12 months, up 9 points from the prior quarter’s 31 percent. Twelve percent are pessimistic (up 2 points), while 48 percent are uncertain. Chart 2.4 View of the world economy, next 12 months Industrial manufacturers 100% Optimistic 29 Uncertain 32 36 53 45 80% 31 40 Pessimistic 60% 54 40% 59 48 20% 17 15 3Q '12 4Q '12 19 10 12 2Q '13 3Q '13 0% 1Q '13 Note: In 3Q 2013 those marketing abroad = 58 Manufacturing Barometer: Business outlook report PwC 13
  14. 14. Company performance
  15. 15. Company performance Company revenue growth, calendar year What is your company’s estimated revenue growth rate for the calendar year? Chart 3.1 Company revenue growth, calendar year The composite average growth estimate for owncompany revenue in the calendar year 2013 was at 4.0 percent, up from 3.8 percent in the second quarter. Eighty-two percent of respondents said they expect positive own-company growth, with 13 percent expecting double-digit growth and 69 percent single-digit growth. Eight percent were on the negative side, while 8 percent expected zero growth, and 2 percent were not reported. Industrial manufacturers 100% 10% or greater 9 12 14 13 Between 0 and 10% 23 80% Zero Negative 60% Not reported 64 63 69 69 57 40% 20% 7 12 14 2 7 7 0% 3Q '12 Mean +3.9% 17 9 4Q '12 1 1Q '13 3 7 8 3 2Q '13 +5.3% +4.3% +3.8% 8 2 3Q '13 +4.0% Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 15
  16. 16. Company performance Industry growth, calendar year What is your industry’s estimated growth rate for the calendar year? Estimated industry growth rate for calendar-year 2013 dropped to 2.6 percent, below the second quarter’s 3.5 percent. Seventy percent of panelists reported positive industry growth for 2013 – 7 percent doubledigit growth and 63 percent single-digit growth. Twelve percent were on the negative side (up 5 points). Thirteen percent reported zero growth for this year, and 5 percent were not reported. Chart 3.2 Industry growth, calendar year Industrial manufacturers 100% 9 3 12 7 10 10% or greater Between 0 and 10% 80% Zero Negative 60% 69 66 61 9 10 63 63 Not reported 40% 20% 2 0% 17 7 7 5 7 4Q '12 1Q '13 2Q '13 10 14 3Q '12 Mean +2.7% 13 16 12 3 5 3Q '13 +3.1% +2.9% +3.5% +2.6% Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 16
  17. 17. Company performance International sales Are international sales up, down, or the same compared with three months ago? (international marketers only) Chart 3.3 International sales US-based industrial manufacturers that sell abroad reported a mixed movement in international revenue in third-quarter 2013, with 18 percent reporting an increase in sales (off 4 points), and 18 percent reporting a decrease (4 points higher). The remaining 64 percent said sales stayed about the same quarter-to-quarter. Industrial manufacturers 100% 80% Up 34 27 30 22 18 Same Down 60% 39 54 64 64 57 40% 20% 27 19 13 14 1Q '13 2Q '13 18 0% 3Q '12 4Q '12 3Q '13 Note: In 3Q 2013 those marketing abroad = 58 Manufacturing Barometer: Business outlook report PwC 17
  18. 18. Company performance Changes in gross margins Are gross margins up, down, or the same compared with three months ago? Chart 3.4 Changes in gross margins In third-quarter 2013, gross margins moved increasingly positive. They were higher for 33 percent of panelists (up 8 points) and lower for 15 percent (off 3 points), for a net plus 18 percent, 11 points above the prior quarter’s plus 7 percent. Fifty-two percent stayed about the same. Industrial manufacturers 100% Up 26 80% 35 29 25 33 Same Down 60% 51 43 40% 47 57 52 20% 23 22 24 3Q '12 4Q '12 +3% +13% 18 15 1Q '13 2Q '13 3Q '13 +5% +7% +18% 0% Net Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 18
  19. 19. Company performance Changes in costs and prices Are costs up, down, or the same compared with three months ago? prices? Chart 3.5 Changes in costs and prices In third-quarter 2013, costs and prices were notably higher. Thirty-three percent of US-based industrial manufacturers reported higher costs (up 8 points), and 13 percent reported lower costs (same), for a net plus 20 percent higher, 8 points above the prior quarter’s 12 percent. On the price side, 32 percent raised prices (same) and 5 percent lowered them, for a net plus 27 percent reporting higher prices (5 points higher). Industrial manufacturers Costs 100% 80% 30 35 56 48 14 29 25 Up 33 Same 60% 40% 47 62 54 17 24 13 13 +16% +18% +5% +12% +20% 28 25 31 32 32 53 58 63 20% 0% Net Prices 100% 80% Down Up Same 60% 40% 54 60 Down 20% 0% Net 18 15 16 10 5 3Q '12 4Q '12 1Q '13 2Q '13 3Q '13 +10% +10% +15% +22% +27% Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 19
  20. 20. Company performance Inventory movement Are finished inventories as a percentage of sales up, down, or the same compared with three months ago? Chart 3.6 Inventory movement Inventories as a percentage of sales grew for only 15 percent of US-based industrial manufacturers in the first quarter, same as the prior quarter. Levels were down for 29 percent (up 18 points), for a minus 14 percent decrease, indicating negative inventory growth in third-quarter 2013. Industrial manufacturers 100% Up 15 80% 32 29 35 Same Down 60% 56 34 44 15 41 74 40% 20% 37 24 29 24 11 0% 3Q '12 Net 4Q '12 1Q '13 2Q '13 3Q '13 +8% -8% +11% +4% -14% Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 20
  21. 21. Company performance Level of operating capacity What is your organization’s current operating capacity? Operating capacity is an estimate of the current level of permanent staffing and operations compared with what is needed for full-capacity output. In the third quarter, the mean was 79.9 percent of capacity, similar to the previous quarter’s 77.9 percent, with 33 percent of industrial manufacturers surveyed claiming to be at or near full capacity (up 8 points). Chart 3.7 Level of operating capacity Industrial manufacturers 100% Near full 21 28 80% About 3/4 capacity 25 32 33 About 1/2 capacity Not reported 60% 40% 67 61 65 56 58 20% 9 0% 3Q '12 2 12 0 4Q '12 Mean 77.7% 79.6% 12 1Q '13 0 8 2Q '13 2 7 2 3Q '13 77.6% 79.4% 79.9% Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 21
  22. 22. Business outlook, next 12 months
  23. 23. Business outlook, next 12 months Revenue growth, next 12 months What is your organization’s estimated revenue growth rate for the next 12 months? Chart 4.1 Revenue growth, next 12 months The projected average revenue growth rate over the next 12 months among respondents remained at a moderate 4.2 percent, off slightly from the prior quarter’s 4.6 percent and 4.6 percent a year ago. Eighty-two percent expect positive revenue growth for their own companies, with 7 percent forecasting double-digit growth and 75 percent forecasting single-digit growth. Only 2 percent forecast negative growth, 7 percent forecast zero growth, and 9 percent were not reported. Industrial manufacturers 100% 13 9 15 10% or greater 7 10 Between 0 and 10% 80% Zero Negative 60% 69 69 68 7 7 Not reported 75 72 40% 20% 7 10 5 7 3Q '12 4Q '12 4.6% 5.2% 9 0% Mean 3 2 7 8 3 7 1Q '13 2Q '13 3Q '13 4.3% 4.6% 2 9 4.2% Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 23
  24. 24. Business outlook, next 12 months International sales, next 12 months What percentage of your business’s total revenue over the next 12 months do you expect to be derived from international sales? (international marketers only) Of respondents selling abroad, the projected contribution of international sales to total revenue over the next 12 months was off slightly to the 30 percent level, 2 points below the prior quarter. A year ago, it was at a notably higher 38 percent level. Chart 4.2 International sales, next 12 months Industrial manufacturers 40% 30% 20% 38 38 32 32 1Q '13 2Q '13 30 10% 0% 3Q '12 4Q '12 3Q '13 Note: In 3Q 2013 those marketing abroad = 58 Manufacturing Barometer: Business outlook report PwC 24
  25. 25. Business outlook, next 12 months Percent planning to hire Do you plan to add or reduce the number of full-time equivalent employees over the next 12 months? Chart 4.3 Percent planning to hire The majority, 58 percent, of industrial manufacturers surveyed plan to add employees to their workforce over the next 12 months, up 16 points from second-quarter 2013 estimates. Only 3 percent plan to reduce the number of full-time equivalent employees, and 39 percent will stay about the same. The net workforce projection was off slightly to 0.7 percent, similar to last quarter’s plus 0.9 percent and the same as last year’s 0.7 percent, indicating moderate hiring continuity among these industrial manufacturing firms. Industrial manufacturers 100% Add Same 80% 42 45 47 58 Reduce 58 60% 40% 46 35 53 52 39 20% Net 7 7 3Q '12 0% 4Q '12 3 1Q '13 3 5 2Q '13 3Q '13 +0.7% +0.5% +1.0% +0.9% +0.7%* * Percent (%) reported for US hiring, 77% Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 25
  26. 26. Business outlook, next 12 months Percent planning to hire by type of employee What types of employees do you plan to add over the next 12 months? Chart 4.4 Percent planning to hire by type of employee Among the 58 percent of respondents planning to hire within the next 12 months, the most soughtafter employees will be skilled labor (35 percent), professionals/technicians (35 percent), and production workers (30 percent). Note that more white collar support hiring are now planned (up 10 points quarterto-quarter to 17 percent). Industrial manufacturers 3Q ’12 4Q ’12 1Q ’13 2Q ’13 3Q ’13 Planning to hire (net) 47% 58% 45% 42% 58% • Skilled labor 21% 35% 19% 23% 35% • Professionals/technicians 33% 43% 29% 18% 35% • Production workers 25% 30% 23% 23% 30% • White collar support 11% 12% 7% 7% 17% 7% 13% 5% 10% 7% • Sales/marketing Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 26
  27. 27. Business outlook, next 12 months Percent planning major new investments of capital Are you actively planning any major new investments of capital over the next 12 months? If so, what percentage of total sales do you expect to invest? Overall, 48 percent of US industrial products manufacturers surveyed plan major new investments of capital during the next 12 months, up 8 points from the prior quarter’s 40 percent, and on par with a year ago (49 percent). The mean investment as a percentage of total sales was higher than the prior quarter’s 4.0 percent, at 6.5 percent – indicative of added spending among these panelist businesses. Chart 4.5 Percent planning major new investments of capital Industrial manufacturers 70% 60% 50% 40% 30% 49 47 20% 43 48 40 10% 0% 3Q '12 Mean investment as a % of total sales 5.8% 4Q '12 5.3% 1Q '13 4.8% 2Q '13 4.0% 3Q '13 6.5% Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 27
  28. 28. Business outlook, next 12 months Percent planning to increase operational spending Over the next 12 months, where do you expect to increase spending? Chart 4.6 Percent planning to increase operational spending Looking at the next 12 months, 78 percent of respondents plan to increase operational spending, up 5 points from the second quarter. Leading increased expenditures were new product or service introductions (55 percent, up 10 points), research and development (38 percent), and information technology (35 percent, up 7 points). Plans for geographic expansion rose 8 points to 23 percent, while marketing and sales dropped to 15 percent. Industrial manufacturers 3Q ’12 4Q ’12 1Q ’13 2Q ’13 3Q ’13 Percent planning to increase spending (net) 83% 80% 71% 73% 78% • New product or service 46% 40% 38% 45% 55% • Research and development 46% 38% 52% 38% 38% • Information technology 30% 37% 28% 28% 35% • Facilities expansion 30% 43% 17% 20% 30% • Geographic expansion 28% 28% 10% 15% 23% • Business acquisition 30% 27% 12% 20% 15% • Marketing and sales 14% 18% 14% 17% 15% • Advertising 7% 8% 7% 7% 8% • Internet commerce 5% 6% 5% 7% 2% introduction promotion Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 28
  29. 29. Business outlook, next 12 months Expected barriers to business growth Chart 4.7 Expected barriers to business growth Over the next 12 months, will any of the following represent barriers to business growth? At 58 percent, legislative/regulatory pressures is the leading potential barrier to growth over the next 12 months, along with lack of demand (45 percent). Next were competition from foreign markets (32 percent) and oil energy prices (28 percent), followed by taxation policies (22 percent, off 10 points), lack of qualified workers (22 percent, up 10 points), and capital constraints (20 percent, up 7 points). Decreasing profitability was off 9 points to a low of 15 percent. Higher interest rates was up 3 points to 13 percent. Industrial manufacturers Legislative/ regulatory pressures 58 53 55 47 44 Lack of demand 45 47 48 52 67 Competition from foreign markets 32 30 19 20 23 Oil/energy prices 28 22 35 42 33 Taxation policies 22 32 45 33 23 Lack of qualified workers 22 13 19 25 23 Capital constraints 20 13 17 12 18 Decreasing profitability Monetary exchange rate 15 24 26 30 21 13 15 12 18 23 Higher interest rates Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 13 10 7 8 5 Pressure for increased wages 8 10 10 18 7 3Q ‘13 2Q ‘13 1Q ‘13 4Q ‘12 3Q ‘12 29
  30. 30. Business outlook, next 12 months Plans for M&A and other business initiatives Over the next 12 months, do you expect to participate in any of the following new business initiatives? Chart 4.8 Plans for M&A and other business initiatives The number of respondents planning M&A activity over the next 12 months was a similar 22 percent. Most, 17 percent, are looking at purchasing another business, and 8 percent plan to sell part or all of their own business. Plans for expansion to new markets abroad remained a constant 18 percent. New joint ventures are planned by a notably higher 33 percent, and new strategic alliances was cited by 27 percent. On the debit side, reductions abroad were reported by a net 10 percent, with closing/reduction of facilities abroad cited by 8 percent. Industrial manufacturers 3Q ’12 4Q ’12 1Q ’13 2Q ’13 3Q ’13 New business initiatives (net) 58% 60% 47% 50% 58% • New joint venture 32% 27% 22% 10% 33% • New strategic alliance 32% 27% 16% 20% 27% • M&A activity (net) 37% 35% 19% 23% 22% - Purchase another business 35% 32% 14% 18% 17% - Sell part/all own business 12% 13% 7% 10% 8% --- 2% --- 2% 3% 23% 23% 9% 18% 18% - Equity carve-out/spin-off • Expand to new markets abroad • New facilities abroad 16% 17% 3% 12% 8% • Close/reduce facilities abroad 9% 12% 5% 7% 8% • Reduce activity in markets 7% 3% 2% 3% 5% abroad Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 30
  31. 31. Special topic: Human capital Manufacturing Barometer: Business outlook report PwC
  32. 32. Special topic: Human capital Current skill gaps and hiring plans Do you believe that your organization’s workforce has all the right skills to meet your company’s business objectives over the next 12-24 months, or is there a need to fill certain gaps? Significantly, more than three-fourths (77 percent) of US industrial products manufacturers surveyed cite a need to fill certain skill gaps in their businesses over the next 12-24 months. Only 23 percent claim to have all the right skills needed at present. Where do you see the biggest gaps? The biggest skill gaps indentified were in middle management (70 percent) and skilled labor (67 percent). Senior management is cited by 15 percent. Chart 5.1 Need to fill skill gaps We have all the right skills 23% 77% We need to fill certain skill gaps Chart 5.2 Where are biggest skill gaps? Senior management 15% 70% Middle management 67% Skilled labor 9% Unskilled labor All equally effected Will your organization be hiring new employees in the following skill functions over the next 12-24 months? Virtually all US industrial products manufacturers (87 percent) will be hiring new skill function employees over the next 12-24 months. The broadest needs are in engineering/design (48 percent) and in manufacturing (45 percent). Next are R&D (33 percent), financial/ bookkeeping (32 percent), marketing/sales (27 percent), and IT (18 percent). 4% Chart 5.3 Skill functions planning to hire 48% Engineering/design 45% Manufacturing 33% R&D 32% 32% 27% Financial/bookkeeping Marketing/sales 18% Information technology Logistics/distribution 15% Clerical workers 15% Purchasing International marketing Human resources 12% 8% 7% Note: In 3Q 2013 total respondents = 60 None Manufacturing Barometer: Business outlook report PwC 13% 32
  33. 33. Special topic: Human capital Plans to fill skill gaps To fill your company’s skill gaps over the next 12-24 months, what do you plan to do? To fill the company’s skill gaps over the next 12-24 months, panel companies will hire new talent, 85 percent (a 55 percent major initiative), and train/develop existing talent, 85 percent (a 37 percent major initiative). Sixty-eight percent will use outside contractors, and 48 percent will redeploy talent from different functions/areas. Chart 5.4 Plans on how to fill skill gaps Major Initiative Three critical investment areas are cited by US industrial product manufacturer panelists to attract and retain talent. They are in-depth training programs, 47 percent (22 percent a great deal of investment); formal career-path development, 47 percent (12 percent a great deal); and healthcare/ benefits programs, 45 percent (3 percent a great deal). Also noted were formal mentoring/coaching (28 percent), special incentive programs (22 percent), and flexible work arrangements (20 percent). 37% Train/ develop existing talent Redeploy talent from different functions/areas 85% 55% Hire new talent Use outside contractors To attract and retain talent, to what extent is your company investing (or do you plan to invest) in these initiatives? Any Plans 85% 68% 20% 24% 48% Chart 5.5 Investment areas to attract/retain talent Great Deal 47% 22% In-depth training programs Formal career-path development Great Deal/ Moderate Amount 47% 12% Healthcare/benefits programs 3% Formal mentoring/coaching 3% Special incentive programs 7% Flexible work arrangements 2% 45% 28% 22% 32% 20% Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 33
  34. 34. Special topic: Human capital Talent management Where does talent management – the development of talented/skilled workers – currently rank in your company’s objectives? Significantly, virtually all US industrial product manufacturers (89 percent) currently rank talent management– the development of talented/skilled workers – as a top 10 priority, 47 percent as one of their top 5 priorities, and 42 percent as priorities 6 through 10. Another 7 percent believe it important but not a high priority, and only 2 percent rank it as a non-priority. Chart 5.6 Is talent management a company priority? 47% One of top 5 priorities 42% Priorities 6 through 10 Important but not a high priority 7% Over the past year, half (50 percent) of US industrial product organizations admit to having open positions that they were unable to fill with experienced or skilled employees. Another 12 percent were uncertain, while 37 percent claim to have had no open positions. In sum, in a limited job market, it is troublesome that three-fourths of panelists report a skill gap, and half those companies report an inability to fill certain skill gaps over the past year. 2% Not reported Over the past year, has your organization had open positions that you were unable to fill with experienced or skilled employees? Not a priority at this time 2% Chart 5.7 Open positions unable to fill this past year 50% Yes, had open positions 37% No, none Not certain Not reported 12% 1% Note: In 3Q 2013 total respondents = 60 Manufacturing Barometer: Business outlook report PwC 34
  35. 35. Survey demographics and research methodology Demographics Who Senior executives of US-based industrial manufacturing organizations Interview dates July 1, 2013 to September 30, 2013 Industrial manufacturers (60) Average number of employees at location 78,586 Average business unit revenue $3.24 billion Average enterprise revenue $9.34 billion Market capitalization $11.92 billion Industry sectors Products 100% Manufacturing 100% Methodology PwC’s Manufacturing Barometer is a quarterly telephone survey conducted by the independent research firm BSI Global Research Inc. Our regular survey panel consists of senior executives from a geographically balanced sample of large companies in the United States. Ninety-five percent of the panelists hold titles such as president, CEO, CFO, VP of finance, treasurer, controller, internal audit director, or other related title. Manufacturing Barometer: Business outlook report PwC 35
  36. 36. www.pwc.com/manufacturing Industry contacts: Bobby Bono US Industrial Manufacturing Leader +1 704 350 7993 Jennifer Flunker US Industrial Products Senior Manager +1 614 227 3236 About the research: The Manufacturing Barometer is one in a series of quarterly business outlook surveys from PwC. The survey provides a view on the 12-month outlook for revenue growth, new investments, new hiring plans, emerging business barriers and more. In addition to the business outlook, we hear from our panelists about special issues they face as the business climate changes. Results of the quarterly business outlook surveys and special issue surveys are available at www.barometersurveys.com. Visit: www.barometersurveys.com Mobile: wap.barometersurveys.com Email: barometer.surveys@us.pwc.com PricewaterhouseCoopers has exercised reasonable professional care and diligence in the collection, processing, and reporting of this information. However, the data used is from third-party sources and PricewaterhouseCoopers has not independently verified, validated, or audited the data. PricewaterhouseCoopers makes no representations or warranties with respect to the accuracy of the information, nor whether it is suitable for the purposes to which it is put by users. PricewaterhouseCoopers shall not be liable to any user of this report or to any other person or entity for any inaccuracy of this information or any errors or omissions in its content, regardless of the cause of such inaccuracy, error or omission. Furthermore, in no event shall PricewaterhouseCoopers be liable for consequential, incidental or punitive damages to any person or entity for any matter relating to this information. © 2013 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” and “PwC” refer to PricewaterhouseCoopers LLP or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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