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Manufacturers Reduce Their Outlook Sharply, Reducing Hiring and Capital Spending Plans

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The latest NAM/IndustryWeek Survey of Manufacturers shows just how dramatically business leaders have downgraded their economic views over the course of this year. In March, almost 89 percent of manufacturers said that they were either somewhat or very positive about their own company’s outlook; that has fallen each quarter this year, and is now just 51.8 percent. Moreover, the percentage of manufacturers saying that they were “somewhat negative” has more than tripled in the past six months, from 15.8 percent in June’s survey to 38.9 percent in the fourth quarter.

There are a number of factors behind these numbers. No one should discount the effect of slowing global sales, or more recently, the reductions in activity caused by Hurricane Sandy. But, it is clear that manufacturers in this survey are responding to post-election concerns and worries about the fiscal cliff. In fact, 84.2 percent of respondents said that uncertainties related to the political climate and the fiscal cliff were their top challenge. They were also highly skeptical that Washington will be able to address the nation’s long-term fiscal challenge, with only 7.5 percent of manufacturers anticipating a “grand bargain” in the Lame Duck session of Congress. Forty-eight percent feel that the cliff will be averted by delaying the tax increases and spending cuts by a few months or a year, with roughly 28 percent feeling that we will “go over the cliff.”

This has had a real impact on how manufacturing leaders perceive economic growth and their company’s sales and activity next year. Almost 63 percent of them admit to reducing their business outlook for 2013. More worrisome, 42.6 percent say that they have reduced or slowed down business investment, and 36.2 percent have either reduced their employment or stopped hiring. These impacts were even larger for smaller firms with less than 50 employees. Given this, it should not be a surprise that manufacturers have lowered their estimates for sales, investment, and employment for the next 12 months, with capital spending plans and hiring turning negative on average for the first time since the fourth quarter of 2009.

When asked about the most-pressing priorities for the second Obama term and the 113th Congress, manufacturers say that that the top priority should be a long-term deal that tackles the deficit and debt (cited by 88.7 percent of respondents). Slowing the growth of entitlements (82.1 percent) and averting the fiscal cliff (75.5 percent) were also high on the list, as were a number of ways to make businesses more competitive globally. The latter items include reducing the overall regulatory burden (76.4 percent), passing comprehensive tax reform (68.7 percent), and controlling rising healthcare costs (67.6 percent).

In summary, these findings reflect a tremendous amount of nervousness on the part of the manufacturing community related to economic growth moving into 2013. These anxieties are dampening hiring and investment and reducing overall optimism. This is further proof that policymakers must act quickly to avert the fiscal cliff and address our long-term fiscal challenges, but all of this must also be done in such a way that would keep the U.S. economy growing and make U.S. manufacturing more competitive on a global scale.

Chad Moutray is chief economist, National Association of Manufacturers.


AP to Launch Economic Survey, with NAM Economist Included

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From The Associated Press, a news release, “The new AP Economy Survey to offer quarterly view of trends and policy“:

NEW YORK — The Associated Press is launching the AP Economy Survey, a quarterly view of financial trends and policy affecting consumers around the world that will draw on the forecasts of as many as 50 leading economists.

The first survey findings will be reported in all formats on April 12.

The AP is surveying the economists — from banks, industry groups and academia — for their opinions about key indicators such as GDP, employment, inflation and interest rates. The AP business news staff will use these findings, along with other relevant reporting, to offer a general prognosis on the economy for the quarter and the year ahead and drill into areas of special importance, including the housing market, consumer spending and food prices.

David Huether, chief economist of the National Association of Manufacturers, is one of the 50.