Among the many Yogi-isms, “This is like déjà vu all over again,” probably applies best to the results of a recent survey released by the NAM and IndustryWeek. The results showed health care costs are, again, the top challenge identified by manufacturers. A close second was “uncertainties related to the political climate”. The Affordable Care Act seems to be the common thread.

Vermeer Health Center

Manufacturers such as Vermeer Corporation offer employees and their families high-quality health plans and benefits, including an onsite health center, pharmacy and wellness incentives that truly contribute to improved health and lower costs.  However, such actions will not be adopted by even well-intended manufacturers in the current environment of high costs involved with the implementation of the Affordable Care Act and its uncertainties.

Manufacturers have a high level of anxiety about implementation of the ACA – and rightly so. Health care costs continue to rise at rates well above inflation levels with no sign of abating.  The main pillars of the law take effect in less than 10 months, but much of it needs to be up and running in October – less than seven months from today. Yet, we are only now getting a glimpse of the regulations detailing how things will work.

Manufacturers and businesses generally need predictability to thrive. A complete change in the health care delivery system with a host of known unknowns and unknown unknowns is not a good way to provide that predictability. This leads us to the third most identified concern – the unfavorable business climate due to taxes and regulation. The ACA includes a myriad of new taxes and regulations on all employers, which will continue to be a burden for years to come. A consistent burden of taxes and regulations is not the kind of stability that will create US jobs and help the manufacturing sector.

The great catcher Yogi Berra also said “You can observe a lot by watching.” We’ll be doing quite a bit of that in the coming months too.

The latest NAM/IndustryWeek Survey of Manufacturers observes that 83.1 percent of respondents were either were positive about their business outlook, down from 88.7 percent three months ago. The lower figure is primarily the result of those switching from “somewhat positive” to “somewhat negative,” reflecting recent anxieties in the global marketplace. It also suggests that industrial production should grow 3 to 4 percent this year, continue to expand modestly.

The slightly lower level of sentiment extends to various levels of manufacturing activity. Sales are expected to grow by 4.3 percent over the next 12 months, with capital spending up 2.5 percent and hiring up 1.9 percent. Each of these measures are slightly lower than their estimates in March. Smaller manufacturers (e.g., those with less than 50 employees) were less positive than their larger counterparts, with smaller entities anticipating just 2.75 percent higher sales over the next year.

Meanwhile, exports are important for manufacturers of all sizes. Almost 40 percent of them suggested that overseas sales are one of their major drivers of growth, and over 18 percent expect export growth for their firm of 5 percent or more.

The business climate is the top challenge for manufacturers. Sixty-four percent of respondents said that taxes and regulation are a primary challenge for them. Many of the sample comments discussed tax and regulatory frustrations at the state and federal level. Europe’s problems were also mentioned, along with rising costs, the ability to attract and retain a qualified workforce, and increased competition.

Chad Moutray is chief economist, National Association of Manufacturers.

Shopfloor was delighted to see NAM Board Chair Mary Andringa on the June cover of Industry Week out today.  In addition to leading the NAM’s advocacy efforts, Mary is president and CEO of Vermeer Corporation in Pella, Iowa.  Vermeer’s leadership in lean manufacturing – eliminating waste and improving efficiencies in every aspect of the business to boost competitiveness – is the focus of Industry Week’s cover story.

Mary spoke about Vermeer’s best practices in lean manufacturing in her opening keynote speech, “Let Us Lead: Overcoming the Challenges of Manufacturing in the U.S.,” at Industry Week’s 2012 Best Plants Conference.

With so many gloomy economic indicators last week, it is sometimes easy to lose track of the fact that manufacturers continue to grow, albeit slower the past couple months than earlier this year. Many in the manufacturing industry are cautiously optimistic moving forward. We saw this in recent regional Federal Reserve Bank surveys, for instance, that manufacturers have favorable expectations of the next six months in terms of production, new orders, exports, etc.  While the indices for these expectations might have fallen a little in the latest survey, they remain strong.

 Today we rolled out the results of the National Association of Manufacturers (NAM)/IndustryWeek Survey of Manufacturers which paints a similar picture of cautious optimism. Over 86 percent of the respondents had a somewhat or very positive characterization of their business outlook. This was the highest reading in five years (see the accompanying chart below). Moreover, they are forecasting strong sales over the next year, with the average expected sales increase of 5.4 percent for the respondents.

With such high expectations of sales, manufacturers are also planning to hire additional workers, invest in new capital equipment, and pursue more export opportunities. Wages are expected to go up an average of 1.8 percent, with some firms predicting much higher increases.

Despite such positive news, manufacturers continue to worry about the economy, as it was their top concern. Note that, while this NAM/IndustryWeek Survey of Manufacturers has been conducted quarterly since 1997, the question about top concerns is new. Thus, we cannot say whether economic concerns have risen or fallen from prior surveys.

The next-highest top concern is the price of raw materials. This is definitely in line with other economic reports which indicate that manufacturers continue to be squeezed by higher costs. Many respondents to this survey cited specific examples of how rising raw materials were negatively impacting their businesses. In addition, nearly three-fourths of manufacturers filling out this survey suggested that they will need to raise prices this year.

There were also other findings of note. First, international trade represents a major opportunity for manufacturers, and nearly 45 percent of them said that they planned to increase exports over the next twelve months. Moreover, those entities which planned to increase their overseas presence were more likely to be positive in their business outlook. Second, smaller manufacturer with less than 50 employees were generally positive in their forecasts, but less so than their medium and large-size counterparts.

Overall manufacturers are optimistic about the future but also have voiced several reasons to remain cautious. I encourage you to take a look at the complete survey results and listen to my podcast on the results on the IndustryWeek site.

Chad Moutray is chief economist, National Association of Manufacturers.

Update: Please watch this video below for more information from me on the survey.