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.

The latest results of theNAM/IndustryWeek Manufacturing Index show that business conditions continued to improve in second quarter of 2010, though in some areas, the pace of the improvement was more moderate than in prior quarters.

 Roughly three quarters (74 percent) of the respondents to the second quarter survey reported a positive business outlook. While this was the highest level of confidence in three years and substantially up from the record low of just 28 percent in the first quarter of 2009, the rise from the 70 percent who had a positive business outlook in the prior quarter was the mildest improvement of the current recover to-date.

This signals that while the manufacturing recovery is likely to continue going forward, an accelerating growth path is not likely. This is consistent with other findings of the second quarter survey including expectations of positive, but mild, increases in both capital spending (1.7 percent growth) and employment (1.3 percent growth ) in the year ahead.

Asked if uncertainty about the business outlook is delaying plans to expand employment or capital spending, only a roughly quarter (26 percent) said no.  Of the roughly three quarters (74%) who responded that uncertain is a factor, the vast majority — 58% — reported that uncertainty is affecting both employment and capital spending plans.

Of those who reported that uncertainty is affecting their plans to expand capital spending and employment, the main areas of concern cited were the state of the U.S. economic recovery and possible regulatory or legislative changes from Washington D.C.

To see full results of the survey, click here.