There is a sense of optimism in the air as we end 2016, especially since the election. Americans appear to be cautiously upbeat about growth moving forward, and equity markets have reached all-time highs, largely on a belief that the new administration will bring needed tax and regulatory reforms and a significant infrastructure package. At the same time, there are also lingering headwinds for many manufacturers, including still-soft demand for exports, largely due to the strong U.S. dollar. Yet, there were signs of stabilization in the second half of 2016. Surveys have largely reported improved sentiment in recent months, with better demand and output data as well as modest growth.
This includes the NAM Manufacturers’ Outlook Survey, with the percentage of respondents who are positive about their own company’s performance at a nearly two-year high. Indeed, 77.8 percent of manufacturers are either somewhat or very positive about their own company’s outlook in the latest survey, up from 61.0 percent in September. This was the highest level since the March 2015 survey and ended the five-quarter streak with this headline measure being below its historical average of 73.1 percent. However, the outlook figure remains below its recent peak—achieved in December 2014—of 91.2 percent of respondents being positive.
The answers to the question about whether the country is headed in the right direction serve as one piece of evidence that manufacturing leaders remain anxious, particularly in the aftermath of the election results. More manufacturers think the country is headed in the right direction (up from 6.8 percent to 25.7 percent), which is encouraging. However, the “unsure” response jumped significantly (up from 16.6 percent to 47.3 percent), with many of those responses moving from those who might have marked “wrong track” (down from 76.6 percent to 27.0 percent) expressing a more uncertain assessment of things. That will likely settle out in the coming months, particularly as the new administration’s plans take shape.
Manufacturers completing the latest survey anticipated 3.0 percent growth in sales over the next year, up from 1.9 percent in September. To illustrate this shift since the previous survey, the percentage feeling that sales would increase by at least 5 percent over the next 12 months grew from 26.6 percent in the third quarter to 36.2 percent in this release. In addition, capital spending and hiring plans also improved in this survey, with respondents seeing 1.3 percent and 1.0 percent growth, respectively, over the next 12 months.
Rising health insurance costs were once again cited as a top business challenge, noted by 77.5 percent of respondents. They see these costs increasing 8.0 percent over the next 12 months. Respondents also listed an unfavorable business climate as a top worry, with 71.2 percent noting it as a primary challenge, right behind health care costs. Moreover, leaders continue to note ongoing challenges with attracting and retaining a quality workforce, mentioned by 58.1 percent of survey respondents.