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Manufacturers' optimism rises in the first quarter
Manufacturers' optimism is on the rise but remains stymied by the nation's troubling long-term fiscal situation, which has been weighing on hiring.
Confidence bounced back to 70.1 percent during the January-March quarter from the lowest level in more than three years during the final three months of 2012, according to a survey released Monday by the National Association of Manufacturers (NAM).
At the end of last year, with the so-called "fiscal cliff" looming in Congress, manufacturers' outlook on economic conditions sank to 51.8 percent.
The uptick this year, so far, brings optimism back to levels from six months ago, but leaves some work to be done to reach the 88.7 percent it started out at a year ago.
"During the election last year, all eyes were on manufacturing, and now we have entered a pivotal year for manufacturers as they try to grow and create jobs to lead our economy," said Chad Moutray, NAM chief economist.
"It is difficult for manufacturers to gain the certainty needed to hire when Washington continues to move from one crisis to the next with no real solutions to our long-term fiscal problems. For us to see strong manufacturing growth in 2013, we need pro-growth policies from Washington to address these challenges to get our entire economy running on all cylinders."
Manufacturers argue that the economy is a complicated combination of progress and persistent headwinds that continue to hold back hiring and, in turn, hold down growth.
While political frustrations remain a major concern, especially with across-the-board federal spending cuts that went into effect on March 1, other noted challenges include the tax and regulatory climate (67.7 percent), weaknesses in the domestic economy and sales (49.9 percent) and attracting and retaining a quality workforce (41.1 percent).
In addition, many of the nation's largest trading partners — with the exception of those in Europe — have made some progress in the past few months, which should boost exports moving forward.
Looking ahead, almost 45 percent of respondents view increasing international sales as a primary driver of future growth, with many ramping up their efforts.
More than 84 percent of manufacturers planning for increased exports have a positive outlook, compared with just 63.3 percent for those who did not, the survey showed.
However, many of the problems in the last survey continue to persist.
Manufacturing production declined 0.4 percent in January, and many of the regional Federal Reserve Bank sentiment surveys report ongoing weaknesses with new orders, shipments and especially hiring growth, the survey said.
The percentage of respondents reporting a somewhat negative outlook nearly tripled in the second half of the year, increasing from 15.8 percent in the second quarter to 38.9 percent in the fourth quarter.
Also consistent with past surveys, results varied by firm size.
In this survey, larger manufacturers — those with 500 or more employees — were more positive than their smaller counterparts.
Three-quarters of large businesses were positive in their outlook, versus 70 percent for medium-sized and 65.6 percent for smaller manufacturers.
The largest factor explaining this difference was sales, with large manufacturers forecasting sales growth of 3.5 percent on average over the next year. That drops to 2.3 percent for medium-sized and 1.2 percent for small manufacturers.
These findings reflect the projected 1.5 percent increase in manufacturing production over the next six month and average sales growth of 2.3 percent this year.
Meanwhile, for this year, capital spending and employment growth rates are expected to be 0.9 percent and 0.7 percent.
While the figures do not suggest rapid growth, they track at a slightly faster pace than predicted in the fourth quarter of 2012, the survey found.
This story was updated at 9:55 a.m.
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