Survey: Manufacturers' optimism hit two-year highs

Manufacturers are more upbeat about the future and are projecting the largest increases in capital spending and expected sales in more than two years, a new survey showed Monday.

Yet despite the optimism, manufacturers remain cautious going forward over concerns about policy decisions on regulatory, tax and healthcare issues in Washington, according to the latest quarterly survey by the National Association of Manufacturers (NAM).

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Chad Moutray, NAM's chief economist, said manufacturers’ optimism is “quickly tampered by frustrations with the political process.”

“These frustrations consistently loom large with manufacturers and are often the driver behind decisions to continue growth and investment.”

Despite the concerns, manufacturers plan to increase their capital investment by 2.3 percent and expect sales to increase 4.1 percent over the next 12 months, the highest figure in both categories in more than two years.

“There is a sense that the sector is poised for continued expansion over the coming years, thanks largely to America’s newfound energy abundance and the increased competitiveness of the sector globally,” the report said.

Even after the slow start this year, a spring rebound seems firmly in place, driving more positive feelings about a better second half of the year.

The current model is encouraging though because it suggests that manufacturing production should continue to accelerate, growing at a 4 percent annual rate over the next two quarters, bolstered by consumer spending, improvements in housing and the rising stock market, the report said. 

Economic growth is forecast to run at about a 4 percent annual pace in the April-June quarter after contracting at a 1 percent pace in the first three months of the year.

Still, the survey showed that 79.3 percent of respondents said that the country was on the “wrong track,” with just 5 percent suggesting that it was “headed in the right direction.” 

Meanwhile, 72.7 percent of respondents say rising healthcare and insurance costs as a primary business challenge while 71.4 percent say taxes, regulations and government uncertainties as a their top hurdle.

On Tuesday, Vice President Joe Biden is expected to address manufacturers during a two-day summit in Washington.

Manufacturers have steadily added jobs in the past year and growing the sector has remained at the forefront of President Obama’s economic agenda.

“While we have moved beyond the budget showdown of last fall, concerns continue to mount that Washington is not solving the country’s problems,” the report said.

Amid stronger growth, nearly 40 percent of manufacturers expect their export sales to increase, with another 57.1 percent saying their international orders should stay the same.

Manufacturers anticipate a 1.6 percent increase in export sales on average over the next year, up from 1.3 percent in the last survey. 

But while exports will continue to drive growth for manufacturers, the U.S. market is also extremely vital. 

About 75 percent of manufacturers say the primary drivers of future growth is a stronger domestic economy. 

Along those lines, new product development (57.3 percent) and increased efficiencies in the production process (48.6 percent) are other big drivers for future growth.

Despite recent slowness, it is interesting that U.S. manufacturers have largely shrugged off the slow start.

All told, 85.9 percent of respondents were either somewhat or very positive about their own company’s outlook, slightly below the 86.1 percent who said the same thing in March.