Manufacturing activity picking up but concerns remain

There strong perception that costs will rise significantly, particularly at the small- and medium-sized level.

Possible downward risks include a contentious fiscal spending debate this month, from funding the government to raising the debt ceiling, the next round of across-the-board spending cuts, continued slow growth overseas in export markets and other world events. 

"These uncertainties, combined with Washington’s current regulatory agenda, continue to hold back robust growth in the sector," Moutray said.

Looking at this fall, almost two-thirds of respondents said it is extremely important for their business that President Obama and Congress make progress on funding the government for fiscal 2014 and in extending the nation’s debt ceiling, which include include discussions about how to avert the across-the-board federal budget cuts.

In a special question on this topic, about 85 percent of manufacturers said that finding a long-term federal budget deal that tackles the deficit and debt was the top challenge they want to see policymakers address. 

Among other top priorities, manufacturers also want to see policymakers reduce the regulatory burden on manufacturers and other businesses (79.1 percent), control rising healthcare costs (74.5 percent), slow the growth of entitlement spending (74.5 percent) and pass comprehensive tax reform (66.2 percent).

More than 90 percent of respondents said that addressing the nation’s fiscal challenges was either moderately or very important for their company. 

Roughly 80 percent said that comprehensive tax reform was important for their firm. 

"This was true even though the wording of the question made it clear that comprehensive tax reform — in which marginal tax rates might be lowered and the income tax base broadened — might result in some businesses seeing their tax burden increase, even in a “revenue-neutral” plan," the report said.

As the Federal Reserve begins to debate tapering its asset purchases, perhaps as soon as its meeting later this month, manufacturers responded that their level of concern is a six out of 10 regarding the Fed's exit strategy from its massive $85 billion in monthly stimulus. 

"This suggests at least a moderate degree of concern, but perhaps not as much as anecdotal evidence might have suggested," the report said.

The report is consistent with the Institute for Supply Management's recent data, which showed strong growth in new orders and production for last month, building on healthy numbers for July. 

The latest NAM report is largely consistent with the surge, "a welcome change given the frustratingly slow pace over much of the past year." 

"Yet, even with the improvements, demand and production growth has been mostly modest at best, with increases in hiring still lagging behind," the report said. 

Manufacturing production has risen just 1.3 percent year-over-year, and the sector has added just 20,000 net new workers during the past 12 months. 

In this latest survey, that percentage edged slightly higher to 76.1 percent, up sharply from 51.8 percent at the end of 2012. 

In addition, the percentage of respondents saying that they were positive about their business outlook rose to 70.1 percent in March and 72.3 percent in June.

Yet, the average in the first three quarters of this year (72.8 percent) was well below the same time period last year (80.3 percent).

Behind the more optimistic production numbers expressed in this particular model were better numbers for consumer spending, manufacturer optimism and the stock market. 

Housing, which had been a strength in past reports, was less though this time around, with increasing interest rates serving as one of the larger drags.