Manufacturers Expect Good Second Quarter

In a survey done by The National Association of Manufacturers (NAM) and us (IndustryWeek), both large and small manufacturers alike have reversed 4 quarters of pessimism and are now optimistic about their businesses for the second quarter of 2007.

"Industry's great untold story is that confidence among large and small manufacturers is on the rise," said David Huether, the NAM's chief economist. "While it hasn't returned to the heights of two years ago, there's a notable improvement from the first quarter of this year. This is the first time in a year and a half that the business outlook improved for both large and small manufacturers."

Survey highlights include predictions for the coming year:

Sales Expectations

• Small firms expect sales to increase by 3.9%. This is a slower pace than the 4.3% expectation in the first quarter as well as slower than the average expectations from 2004 through 2006. Large firms expect sales to increase by a more robust 4.5% over the next 12 months. This is an improvement from the first quarter.

Pricing Expectations

• Both large and small manufacturers expect their pricing power to increase. Large firms expect their prices to rise by 2.0% while small firms expect the prices of their products will increase by a similar 1.9%. This is an increase for both small and large firms compared to the first quarter of 2007, signaling that demand is picking up.

Investment Expectations

• Large manufacturers expect their capital expenditures to rise by 2.3%, while small companies expect their investment spending to grow by a similar 2.2%. For both large and small firms, this is a mirror image of their expectations in the first quarter.

Inventory Expectations

• Large firms expect to reduce inventories by 1.7% while small companies expect to reduce inventories by 0.6% over the coming year. For large companies, this marks the 13th consecutive quarter that firms expect to reduce inventories. For small companies, this is the second consecutive decline following very modest increases in inventory investment expectations in 2006.

Employment Expectations

• Large firms expect employment to increase by a modest 0.3% while smaller firms expect their employment levels to increase by a stronger 1.7%.

Wage Expectations

• Small companies anticipate wages will increase by a stronger 2.3% over the coming year, while large companies expect wages to increase by 1.9% over the coming 12 months.

The NAM/IndustryWeek Manufacturing Index can be found at http://www.industryweek.com/EconInsight/

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