Results from a recent survey suggest that the industrial sector is generally optimistic about its growth prospects for the coming year, but sees an array of regulatory and policy-related issues as threats to its continued recovery.
These are among the findings from the 2013 McGladrey Manufacturing and Distribution Monitor, a survey of more than 1,000 middle market industry executives from across the United States. Conducted in March of 2013, this year's survey found that 85% of respondents are optimistic about their businesses, 73% about their industry, 49% about the U.S. economy and 33% about the world economy. "It's really indicative of the fact that companies feel pretty confident about the things they can control, but as it gets further away from them they get less and less certain," said Steve Menaker, partner and Southeast manufacturing leader for McGladrey LLP.
That said, confidence in the world economy nearly doubled from just 17% last year, said Menaker. "People are feeling better about the European and world economies," he said. "That creates opportunities for companies operating in the international market."
While respondents were concerned about traditional business threats like materials pricing, far more respondents see regulatory and policy-driven pressures as the biggest threats to continued growth. About 74% of executives report they expect government regulations to limit or significantly limit growth in the next 12 months, followed by implementation of the Affordable Care Act (71%), increase in payroll taxes for Social Security and Medicare (69%), and the federal deficit (67%).
Nevertheless, according to the survey, manufacturers and distributors have high hopes for the next 12 months; 85% report optimism about their growth prospects over the next 12 months and 83% expect an increase in sales. Anticipated sales growth for the next 12 months is in the 7 or 8% range, said Menaker, who suggested the numbers are strong enough to bolster confidence. "That kind of growth might not get you excited back in the heyday, but there is now a lower level of expectation," said Menaker. "They're just looking to not go backwards. The numbers seem to support there is still optimism, but not strong optimism."
The survey results depict an industry more concerned with the bottom line than the top line, Menaker noted. "We've seen companies that are focused on all sides of their business and managing the cost side." This is reflected in the number of respondents who plan to lower costs through operational efficiencies (89%), by working with suppliers and customers (59%) and by investing in equipment (56%). A large number of respondents also plan to invest in process improvement initiatives (58%), and in new or upgraded information technologies (43%).
Whether businesses are thriving (32%), holding steady (61%) or declining (7%), many report the shortage of talented labor as a key concern. Although 63% expect to add an average of 4% to their workforce in the next 12 months, 57% of respondents expect the "skills shortage" to limit growth over the next year.
"There is no question that we have a challenge in finding that skilled employee," said Menaker. The number one strategy companies are employing is developing their own in-house training and development programs (71%). Menaker said such programs are part of the top five best practices among thriving businesses:
1) Continuous improvement
2) International expansion and exporting
3) Committed program for training and productivity
4) Investing in information technology
5) Managing procurement in the supply chain
