Faith in the U.S. economy among midsized U.S. industrial manufacturers has “absolutely skyrocketed” compared with last year, as 74 percent of financial executives polled by the buying group Prime Advantage are more optimistic than they were at this time a year ago. This 48-point catapult over 2016 is by far the largest increase for this category since the survey began in 2008.
Manufacturers said they had high hopes that a change in U.S. government leadership would result in policies that favored U.S. businesses. With respect to the most realistic and actionable ways the new White House administration and Congress can help businesses, 94 percent of CFOs cited comprehensive tax reform as one of the top three tactics government could use. Healthcare reform nearly matched it, with 87 percent listing this action in their top three as well. Education and workforce training filled in the third spot at 50 percent.
The Prime Advantage poll was conducted during December of 2016.
"The results of our 2017 CFO Survey indicate great confidence in manufacturing among our members, along with the most positive view of the U.S. economy that we have recorded in years," said Dan Grant, president of Prime Advantage. "The supply chain partnerships and strategic resources created by Prime Advantage and our network of endorsed suppliers look to help our members reach these soaring expectations.”
Respondents are expecting their key customers to grow more rapidly this year than in the past several years and that their overall industries will expand. Sixty-five percent of CFOs are expecting moderate increases at minimum and 6 percent are expecting rapid growth. Key customer downsizing or reorganizing is not anticipated for any responding company. Fifty-two percent of manufacturers anticipate that their industries will expand, fueling an increase in demand for their products and services. For the first time in this survey, not a single respondent believes their industry will contract.
Companies continue to project fiscal health for the coming year, crediting new product lines, new customer acquisitions, and an overall increase in customer demand. Seventy-one percent of respondents are more optimistic about their companies’ financial prospects for the coming year -- a 17-point jump from 2016 and the largest year-over-year increase in optimism since 2010. Order pipeline performance for manufacturers is encouraging for the early part of 2017, as 52 percent of respondents are seeing an increase in current volume levels compared to the previous year, while a survey record low of only 2 percent are noticing a decrease.
CFOs remain concerned about several trends, however, including employment, healthcare costs, raw materials prices and foreign competition.
Hiring qualified talent continues to be a top concern for manufacturing companies in 2017. Sixty-seven percent of survey respondents are expecting to increase their headcount this year, however 78 percent are also struggling to fill open positions.
The main culprit for this disconnect is that manufacturers are running into a dearth of skilled employees in their geographical areas, an adverse reality cited by 75 percent of respondents. A low unemployment rate has proven to be a challenge for many companies as 48 percent indicated it as a reason for job vacancies. Rising healthcare insurance costs plague 55 percent of respondents, while an increase in raw material costs is tightening margins for 42 percent.
Ninety-one percent of financial executives forecast an increase in wages, salaries, and benefits in 2017. Eighty-seven percent of CFOs have seen their health insurance costs rise over the last two years with more than 50 percent experiencing at least a 10 percent to 20 percent premium increase during their last renewal. These potential strains on the bottom line will be somewhat cushioned for the 64 percent projecting productivity increases, as well as for the 59 percent foreseeing earnings growth.
For the fourth consecutive year, price pressures from competitors is the top external concern on the minds of financial executives, charting a 14-point jump from 2016. Customer demand ranks next on the list, making an even bigger leap of 29 points over last year. Rounding out the top four external concerns are federal government policies and foreign competition.
To support their growth initiatives in existing markets, manufacturers said that developing new products and services is number one on the to-do list in the coming year. In fact, 42 percent expect to increase their R&D efforts in 2017 to fuel this next wave of offerings. Also as part of their long-term strategies, financial officers are also indicating heavy interest in cultivating internal resources through leadership development. Manufacturing equipment remains the main capital investment for the fifth consecutive year, as 90 percent of financial decision makers plan to spend in this area.
In keeping up with the speed of technological advancement, companies are also looking to upgrade their computer equipment and software as 57 percent plan to allocate capital funds to these tools.
Founded in 1997, Prime Advantage is a group purchasing organization for manufacturers with more than 750 members and 125 endorsed suppliers.