Manufacturers continued to report strong growth in activity, with the sector remaining one of the brightest spots in the economy. In the latest Manufacturers’ Outlook Survey from the National Association of Manufacturers (NAM), 88.7 percent of respondents felt either somewhat or very positive about their own company’s outlook, down from 92.5 percent in the third quarter. While that represents the second straight easing in confidence from the all-time high reading in the second quarter (95.1 percent), the four-quarter annual average, which reaches back to when congressional passage of tax reform appeared increasingly likely, shows that manufacturers’ optimism for 2018 reached the highest level on record in the 20-year history of the survey. On average this year, 92.4 percent of manufacturers surveyed reported a positive outlook for their companies (surpassing the 2017 average of 91.8 percent).
Below are some highlights of the current survey in terms of predicted activity growth over the next year:
- Sales: Respondents expect sales growth of 4.3 percent over the next 12 months, down from 5.0 percent in the previous survey. It was the eighth straight quarter with expected growth of at least 4 percent on average, even with some easing from the all-time highs recorded in the first half of 2018. In the latest results, 74.1 percent of manufacturers anticipate higher sales over the next year, with just 8.3 percent predicting declines. Moreover, 47.2 percent see revenue gains of 5 percent or more. Medium (e.g., those with 50 to 499 employees) and large-sized (e.g., those with 500 or more employees) businesses felt the most optimistic in their sales outlook, forecasting 4.3 percent growth versus 3.9 percent for small firms (e.g., those with fewer than 50 employees).
- Production: Mirroring the sales data, the percentage of respondents expecting production growth over the next 12 months dropped from 4.9 percent in the third quarter to 4.3 percent in this release. Anticipated production growth has also exceeded 4 percent for four consecutive quarters, averaging 4.9 percent over that time frame. In the fourth quarter responses, 74.2 percent predict production to expand over the next year, with 44.4 percent forecasting output growth of 5 percent or more. Just 6.5 percent of manufacturers anticipate reduced production.
- Full-Time Employment: Respondents expect full-time employment to increase 2.2 percent over the next 12 months, down from 2.5 percent in the previous release. Despite some slippage, the data continue to suggest a tight labor market. More than 53 percent anticipate more hiring over the next year, including 19.5 percent planning employment growth of 5 percent or more. Eight percent see employment falling for their firms. Hiring growth was expected to be the strongest for medium-sized manufacturers, which predict 2.5 percent growth over the next 12 months. In contrast, small and large firms see employment rising 1.8 percent over the next year.
- Employee Wages: Respondents anticipate employee wages (excluding nonwage compensation, such as benefits) to rise 2.3 percent over the next 12 months, pulling back somewhat from the 2.7 percent pace in the third quarter, which was the fastest pace since the first quarter of 2001. In the latest results, nearly 38 percent expect to hike wages 3 percent or more.
- Capital Investments: Respondents expect capital investments to rise 2.6 percent over the next 12 months, down from 3.4 percent in the previous survey. About half anticipate higher capital spending in the next year, with 31.2 percent expecting solid investment growth of 5 percent or more. Much like for hiring, anticipated capital expenditures growth was the largest for medium-sized manufacturers, which predict 2.9 percent growth over the next 12 months, whereas small and large firms expect capital spending to increase 2.3 percent over the next year.
- Exports: Respondents expect exports to increase 0.8 percent over the next 12 months, unchanged from the previous survey. Nearly 30 percent of respondents predict export sales increasing over the next year, with 61.5 percent seeing exports staying about the same and 8.8 percent noting possible declines. As seen in previous surveys, those companies that are more optimistic about exports tend to be the most upbeat in their overall company outlook. Along those lines, for those predicting increased exports over the next 12 months, 95.6 percent felt positive in their outlook in this survey. That figure was 87.7 percent positive for those predicting no change in export sales over the next year, but it fell to 71.7 percent for those individuals anticipating reduced exports.
- Product Prices: Respondents expect product prices to increase 2.8 percent over the next 12 months, pulling back from 3.2 percent in the previous two surveys, which had been the highest since the second quarter of 2011. In this survey, 47.5 percent forecast price growth for their products of up to 5 percent, with 22.6 percent predicting price growth of 5 percent or more. Only 3.5 percent see price declines in the next 12 months for their products.
- Raw Material Prices: Manufacturers anticipate raw material prices and other input costs rising 4.4 percent over the next 12 months, with 42.8 percent of respondents seeing price growth of 5 percent or more. The NAM added this question over the summer, and while growth has stabilized from earlier readings in the previous two surveys (5.6 percent and 4.8 percent in the second and third quarters, respectively), it is clear that raw materials costs are highly elevated.
- Inventories: Respondents expect inventories to inch up 0.3 percent over the next 12 months, down from 1.0 percent in the third quarter and the slowest pace of growth in two years. It was the eighth consecutive quarter with anticipated growth in inventories. Just more than 29 percent of manufacturers predict increased inventories, with 47.5 percent expecting stockpiles to remain unchanged and 23.3 percent forecasting declines.
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