Capital Spending and Hiring on the Rise for Midsized Manufacturers, but Increasing Costs Cause Concern

Controlling spending is key to success in 2011, as raw material costs keep rising, Prime Advantage Group Outlook survey finds


Chicago — April 28, 2011 — Rising confidence among executives at small and midsized North American manufacturers is prompting increased capital spending and hiring, but concerns over rising costs threaten to stymie new investments, according to a new survey.

The seventh Prime Advantage Group Outlook (GO) Survey from Prime Advantage, a buying consortium for midsized manufacturers, highlights the top economic concerns of small and midsized North American manufacturers for 2011.

The survey results show companies are even more confident compared to six months ago about economic growth for U.S. manufacturing in 2011. Moreover, these results support the latest findings in the Prime Advantage Group CFO Survey, which showed optimistic expectations for revenue growth, hiring and capital spending despite growing concerns over rising costs.

"Our members, who represent a diverse cross-section of manufacturing industries, are experiencing stronger growth and plan to invest back in their businesses, whether through capital expenditures or hiring more employees," said Louise O'Sullivan, founder and CEO of Prime Advantage. "What's unique and challenging about this rebound is the rate at which firms must address pricing inflation in both raw materials and components. As a buying group, with leveraged programs based on group volume, our members are positioned a little ahead of the curve, and our job is to make sure we help them maintain that advantage."

In February, Prime Advantage surveyed executives and purchasing professionals that represent durable goods manufacturing firms, with annual revenues ranging between $10 million and $10 billion, of which the majority ranges between $20 million and $500 million. The survey received a 14 percent response rate from 528 top professionals representing U.S.-based manufacturers in more than 25 different industries, including commercial foodservice, packaging, truck and trailer, material handling, food processing and construction.

In the survey 72 percent of the responding small and midsized manufacturing professionals reported that their companies expect revenue increases in 2011, with 24 percent expecting increases of more than 10 percent.

The top three cost pressures for the next six months were cited as the cost of raw materials (with 96 percent including it in the top three concerns), followed by inflation (52 percent) and healthcare (37 percent).

Sixty-five percent said they are planning capital expenditures for manufacturing equipment and tools in 2011, greatly triggered by available federal tax credits. More than 80 percent said their companies were making changes toward developing more sustainable products, largely driven by customer requirements and compliance regulations.

Meanwhile, 40 percent of respondents that source products from offshore vendors are planning to bring sourcing back to North America in the near future, indicating a rebalancing in sourcing strategy; another 60 percent are planning to add more offshore vendors.

Revenue Expectations Are Bright

The percentage of respondents who anticipate revenue increases in 2011 has doubled compared to just six months ago (72 percent in February 2011 compared to 36 percent in August 2010), a clear indication that small and midsize U.S. manufacturers have a strong sense of optimism about the economy.

In addition, only a trivial 3 percent said they expected a decrease in revenues compared to 2010, a great decline from last year, when 18 percent predicted decreasing revenues for the last six months of 2010.

Not only did 41 percent report that they expect an increase in capital spending from 2010 levels, but 65 percent said they planned to invest in manufacturing equipment this year. More than 80 percent of these respondents also said that federal business investment tax credits were responsible for their planned capital improvement purchases.

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