Optimism for higher revenues, profits and new business in the coming 12 months hit record levels among U.S. manufacturing- and service-industry executives polled in KPMG International's latest Global Business Outlook survey. Expectations for increased business activity hit the highest level among U.S. service executives and second highest among their manufacturing counterparts since the tri-annual poll began measuring U.S. business sentiment in October 2009.
"A positive economic mood has clearly taken hold among the nation's manufacturing- and service-sector leaders," said Lynne M. Doughtie, vice chair – Advisory for KPMG LLP, the U.S. audit, tax and advisory firm. "U.S. manufacturing executives are more upbeat than their global counterparts, while overall optimism for increased business activity among U.S. service providers is second only to Brazil."
Globally, nearly 84 percent of manufacturing respondents to the February 2012 survey said business activity would rise or remain the same in the coming 12 months, while 89 percent of service-sector respondents said activity would be higher or remain the same. By comparison, 94 percent of U.S. respondents the same or higher levels of activity, while more than 99 percent of U.S. service-sector executives expected the same or higher business activity.
Doughtie pointed to a significant increase in U.S. executives' expectations for higher revenues in the coming 12 months, with 70 percent of manufacturing executives and 71 percent of services executives in February saying that they expect increases in revenues, compared with 49 percent and 52 percent, respectively, when the survey was last taken in October 2011. Globally, 52 percent of both manufacturing and service-sector respondents expect higher revenues, both still relatively strong.
Similar jumps occurred when looking at profitability, with 69 percent of manufacturing executives and 62 percent of services executives expecting to see higher profits, compared with only 43 percent and 47 percent, respectively, in October. By comparison, 46 percent of manufacturing sector respondents expect higher profits in the coming 12 months, and 45 percent of service executives expect higher net in the coming year.
Hiring expectations trending positive. Doughtie said the survey also shows that the rosier outlook may spur hiring. More than 92 percent of U.S. manufacturing executives said they expect hiring demand to increase or remain the same in the next 12 months, up from 89 percent in October. This includes 37 percent who expect hiring to increase, up from 30 percent.
Service sector executives are similarly positive, with more than 96 percent expecting hiring to increase or remain the same, up from 92 percent in October. This includes 33 percent predicting hiring will increase, up from 27 percent.
Adopting a U.S. growth agenda. "Our interaction with U.S. executives in the market confirms the expectation of better times ahead," said Doughtie. "But while we are seeing many companies taking a deliberate path toward a growth agenda, they remain cautious and have maintained a great deal of focus on achieving compliance in this increasingly complex regulatory environment."
Among U.S. manufacturing executives, more than 32 percent expect higher levels of capital spending in the coming 12 months, compared with just 19 percent in October and 22 percent in June. The survey's record high (35 percent) for those expecting an increase in capital spending came in June 2010. Significantly, the number who expected continued levels of capital spending was 52 percent in February, compared with 60 percent in October and 56 percent last June. Just 8 percent of manufacturing executives anticipate lower capital spending in the coming 12 months.
"We have seen a distinct uptick in capital spending, as companies set their sights on growth," said Doughtie. "Companies are upgrading IT, investing in transforming their organizations to seize new opportunities, improving regulatory compliance, and finding new ways to analyze their customer and market data to generate innovations that may mean anything from new product lines to new delivery models or even serving a new or different type of customer. Interestingly, in the services sector, which can be an early warning of a downturn and a lagging indicator of improved market conditions, none of the U.S. respondents expects lower profits this year, the first time any of the 12 countries analyzed in the Services Sector portion of the survey were confident enough that none expected net income to slip. That certainly speaks to the potential direction of the marketplace."
Overall findings from the February poll of manufacturing executives from 17 countries and service sector executives from 12 countries in more than 11,000 companies found that U.S. sentiment up across the board and outpaced generally mild increases in executive optimism seen globally.
U.S. Manufacturing Sector Executive Sentiment — Overview
Business Activity: In the February 2012 poll, 72 percent of the executives expected business activity to rise, compared with 71 percent in October and 71 percent last June. Globally, expectations for higher business activity also were up, with 53 percent of manufacturing executives expressing positive sentiment, compared with 55 percent of respondents in October and 55 percent in June.
Revenue: Expectations for higher business revenues rose dramatically, from 49 percent in October to a record-tying 70 percent in February. About 5 percent predict lower revenue for the period. In addition, manufacturing executives scored the highest levels of optimism for higher revenues (70 percent), new business (70 percent), and profits (69 percent) since the Global Outlook Survey began measuring U.S. sentiment in 2009.
Profits: Sixty-nine percent of executives expect higher profits in the next year, while just 43 percent of those executives polled in October thought profits would be higher in the coming 12-month period.
Employment: Thirty-seven percent of executives polled said they would increase hiring more workers in the coming 12 months, compared with 36 percent of those polled in October who expected bigger payrolls.
New Business: Those U.S. executives who expect higher (70 percent) or the same (24 percent) levels of new business in the coming 12 months reached a record-tying 94 percent, up from 90 percent in October. Globally 86 percent of executives expect higher (54 percent) or the same (32 percent) new business in the coming 12 months.
R&D: The number of survey respondents expecting R&D spending in the coming year to be higher (26 percent) or remain the same (60 percent) remained unchanged from October at a record 86 percent. Just 2 percent of U.S. executives expect R&D spending to decline in the coming 12 months, a record low.
Capital Expenditure: The number of executives who said they expect higher (32 percent) or the same (52 percent) spending levels added up to 84 percent, also a record, compared with a strong 79 percent in October. Globally, 83 percent of respondents said they higher (30 percent) or the same (53 percent) capital expenditures in the coming period.
U.S. Service Sector Executive Sentiment — Overview
Business Activity: Expectations among service executives found 71 percent of them polled in February expected improved business activity over the next 12 months, compared with almost 55 percent in October and 58 percent in June. Globally, just 53 percent expected improved activity, compared with 44 percent in October, and 48 percent in June among those surveyed.
Revenue: More than 71 percent of Service sector leaders expect higher revenue in the coming 12 months, up dramatically from 52 percent in October.
Profits: Expectations for higher profits also rose sharply to 62 percent of respondents, compared with 47 percent in October.
Employment: Expectations for payroll also rose, from 27 percent of executives in October anticipating an increase in hiring to 33 percent in February 2012.
New Business: Seventy percent of executives polled expect to attract a larger number of new customers during the coming period, another dramatic rise considering just 52 percent of respondents took this view in October. Globally, just 50 percent of respondents expect to attract new customers.
Capital Expenditure: Spending will continue relatively unchanged in the coming 12 months, according to survey respondents. Twenty-four percent of service sector executives expect higher spending, up 1 percent since October, while 64 percent expect the same level of investment, up marginally from 61 percent in October. Globally, the numbers are similar to the U.S. responses, at 23 percent expecting higher capital expenditure, and 63 percent expecting the same level looking out 12 months.
The current KPMG Global Business Outlook Survey, conducted in February 2012, is based on responses from 11,000 companies representing manufacturing providers in 17 countries and service providers in 12 countries. Participants included 250 U.S. manufacturing executives and 122 U.S. service-industry executives. See tables below for additional information.
Source: KPMG; www.kpmg.com.