NAM survey: Expected wage and price increases NAM graphic
NAM survey: Expected wage and price increases

NAM survey: Manufacturers outlook at all time high

While optimism continues to run at record levels, manufacturers are increasingly concerned about wage and price pressures.

An all-time record 95.1 percent of manufacturers have a positive outlook for their companies, according to the Manufacturers' Outlook Survey for the second quarter.

The release, from National Association of Manufacturers, follows a May survey that shows manufacturers are increasing wages, hiring, and capital investments in the wake of tax reform.

“This record optimism is no accident. It is fueled by the game-changing tax reform passed six months ago,” said NAM President and CEO Jay Timmons. “Last year, manufacturers promised that we would deliver for our people and our communities if tax reform became law. Congress and the president delivered, and now manufacturers are keeping our promise: hiring new workers, raising wages, improving benefits, buying equipment and expanding right here in the United States. And the best part is, with manufacturers’ record-setting confidence and plans to keep hiring and growing, more good news is yet to come.”  

Highlights from the Q2 survey include:

  • Optimism among manufacturers registered its highest level ever recorded (95.1 percent) in the 20-year history of the survey;
  • Optimism among medium-sized manufacturers registered its highest level ever recorded (95.8 percent) in the 20-year history of the survey;
  • All-time highs for projected employment growth and capital spending;
  • Projected wage growth registered its fastest pace in 17 years; and
  • Projected sales growth kept pace at its second-highest reading in survey history.

Among the challenges, the “business environment” is no longer the concern that it once was, with just 19.1 percent citing the tax and regulatory climate as being a top concern. Respondents cited an unfavorable business climate as their primary business challenge as recently as two years ago, with three-quarters of manufacturers noting it as their top problem in the second quarter of 2016. This quarter’s survey found manufacturers citing instead the inability to attract and retain a quality workforce as their top concern; the price of raw materials rose to their second-most concern.

Specifically:

  • Respondents expect full-time employment to increase by 3.1 percent over the next 12 months, up from 2.9 percent in the previous release. This was also a new all-time high. More than 66 percent anticipate more hiring over the next year, including 27.4 percent planning employment growth of 5 percent or more. Just 3.3 percent see employment falling for their firms. More than anything, this reflects an ever-tightening labor market, the report says.
  • Respondents anticipate employee wages (excluding nonwage compensation such as benefits) to rise by 2.7 percent over the next 12 months, inching up from 2.6 percent in March’s survey (Figure 4). This was the fastest pace in more than 17 years, or since the first quarter of 2001. In the latest results, 94.2 percent see wages increasing over the next year, with nearly 47 percent expecting to hike wages by 3 percent or more. This is consistent with other indicators that have shown wage pressures accelerating, but still at a modest pace.
  • Respondents expect product prices to increase by 3.2 percent over the next 12 months, edging up from the 3.0 percent gain seen in March. This was the fastest growth rate for prices since the second quarter of 2011, or in seven years (Figure 4). Forty-seven percent of those surveyed forecast price growth for their products of up to 5 percent, with 26.2 percent predicting price growth of 5 percent or more.
  • Manufacturers anticipate raw material prices and other input costs rising 5.6 percent over the next 12 months, with 55.3 percent of respondents seeing price growth of 5 percent or more. This is a new question, so there is no history for this series, but “it seems highly elevated,” the report says. Overall, the pickup in raw material costs is consistent with other measures of inflation.

Conducted by NAM Chief Economist Chad Moutray, the Manufacturers’ Outlook Survey has surveyed the association’s membership of 14,000 large and small manufacturers on a quarterly basis for the past 20 years to gain insight into their economic outlook, hiring and investment decisions and business concerns.

The NAM releases these results to the public each quarter. Further information on the survey is available here.

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