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Manufacturing

Better business

By FFJournal staff

May 2011- As the manufacturing recovery gathers momentum, executives' confidence is improving. Recently, KPMG International released results from its KPMG Global Business Outlook survey, which is based on responses from 6,247 companies representing manufacturing and service providers in 17 countries. Forty-one percent of U.S. manufacturing executives expect employment to increase, compared to 28 percent in October.

Overall, executives in both the manufacturing and services sectors believe business activity generally has rebounded from a dip in October. In addition, 68 percent of manufacturing executives expected improved business activity, compared with 57 percent in October.

"Expectations about the impact of improved business conditions on inflation were mixed, also. The percentage of manufacturing executives expecting to see increases in inflation doubled to 45 percent from 22 percent," the report noted.

Although surveyed executives exhibited growing optimism about their businesses, the unrest in the MENA zone and the natural disasters in Japan will have an impact that is still difficult to determine.

"While the impact of these events is a challenge to predict, our survey found business leaders have clearly shifted focus from cost cutting to growth in a post-recession environment, though some remain cautious about hiring and are not convinced improved business conditions will result in higher prices," said Mark A. Goodburn, U.S. vice chairman and head of advisory at KPMG LLP, in a press release. "This is consistent with the continued emphasis on increased productivity we're seeing throughout the marketplace as businesses work to leverage new operations and IT models that improve efficiencies within their organizations.

"With stronger optimism around business activity and with many businesses still sitting on cash reserves, there may be positive momentum, but increasing payroll continues to be a significant hurdle as companies look for ways to improve their operations without adding to headcount," he said.

Expect higher revenues, profits
Overall optimism is translating to expectations of higher revenues and profits. KPMG's survey indicates 65 percent of U.S. manufacturing executives expect higher revenues and 62 percent expect higher profits. In addition, the survey respondents expressed greater optimism than their global counterparts across all categories, including business activity, revenues and profits, though sentiment among European and BRIC country executives was generally positive, as well.

"We've seen a marked increase in CEOs preparing to aggressively pursue growth opportunities by reevaluating their business models, shopping for acquisition targets and strategically divesting non-core assets while at the same time enhancing their risk controls to ensure the ship is secure as they transform their organizations," Goodburn added. "Clients are increasingly moving to cloud-based solutions and more strategic sourcing and delivery models to drive these business improvements. These changes are adding new layers of complexity for senior executives to manage, though are quickly becoming the norm as competition intensifies."

The numbers for manufacturing continue to outpace the service sector of the economy.

"While only a snapshot, perceptions of the recovery among service sector executives appear to lag their manufacturing counterparts, suggesting greater confidence among manufacturing sector executives that the economic recovery is strong and sustainable and that improved business activity will result in higher prices that consumers will be able to absorb. The extent to which events in Japan and other global events will impact the recovery remains to be seen, though economies in the United States and around the world appear to be better positioned to endure these challenges than they have been over the last 24 months," Goodburn said. FFJ

Sources

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