Confidence amid the challenges

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We are encouraged by the commitment that we’re seeing among small business owners to assertively and strategically invest in their companies … in order to grow.” –Randy Scarborough, vice president of marketing for FedEx Office, commenting on the results of the firm’s fourth annual Signs of The Times national small business survey

After reading the many survey “tea leaves” being bandied about in recent weeks, there seems to be a growing sense of optimism within many sectors of the U.S. business community concerning the long-term outlook for their particular market niches.

Not that things will be champagne-popping great, mind you, but that despite rising energy and commodity prices – among other cost pressures – things should be OK.

Look at the results of the fourth annual FedEx Office Signs of the Times national small business survey, for starters. That poll – conducted online in March in conjunction with the Ketchum Global Research Network and Braun Research – found that 63% of 505 small business owners expressed strong confidence in the long-term success of their operations. That’s up from 54% last year.

And with confidence rising, FedEx Office’s survey found many of those owners are considering greater investments in their business to support 2011 growth plans, including expanding product and service offerings (44%) and hiring additional full-time and part-time staff (25%). Marketing and advertising efforts also continue to be a major consideration for budget increases, with more small business owners considering investment in these areas than last year – 55% vs. 42%.

“Small businesses are a vital economic driver and their outlook for 2011 is an indication that the health of this business segment is getting stronger,” said Randy Scarborough, vice president of marketing for FedEx Office.

Going “bigger” with this view, the manufacturing sector – which has largely driven the ongoing recovery in the U.S. – still remains confident that business and revenues will remain strong in 2011. According to the most recent U.S. Manufacturing Barometer survey conducted by consulting firm PricewaterhouseCoopers (PwC), projected average growth rate for own-company revenue over the next 12 months increased to 7% in the first quarter from 6.6% in the fourth quarter last year.

Further, 89% of the 63 manufacturing executives polled by PwC expect positive revenue growth for their own companies in the year ahead – an increase of 14 points over first quarter 2010 and 5 points over the fourth quarter. A further 33% are forecasting double-digit growth, a significant increase of 21 points over first quarter 2010, while 56% are forecasting single digit growth. Only 5% forecast negative growth and another 2% are forecasting zero growth, PwC noted.

“Despite lingering uncertainty over macroeconomic conditions, our latest survey found that U.S. industrial manufacturers are increasingly positive about the future prospects of growth within their own businesses, as well as for the general industry,” said Barry Misthal, head of the U.S. industrial practice at PwC.

“The improving outlook can be attributed to industrial manufacturers feeling confident in their planning for 2011 and the ongoing investments they are making to further enhance their revenue opportunities,” he added.

Looking at the next 12 months, 57% of industrial manufacturers polled by PwC expressed optimism about the U.S. economy, down 6 points from the fourth quarter of 2010 but 4 points higher than the first quarter in 2010. Uncertainty about the U.S. economy was cited by 38% of the executives polled, an increase of 8 points, while only 5% remain pessimistic versus 7% in the fourth quarter last year.

Still, it’s not all “peaches and cream” out there – not by a long shot. Some 44% of those surveyed by PwC were optimistic about projections for the 12 month outlook for the world economy, but that’s a decline of 16 points from the fourth quarter 2010. The majority (51%) are uncertain, up 13 points, while only 5% are pessimistic about the global economic outlook.

There’s also some scary stuff going on economically speaking right now. Chris Kuehl, PhD, managing director of Armada Corporate Intelligence and economic advisor for the National Association of Credit Management (NACM), noted recently that commodity inflation is “taking a much bigger bite” in manufacturing and is affecting cash flow.

“The bulk of the impact of inflation is being felt in the basic industries at the moment, although the consumer is seeing more of that rise every day,” he explained. “Manufacturers are paying those high fuel costs along with everybody else, but they are also paying record prices for everything from steel to copper to resins and chemicals.”

And sustained high oil prices are hurting too – in a very broad way, as it’s not just the price of gasoline and diesel that spike when the cost of oil soars, Kuehl stressed.

“The price of feedstock for the fertilizer industry rises and so do the prices of petrochemicals,” he pointed out. “Transportation costs have risen as well and that affects the manufacturer first as they are paying for the transportation of the raw materials they need.”

In short, according to Kuehl, while things are still trending well, there is “considerable volatility” just under the economic surface. That’s something to keep in mind as we turn towards the summer months.

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