Global Economy, Tax Reform Could Fuel Manufacturing Growth In 2018

U.S. manufacturers are upbeat about the industry and forecast strong growth headed into 2018. The 2017 Fourth Quarter Manufacturers’ Outlook Survey by the National Association of Manufacturers found more than 90 percent of respondents had a positive outlook for their own company.

Manufacturers also said they expect an average production growth rate of 5 percent over the next 12 months. Data indicated sales and capital spending are expected to increase over the next 12 months at the fastest rates since mid-2011. It’s the highest level of optimism in the 20-year history of the survey and is being fueled by a growing global economy and the belief that comprehensive tax reform is on the way in the United States, NAM Chief Economist Chad Moutray told Chief Executive.

“Manufacturers right now are very upbeat about their company’s outlook. I think that came through not only in the fourth quarter but in all of 2017,” Moutray says.

As of mid-December, Congress was on the verge of passing comprehensive tax reform that could have big implications for manufacturers. PwC noted that the tax plan would “clearly benefit” many companies in the sector. First, the current plan would reduce the corporate tax rate from 35 percent to 20 percent to help increase competitiveness around the world. Second, it would replace the current U.S. worldwide tax regime with a territorial tax system to level the playing field for U.S. companies.

“more than 90% of respondents had a positive outlook for their own company. It’s the highest level of optimism in the 20-year history of the NAM survey.”

While details have yet to be finalized, the bottom line is that companies would be better positioned to expand in the U.S., boost their investments and hire more talent, Moutray says. More than three-quarters of respondents said they supported current tax proposals in Congress. Half or more of those surveyed also said they would be more likely to increase capital spending, expand their business and hire more workers.

“The way I interpret this is there’s an awful lot of cash sitting abroad, a lot of activity. If you pass comprehensive tax reform, those dollars can come home and I think they’ll make more investments,” Moutray says. “There’s optimism about tax reform’s passage and that will hopefully lift activity in 2018 and beyond.”

Despite the optimism and tailwinds, manufacturers will still face challenges in 2018. Nearly 73 percent of NAM members said attracting and retaining talent and a quality workforce was their top concern. More than 34 percent of respondents said their company had been unable to take on new business or lost revenues due to the ability to maintain the required workforce. Those manufacturers struggling to fill open positions say they’re working their existing workforce more, creating internal training programs, collaborating with educators, and using temporary staffing services.

“That’s the first time that has been the top concern in years. Up until this point, it has always been either taxes, regulation or healthcare costs,” Moutray says.