NEW YORK, April 29, 2008 — Optimism in the domestic economy dropped dramatically among U.S.-based industrial manufacturers in the first quarter according to the PricewaterhouseCoopers LLP Manufacturing Barometer. Only 12 percent of senior executives surveyed are optimistic about the U.S. economy's prospects over the next year, a drop from the 29 percent who were optimistic last quarter and the 57 percent who were optimistic one year ago in Q1 2007.

Three-quarters (75 percent) of industrial manufacturers reported that they believed the domestic economy was declining, while only five percent believed it was growing. This is in stark contrast to one year ago, when 69 percent of respondents believed the economy was growing. Looking ahead, over one-half of these executives (52 percent) are pessimistic about the U.S. economy over the next 12 months, as compared to only 5 percent a year ago.

“We knew industrial manufacturers were feeling the pressures of the economic downturn; however, the reality of the situation really hit us when we saw this quarter’s findings,” said Barry Misthal, partner and industrial manufacturing sector leader at PricewaterhouseCoopers. “We expect confidence will remain low for much of 2008, but we are hopeful that the sector will begin to look up as 2009 approaches.”

The Barometer found that fewer executives (70 percent) expect positive revenue growth over the next year, down 11 points from last quarter. Coinciding with increased concerns over the economic climate, revenue targets were reset to 4.6 percent, a 15 percent drop from the 5.4 percent recorded in Q4.

Two-thirds (68 percent) of executives cited oil/energy prices as a potential barrier to growth over the next 12 months. Other key sources of anxiety cited include lack of demand (62 percent), the monetary exchange rate (57 percent), and decreasing profitability (48 percent).

Of the 68 percent of executives feeling the impact of oil/energy prices, more projected lower revenue growth for the upcoming year than the 32 percent that did not report that oil/energy prices were a big concern (3.9 percent compared to 6.1 percent). Additionally, the executives feeling the impact also expressed more concern about demand (66 percent, 13 points higher than their non-impacted counterparts), profitability (56 percent, 24 points higher), monetary exchange rates (63 percent, 19 points higher) and capital constraints (42 percent, 31 points higher).

On a positive note, survey respondents indicated that international markets continue to offer opportunities for industrial manufacturers. Sales increased for nearly two-thirds (63 percent) of manufacturers selling abroad, and international sales projections remain steady at 35 percent of total revenue. Over one-fourth of all executives (27 percent) plan to expand in markets abroad over the next year and 25 percent plan to develop new overseas facilities. However, only 38 percent of executives are optimistic about the world economy, a 26-point drop from the previous quarter and a considerable 45-point drop from one year ago.

“It appears mounting uncertainty about the U.S. economy is starting to affect opinions about the world economy," said Misthal. “However, to weather this economic storm, industrial manufacturers must set their sights on growth opportunities abroad, while at the same time maintain the health of their domestic operations by controlling costs and making selective investments of capital."

The Manufacturing Barometer is one in a series of quarterly business outlook surveys from PricewaterhouseCoopers. The survey provides a view on the 12-month outlook for revenue growth, new investments, new hiring plans, emerging business barriers and more. In addition to the business outlook, we hear from our panelists about special issues they face as the business climate changes.

If you have a question about this Manufacturing Barometer survey, please contact Jim Clayman, Sector Analyst, at 636-405-1672, or e-mail to: jim.clayman@us.pwc.com.

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