Manufacturing Executives More Positive on Jobs Outlook, in Contrast With Lower Expectations in Service Sector

NEW YORK, March 28, 2011 /PRNewswire/ -- In the latest KPMG Global Business Outlook survey by KPMG International, 41 percent of U.S. manufacturing executives expect employment to increase up from 28 percent in October, although service industry executives are somewhat less optimistic, with only 28 percent seeing an increase, compared with 25 percent from the October results.

Expectations about the impact of improved business conditions on inflation were also mixed. The percentage of manufacturing executives expecting to see increases in inflation doubled to 45 percent from 22 percent, while service industry executives' expectations remained a low 24 percent, up slightly from 21 percent in October.

The outlook for a rise in business activity was more consistent, however. Some 66 percent of U.S. service-industry respondents say they expect to see improved business activity over the next 12 months, up significantly from 52 percent in October and ahead of the 65 percent of those surveyed last June. Sentiment among manufacturing executives in the KPMG survey also rebounded, with 68 percent expecting improved business activity, compared with 57 percent in October, though slightly below the 73 percent of respondents in June.

This optimism was reflected in the overall KPMG survey, which found that sentiment among U.S. executives about increases in revenue, profits and business activity has generally rebounded from a dip in October.  However, it is important to note that the survey was taken prior to the events in Japan, and the findings also only partially reflect the impact of recent Middle East and North African unrest.  

"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 U.S. Vice Chairman and Head of Advisory Mark A. Goodburn at KPMG LLP.  "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 with adding to headcount," Goodburn said.  

Higher Revenues and Profits Expected

The KPMG survey showed 65 percent of U.S. manufacturing executives expect higher revenues, up from 52 percent in October, and a similarly strong 57 percent of U.S. service sector executives believing revenues will increase, up from 47 percent in October.

Profit expectations also rose, with 62 percent of manufacturing executives and 58 percent of service sector executives believing profits will increase, up from 47 percent and 41 percent respectively.

With the exception of service sector employment, U.S. manufacturing and service sector executives 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 and higher than October's results.

"We've seen a marked increase in CEOs preparing to aggressively pursue growth opportunities by re-evaluating 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."

Inflation Expectations Rise in Manufacturing; Remain Low in Services

The percentage of U.S. manufacturing executives expecting to see "output" prices rise doubled from 22 percent in October to 45 percent, while U.S. service sector executives remained a relatively low 24 percent.  A similar divergence was seen on "input" prices, with 50 percent of manufacturing executives reporting expectations for an increase, versus 25 percent in October, and only 24 percent of service sector executives expecting an increase, down from 30 percent in October.  

Observed Goodburn, "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."

The current KPMG Global Business Outlook Survey is based on responses from 6,247 companies representing manufacturing and service providers in 17 countries. Participants included 263 U.S. manufacturing executives and 263 U.S. service-industry executives.

About KPMG International

KPMG is a global network of professional firms providing Audit, Tax and Advisory services.  We operate in 150 countries and have 138,000 people working in member firms around the world.  The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

About KPMG LLP

KPMG LLP, the audit, tax and advisory firm (http://www.us.kpmg.com), is the U.S. member firm of KPMG International Cooperative ("KPMG International.")  KPMG International's member firms have 138,000 professionals, including more than 7,900 partners, in 150 countries.

SOURCE KPMG International