As the economy struggles to gain momentum, 57 percent of manufacturing executives are cautiously optimistic about the outlook for the next six months and nearly two-thirds (70 percent) are planning to keep staff levels steady, according to a recent Baker Tilly survey.

While many executives are guardedly positive, the level of optimism is shallow and there are deep pockets of pessimism, especially among small companies.  Executives are more pessimistic about the outlook for the manufacturing sector than the economy with slightly less than half (47 percent) expressing optimism. The key factor dampening the manufacturing outlook is the lack of customer demand, which was cited by nearly half of respondents (45 percent) as the greatest challenge to the expansion of their company.

“The deep uncertainly about the economic outlook is reflected in the manufacturing sector, which is divided on prospects for the rest of 2009,” says Brad DeNoyer, partner and manufacturing industry lead at Baker Tilly. “Many manufacturers see reasons for cautious optimism but there is a pervasive ‘wait and see’ attitude regarding demand. The good news is manufacturers plan to delay more layoffs as long as possible, but they will need to find a way to aggressively cut costs if customer demand does not rebound soon.”

Cap-and-trade program 

The survey also measured the potential effects of a national cap-and-trade program, which is a key component of HR 2445, The American Clean Energy and Security Act of 2009, recently passed by the House of Representatives.

One in three executives (32 percent) expressed support for a cap-and-trade program in which firms would be required to purchase credits for any pollution they emit. However, the support is soft with only 7 percent of all executives expressing strong support.   Survey results indicate that support increases among executives who are optimistic about the outlook for the economy and for the manufacturing sector. Executives at firms investing in green programs were also more likely to support a cap-and-trade program.

“I believe there is a general sense among manufacturers that something ought to be done,” says DeNoyer. “But our clients are telling us they want to make sure that it does not cost too much and that the timing is right. The survey indicates that executives who are more familiar with the concept are more likely to oppose it.

“Manufacturers are looking for a level playing field,” says DeNoyer. “For example, the labor-rate gap between China and the U.S. is starting to narrow but there is fear that a national cap-and-trade program could help spark a resurgence of U.S. jobs exiting the country due to higher energy costs.  It will be difficult for manufacturers to offset higher energy prices with profit margins so tight.”