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Report: Manufacturers remain optimistic despite strong US dollar

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Report: Manufacturers remain optimistic despite strong US dollar

US manufacturers plan to hire skilled workers and invest in businesses, while overseas expansion declines.

Although the potential impact of the strong dollar is causing uncertainty, optimism among US industrial manufacturers regarding the direction of the domestic economy continues to rise, according to a survey released today by professional services firm PwC.

The broad sense of optimism about overall economic conditions and improvements in global demand was offset by concerns about pricing and margins and the potential impact of currency on international revenues.

Optimism regarding the prospects of the US economy during the next 12 months increased among US industrial manufacturers to 76% during the first quarter of 2015, up from 68% in the previous quarter and 71% in the first quarter of 2014. The level of optimism reported was the highest since the fourth quarter of 2005. Optimism about the world economy also improved, but by a more modest four points to 42 percent, as compared to the previous quarter.

"As we see increasingly positive views about the domestic economy among US industrial manufacturers, a majority of management teams continue to indicate plans to hire skilled workers and invest in their businesses, with the bulk of spending centered on new products or service introductions," said Bobby Bono, PwC's US industrial manufacturing leader. "We also saw a spike in sentiment regarding potential M&A activity, while plans to expand abroad softened, reflecting increased concerns about the impact of the strengthening dollar. Overall, the outlook for US industrial manufacturers remains positive and we are seeing healthy levels of capital investment."

"The level of optimism reported was the highest since the fourth quarter of 2005." 

Despite the positive sentiment, projected company growth forecasts moderated slightly, primarily due to reduced expectations regarding the level of sales contributions from international operations. The strong US dollar means foreign currency translation may have an immediate impact on revenues and free cash flow, as local currency is converted into fewer dollars. Manufacturers are also reporting a weaker pricing environment and an inability to pass through costs, putting margins at risk.

On the other hand, internationally, European PMI is indicating stronger growth and concerns regarding growth rates in Asia have softened. So the strong dollar has been a mixed blessing for US manufacturers, stimulating global demand and improving the overall economic outlook, but at the expense of short-term US profits.

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