What does 2020 look like for the manufacturing industry? LBMC conducted a national survey covering business leaders in various industries, including manufacturing. The survey is considered a pulse survey, which is opinion based and not scientific in nature. The survey collected responses to determine a baseline of optimism and strategy preferences over the past 12 months and the coming 12 months.

According to the survey, manufacturing c-suite optimism is high overall anticipating a growth in revenue and profitability. However, there is a slight decrease in the rate of employment.

A strong focus is on existing talent with more than 27 percent of manufacturing leaders planning to increase compensation to retain top talent, while 22 percent are investing in training and development. Another 16 percent are offering flexible or remote work arrangements.

The top three 2020 goals for manufacturing leaders were growing sales, increasing business value and improving financial performance. We also saw an increased effort to streamline operations and efficiencies with manufacturers emphasizing growth strategies on existing products/services to both existing and new markets.

One of the most notable survey data points centered around a noticeable decrease in the confidence in the global economy and key concerns regarding the continued impact of the tariffs on company growth.

Manufacturing Outlook 2020

Revenue Picture

The survey respondents showed a positive picture from a year ago, with almost 22 percent listing revenue growth of 10-20 percent, and 38 percent listing growth of 3-10 percent. That compares to one-third of participants citing growth of 3-10 percent a year ago, and 10 percent of leaders reporting zero growth. While some leaders noted that revenues were down 3-20 percent a year ago, just 14 percent of leaders reported losses or no growth in the last 12 months.

Top challenges to meet growth expectations centered around market volatility-specifically around the global economy concerns, rising material and labor costs.

2020 Expectations Summary

Manufacturing leaders are optimistic about growth in the new year anticipating growth in revenue and profitability. However, they are increasingly pessimistic as it relates to the global economy. The respondents also indicated a reduction in capital spending going into 2020. Capital Spending in 2020 will focus on Marketing and R&D as top priorities and leaders also emphasized investments in efficiencies, business intelligence and data analytics.

Hiring increased for 36 percent of responding companies, even though leaders had anticipated limited hiring.  Going into 2020 we see a slight increase in the comfort level of today’s employee counts and less demand for employment growth.

Similar to the 2019 projections, about 35 percent of leaders expect revenue to grow 3-9 percent in 2020.  That was a slight decrease in the investments in new products to new markets growth focus for the coming year. 88 percent of respondents are focusing growth efforts on enhancing existing products and services to existing or new markets.

Largest change is in growth projections, with 22 percent of leaders expecting 10-20 percent growth, down from 45 percent in 2019.   Respondents felt continued strong optimism as it related to the regional economy rating it 8 out of 10 on a 10 point scale,  while the national economy is down to 6.5 out of 10 and the global economy optimism continues to decline to 5.1 out of 10, our lowest level of confidence in three years. This is not a surprise given the political landscape and upcoming elections globally as well as domestically.

“Business leaders need confidence that trade relations and the global economy will improve. The consumer is spending, but in general major corporations are tightening their belts.” – CEO/President in Manufacturing

There were a smaller number of respondents that are focusing on investments in acquisitions, new locations and new facilities. Private Equity deals in 2020 for the Middle Market were at a record levels and we expect that to continue in the coming year.

The pulse survey illustrates how leaders in the manufacturing industry are cautiously optimistic about growth and profitability next year. While they are still watching the impact of tariffs on the trade, they are feeling more comfortable with current staff levels, even decreasing the rate of employment growth in the coming year. They are focused on efficiencies, embracing technology solutions and using data insights to help drive revenue growth with a keen eye on the global economy.

John Mark McDougal, CPA, is Shareholder-in-charge for the accounting and advisory services and leader of LBMC’s manufacturing/distribution and Middle Market PEG industry segments. He can be reached at jmcdougal@lbmc.com or 615-309-2474.