Sluggish growth abroad, a stronger U.S. dollar, the West Coast ports slowdown, still-cautious consumers and sharply lower energy prices have combined to provide a significant headwind for many manufacturers. However, manufacturing demand and output improved throughout the course of 2014, providing some momentum and cautious optimism for 2015. We have also seen softer-than-desired levels of activity in a number of economic indicators. As a result, the sector continues to expand, albeit at a slower pace. Still, we continue to expect real GDP and industrial production growth of around 3% or more for this year, which is encouraging.

Respondents to the latest National Association of Manufacturers (NAM)/IndustryWeek survey continued to be mostly upbeat in their assessments of the economy, but the challenges discussed above have dampened some of that enthusiasm. In this report, 88.5% of manufacturers said that they were either somewhat or very optimistic about their own company’s outlook (Figure 1). This was down from 91.2% who said the same thing three months ago, and yet, it continued to reflect relatively strong sentiment overall. Dividing this data up by firm size, medium-sized manufacturers (i.e., those with between 50 and 499 employees) were the most positive, with 91.0% having a positive outlook. Interestingly, larger manufacturers (those with 500 or more employees) were the least positive, with 83.7% being positive.

The deceleration in the overall outlook carried through to other measures as well. For instance, manufacturers predict sales growth of 4.3% on average over the next 12 months, down from 4.5% in the last survey (Figure 2). While the vast majority of those taking the survey anticipate increased sales over the next year, the difference can be best illustrated by noting that 8.7% foresee declining demand this time, up from 5.3% last time.  Moreover, medium-sized firms were more upbeat in their forecasts for sales, expecting 4.7% growth on average over the next 12 months. This compared to averages of 4.1% and 3.8% for small and large businesses, respectively.