Every day, we are assaulted by the media with bad news about the economy -- declining equity markets reducing people's 401k plans and net worth, massive job losses, mounting numbers of home foreclosures, and on and on. No wonder automobile sales plunged by 50% in February compared with the same month a year ago. People are living in fear about the future and are just hunkering down, but, as FDR said 70 years ago, "All we have to fear is fear itself."
These are not such strange times when you look at history. Have you heard the question: "When was the last time the United States had a continuous 10-year period without a recession?" The answer is: never. A look at recent history bears this out. In February 2000, the NASDAQ average was at 4700 and by September 2002, it was down to 1170, representing a decline of 75%. In January 2000, the S&P 500 average was up to 1500 but, by July 2002 it was down to 815, a 46% drop. In the current markets, the NASDAQ has fallen 54% from its 2007 high while the S&P has also lost 54%.
As you can see, we have been here before with similar drops in market values less than 10 years ago. In the five years from the 2002 low to the 2007 high, we have survived and prospered with the NASDAQ up 139% and the S&P up 87% and we will do it again.
The lesson here is that we must prepare for the recovery while surviving the current downturn, a cycle that has been repeated so many times in our history. It's not pleasant and we wish we weren't going through this now, but it's not the end of the world and we will ride out this storm and come out of it. People need to continue to improve their skills during this recession so they are prepared for the recovery and the competitive job market that will result. Companies need to continue working on developing their people and advancing their continuous improvement projects and knowledge so they will be the preferred supplier when business recovers.
In January 2009 MFG.com conducted a survey of 570 contract manufacturers, and the results were surprising. Fully 45% of the respondents were projecting growth in 2009, while 28% project their business will remain at 2008 levels. Asked about the rebounding of global industry, 37% were optimistic, 28% were neutral and 34% thought a rebound this year was unlikely. In spite of the relative optimism expressed in this survey, 53% said they had to reduce profit margins to grow, 39% kept margins constant and 7% weren't sure. To reduce costs, 28% had shortened shifts or hours, 23% had layoffs and 26% had not implemented any changes in staffing. In addition, 18% stopped hiring new employees, 11% stopped hiring replacement employees, 15% postponed or canceled capital purchases, and 11% curtailed business travel to customers and trade shows. While the survey respondents were fairly optimistic about a growth and a rebound in business this year, they were also cutting profit margins and reducing costs, so they are contributing to the declines the economists and the news media are reporting. Another sign of fear and hunkering down?
I am already hearing the screams of protest about my thoughts when people and companies are living in the today and are concerned about cash flow and survival, not about skills development and continuous improvement. I realize these are difficult times for both people and companies, but they are not really strange times. We have been here before and survived and prospered during the recovery, and we will do it again, but we have to be prepared.
Companies need to reinforce their continuous improvement efforts and the skills development of their people so they are prepared for the business recovery. People need to improve their knowledge and skills to be ready for the competitive labor market that the recovery will create. Let's be optimistic about the future because, with history as our guide, we know we will recover, so don't stop your continuous improvement efforts and skills development so you can make sure you're ready when it happens.
Ralph Keller is president of the Association for Manufacturing Excellence, an organization dedicated to cultivating understanding, analysis and exchange of productivity methods and their successful application in the pursuit of excellence. He has been an operations practitioner for the past 35 years.