Misery Loves Company

Dec. 21, 2004
Sept. 11 may have tossed the manufacturing industry a curve, but the sector was already heading south.

"The unspeakable attacks of Sept. 11 stunned and saddened us all," writes Dana Corp. in its 2001 annual report, which reported a net loss of $298 million for the year. "Unfortunately, in their aftermath, many existing negative trends were intensified." States Eastman Kodak Co., after announcing dismal 2001 results: "The tragic events of Sept. 11 severely impacted industries important to our business." Indeed, there is little doubt Sept. 11 delivered a blow to most industries -- manufacturing included. But ample evidence shows the tragic events of that day shouldn't carry the weight for the downward spiral from which manufacturing has yet to recover. For good reason: Numbers don't lie. The Institute for Supply Management's Purchasing Managers' Index (PMI) was well below the 50% mark in the months leading up to September 2001. (A PMI reading below 50% indicates that manufacturing is in decline.) In fact, the August 2001 PMI of 47.9% marked the 13th consecutive month that the widely followed indicator was down. September's figure was 47%, with survey respondents admitting that it was "too early to fully determine the effects of the Sept. 11 terrorist attacks." October 2001 told a different story. With a PMI of 39.8%, Norbert J. Ore, chair of the Institute for Supply Management's Manufacturing Business Survey Committee, stated that "the manufacturing sector received a very significant setback driven by the events of Sept. 11. . . ." However, while October's numbers plummeted way beyond bad, November saw a return to the pre-Sept. 11 slump with a PMI of 44.5%. Other indicators also illustrate manufacturing's less-than-stellar performance prior to September 2001. The Federal Reserve's monthly industrial production analysis shows that manufacturing output started declining in July 2000, fully 14 months before the terrorist attacks. In fact, output in the first and second quarters of 2001 was worse than in the third and fourth quarters. To be sure, few if any companies used Sept. 11 as a crutch. In fact, many business-management experts are hard-pressed to find specific examples of any company that put sole blame for terrible market results on Sept. 11. In fact, while noting, "The Sept. 11 tragedy exacerbated market uncertainty," in its 2001 annual report, adidas-Salomon AG also announced record sales. "If you look at any company that was in trouble after Sept. 11, [you'll see] they were in trouble before Sept. 11," says Stan Slap, president of slap, a San Francisco-based consulting company. Slap, whose clients include Oracle Corp., Microsoft Corp. and Kraft Foods Inc., has consulted for firms that start a turn-around session with a five-minute explanation of what Sept. 11 did to them. "I think what resonates with these companies is my basic comment: Whining is not a strategy, victim is not a job description and 'everyone else is in trouble' is not management information." Richard A. Cosier, dean of Purdue University's Krannert Graduate School of Management, admits that Sept. 11 has produced a dampening effect on the mood of the country, which in turn may have affected expectations about the economy. "But I haven't heard companies blaming that as a single source of their woes." In fact, Cosier says that the economy in general isn't a single source either. "There are many more elements such as competition, international forces, social issues and customer relations." Full blame or not, most experts agree that coupling external negative issues with poor results is a common practice. "Any external event like a war or a major shakeup in politics becomes a nice thing to call out among others when your business is off anyway," explains Louis E. Lataif, dean of Boston University School of Management. "But you can't get away with it for very long -- the market will eventually see through it." Although business and the economy are still off, Purdue's Cosier looks for a strong recovery within a year. "The fundamentals of most U.S. businesses, the WorldComs not withstanding, are still awfully strong and solid," notes Cosier. "I think we have the best economy in the world, and we'll see a recovery due to the strong business models in this country."

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