Manufacturers: Are You a Bull or a Bear?

Sept. 21, 2012
Manufacturing has been the darling of the economic recovery and the Obama administration has made no secret that it views the sector as key to building "an economy that lasts.&." But in the past few months, the signs of U.S. manufacturing health have become a little more difficult to read.

Manufacturing has been the darling of the economic recovery and the Obama administration has made no secret that it views the sector as key to building “an economy that lasts.” But in the past few months, the signs of U.S. manufacturing health have become a little more difficult to read.

In the most recent NAM/IndustryWeek Survey of Manufacturers, 69% were very or somewhat positive about their company’s outlook. Manufacturers said they expect sales to increase by an average of 2.5% over the next 12 months. And while the percentages involved are very modest, manufacturers also expected to see capital investment and hiring increase in the coming year.

In Chicago last week, there was near jubilation as the IMTS trade show broke through the 100,000 mark in attendance and the manufacturers trooping through McCormick Place were clearly in a buying mood.

"The energy level among visitors and exhibitors was at an all-time high," said Peter Eelman, IMTS vice president –Exhibitions and Communications. "The most exciting take-away from IMTS 2012 is what it says about the prospects for manufacturing over the next year. The overall activity and buzz indicates that we are entering a period of sustained growth that will fuel economic prosperity and job creation.”

This optimism comes in the face of plenty of bad news and uncertainty. The European economy has been a mess, China, India and other fast-rising economies have slowed dramatically and manufacturers face a series of unknowns at the end of the year, including the outcome of the election and how, or even whether, Congress will deal with the impending fiscal cliff.

Given these facts, economist Alan Tonelson of the U.S. Industry and Business Council recently wrote in the Washington Times that “a string of recent cringeworthy statistics indicate that the manufacturing slowdown that began this past spring has become a new industrial downturn.”

Among the worrisome indicators Tonelson listed were:

  • Manufacturing growth has fallen from 6.4% in 2010 to 4.25% in 2011 to 0.75% this year, according to Federal Reserve Board figures.
  • The manufacturing trade deficit hit a record $63.93 billion in July, an all-time record.
  • Manufacturing shed 15,000 jobs in August, the biggest decline since December 2009.
  • The Institute for Supply Management’s monthly survey of purchasing managers showed contraction in manufacturing in August, the third month in a row, after a run of nearly three years of expansion.

In an interview with IndustryWeek, Tonelson said he was reluctant to call it a downturn yet because there was only data for a month or two, but he added, “When you look at the foreseeable future, it is hard to detect forces that will re-accelerate manufacturing growth, especially because the global economy looks so weak.”

Asked if U.S. manufacturers were simply the victims of global economic weakness, Tonelson said the U.S. was far from helpless to respond to the changing economic winds. He noted the recent trade cases brought by the Obama administration against China in the World Trade Organization and argued there was much more the U.S. could do against “predatory trade practices”not only of China, but other “very difficult”trading partners such as Japan, Korea and Germany.

Tonelson also said U.S. manufacturers should be actively trying to win back domestic market share in the advanced manufacturing arena, where foreign companies have been gaining share since the late 1990s.

“This is by far the biggest emerging market opportunity for U.S. manufacturers - regaining lost shares of their home U.S. manufacturing market. And it is also the lowest-hanging fruit because this should be the market that U.S. manufacturers know best. It is also the market in which they face absolutely no trade barriers, tariff or non-tariff,” he said. “We certainly don’t have to accept this new manufacturing slowdown and possible slump lying down, but we certainly need much more proactive responses than we have seen so far.”

Tonelson doesn’t discount the resilience of U.S. manufacturers, particularly after they have survived the past two decades, or the optimism they are still expressing in the NAM/IW survey or at IMTS. But he says the data can’t be ignored either and warns that “the near term future of manufacturing is hanging in the balance and we are heading into a very crucial next six months.”

It’s likely by then, we’ll know who was right - the bulls or bears. Time to place your markers.

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