2011 BUSINESS OUTLOOK: CAUTIOUS OPTIMISM

As 2010 came to a close, the U.S. metalworking industry continued its recovery based on the latest findings from AMT – The Association For Manufacturing Technology (McLean, VA) and AMTDA, the American Machine Tool Distributors’ Association (Rockville, MD) in their United States Manufacturing Technology Consumption (USMTC) report, which was jointly compiled by the two trade associations to provide regional and national U.S. consumption data of domestic and imported machine tools and related equipment.   

According to this report, which was issued in mid-December, manufacturing technology consumption in October totaled $387.13 million. Though this was actually down 2.5 percent from September, it was up a whopping 154.9 percent when compared with the total of $151.86 million reported for October 2009. With a year-to-date total almost reaching $2.5 billion, 2010 was up 83.2 percent compared with 2009. These numbers and all of the information in this report were based on the totals of actual data reported by companies participating in the USMTC program.

“Never in the history of the USMTC have we seen a post-IMTS October rival September so closely,” notes Douglas K. Woods, president of AMT. “Increased Section 179 expensing and 50 percent bonus depreciation enacted in late September helped offset the declines we normally see after a show. Looking ahead, enactment of the pending tax package will give U.S. manufacturers a big boost heading into the New Year.” (Editor’s note: the tax package was still being debated in Congress as of this writing.)

A similar outlook was shared by another leading manufacturing sector economist who sees “the beginning stages for some optimism” in the small business community which, in turn, indicate “solid” economic news for many U.S. manufacturers in 2011. “The small business community drives the economy and is vital to any sort of real recovery,” said Dr. Chris Kuehl, economic analyst for the Fabricators & Manufacturers Association, International (FMA; Rockford, IL). “In manufacturing the connection is even more obvious, as 95 percent of manufacturers employ fewer than 500 workers and half of them run operations of less than 100 employees.”

Kuehl asserts there is a mood of optimism in the small business community, citing the National Federation of Small Business Optimism Index that rose by 2.7 points and sat at 91.7 in late November. “That is certainly progress, and there are some movements in the sub-index that look more promising yet,” he notes. “There is an expectation that demand will increase as the expected sales increase jumped by 4 percentage points – marking the first positive movement in that sub-category since the start of the recession in 2008.”

There was also an 11 percent gain in the index that marks expected business conditions in the next six months. “That is consistent with some of the other elements, which indicate many in the small business community think 2011 will be what most of them had expected 2010 to be,” adds Kuehl. “There has even been some improvement in terms of the hiring index, as it rose by 4 percent as well.”

But even though optimism is finally gaining some momentum, the metalworking community should not discard caution. Kuehl points out that “none of this data suggests there is euphoria in the community, and the numbers remain well below what used to be considered normal. In fact, the 91.7 reading is still in recession territory and that tells an important story as well. The bottom line is that conditions are improving, but slowly, and there is no real sense that there will be dramatic recovery much before the end of next year – at the earliest.”        

Kuehl stresses that three factors must occur in the small business community for a recovery to occur. Most critically, consumer demand must return. In addition, businesses need access to capital to meet that expanded need, and business owners will require a semi-predictable environment in order to plan how to grow their businesses. “Small business owners are well aware that they hold the key to the most important priority,” he explains. “They know they are the major employers in the economy and they know that their employees are other people’s consumers. They would love to start hiring and feeding the economy with all those eager employees, but there is nothing they can do on their own.”

Kuehl adds that “It is the same Catch-22 dilemma the economy as a whole has faced for the past three years. The only potential shift in this conversation takes place when one broadens the concept of consumer and looks outside the traditional avenues of demand. The lure of the global consumer is strong and there is much evidence to show that those companies that can take advantage of the global markets will be the ones to grow. More opportunities exist for manufacturers in this area – the steel fabricating shop in Ohio may be able to sell to the rest of the world, but the dry cleaner in Las Vegas isn’t going to have that option.”

In regards to capital, Kuehl believes the financial sector will see some significant changes and some of those will clearly make the system more accountable. In terms of the regulatory environment, “there is nothing that even comes close to consensus on this subject,” he says. “For every small business that feels hampered by regulation and control, there is another one that will directly benefit from that rule or regulation.”

Because the majority of manufacturers are small business people, Kuehl notes that they have the same basic issues as others in that community. “The fact that there has been movement in the overall sector demonstrates that some of the effort to increase economic activity is starting to bear fruit,” he says. “For the vast majority of manufacturers in the U.S., these other small businesses are their consumers – directly and indirectly. It is solid news that there has been a change in attitude – at least the beginning stages of some optimism. If this holds for a few more months, it will be appropriate to get more excited.”