Smart Business Magazine, Oct 2012

October 2012 Smart Business Florida 13 MANUFACTURING PICTURE FOR 2013 LOOKS STRONG OVERALL U S manufacturers should continue to fare well in 2013 although next months election is a wild card that could change that outlook to some degree U S manufacturing should do well next year but a lot depends on the election and policies that the newly elected president and Congress may or may not undertake says Stuart Hoffman chief economist PNC Financial Services Group Were assuming that some of whats being called the fiscal cliff will probably go into effect but not enough to be fatal to the economy Hoffman expects that most manufacturing sectors will continue to do well including household goods energy related manufacturing farming equipment and nondefense aerospace manufacturing Construction related manufacturing is expected to be a particular bright spot and automobile production should continue to fare well though less robustly than the last couple of years We think auto production will still be rising so auto manufacturers and the related supply chain should do well Hoffman says It wont be a big increase over this year The rate of increase for next year will probably be around 5 percent whereas this year its double digits But auto production will still be operating at an overall higher level a higher production level a higher employment level a higher productivity level and ultimately a higher sales level A few manufacturing sectors are expected to cool down including heavy truck production tool and die defense aircraft though that too depends on the direction of post election government policy and raw materials such as steel copper and aluminum Production of raw materials is more of a global issue and while we dont expect the global economy to fall into recession we have seen global problems with steel slowing down and a tremendous amount of supply Hoffman says Some steel companies might not be all that profitable because of the increase in supply and global supply could easily meet if not exceed the rise in demand To learn more listen to Stuart Hoffman on PNCs 2012 National Economic Outlook webinar on Nov 8 To register go to www csvep com pnc 110812flyer html Nonetheless Moutray says that on the whole U S manufacturers outlook for 2013 is positive but guardedly so Of course that could all change very quickly he says Were seeing some pessimistic numbers coming out right now which I think should be a wake up call to folks in Washington that Hey maybe this is something wed better act on We need to reduce the level of uncertainty in the economy thats out there Scott Paul executive director of the Alliance for American Manufacturing agrees that a large number of concurrent factors have conspired to flatten the U S manufacturing curve One crucial factor he points to is import export problems with both Europe and China One thing that was helping to drive the boomlet in manufacturing over the last few years was increased demand for our exports to Europe and to Asia Paul says A key reason for that has been that our exchange rate has been while not perfect much more suited to exports than it used to be But the days of gangbuster exports to Europe and China are fading Weve seen that tailing off dramatically over the last couple of months Paul says The Chinese are reverting to their traditional strategy of continuing to produce and export as much as they can regardless of what the demand is That creates problems for other countries such as the United States At the same time were seeing the value of the Chinese currency take a nosedive That to me is troubling Exacerbating this set of complications coming from Asia is a different kind of economic headwind pushing across the Atlantic from Europe Some of Europe is headed back into a recession again related to the debt crisis financial situation Paul says That has an impact on demand on unemployment on a lot of things And that in turn impacts U S manufacturers because Europe is an important market for us Swinging inventory Cliff Waldman senior economist for the Manufacturers Alliance for Productivity and Innovation is another insider who attributes the U S manufacturing slowdown to a convergence of several factors Waldman postulates that the key factor was the sharp inventory fluctuations that took place during the recession and in the years since Over the last three to four years the U S economy had probably the sharpest inventory swing in modern history Waldman says During the panicky days of 2008 and 2009 inventories were liquidated very rapidly Some companies were liquidating inventories just to raise cash So then even though we had just a modest turn in the economy after the recession