Economic Climate - Manufacturing
This region was built on manufacturing. It was a cornerstone of our region and still remains an important part of it today. We have 197,757 workers in the tri-county employed within 13,300 business interests in our region. The breakdown of industry sectors looks like this:
Manufacturing continues to be a great strength in our region; however the national manufacturing sector has been declining for the past 20 or 30 years. Manufacturing has fallen off 50% more nationally than it has in our region. Structural change happened in the 1990’s when several other countries opened up over a span of 6 years or so. Nearly half of the world’s population opened up and we saw a lot of manufacturers move to find cheaper labor. Luckily, our region is bucking the trend. Our workers are more productive especially in durable goods and replacement part manufacturing. This workforce is using more technology, getting more educated and providing more human capitol. They continually improve their output in order to be more competitive. We are working smarter.
We have seen job loss. Our unemployment rate has increased. This recession is affecting our friends, our families and our neighbors. It hurts, but we are more diversified now than in the past and that is helping us weather the storm.
We are certainly not recession proof, but we are not as bad as many other places across the nation. In some one horse towns there’s a dramatic downturn, but we have been able to sustain ourselves so far. By continuing to work together and making the correct decisions, we will be able to sustain ourselves through this recession. We were able to do it in the 1980’s and we can do it again if we work together.
Doug Parsons, Excel Foundry and Machine:
Jeff Bahnsen, Foremost Technologies:
Jim McConoughey, The Heartland Partnership, on Manufacturing:
Dr. Joshua Lewer, BU, on Manufacturing:
“The Economic Situation:
A National Overview and Local Update”
Jeff Bahnsen, General Manager and VP of Foremost Industrial Technologies, says “I’d be lying if I said the economy hasn’t softened our industry a bit.” His company sells and services new and used electric motors and power transmission products. He said FIT wasn’t feeling it much until December. “We are still chugging along and we have things in the hopper just not as many things in the hopper. We have developed a wait and see attitude.”
Doug Parsons with Excel Foundry, says a lot of his business is tied to the mining industry globally and with commodity prices falling and uncertainly, there’s been pull back. Excel focuses on on repair components of equipment and Parson’s says they’ve been doing ok through this downturn. “Business is up 20% from last year. I’m hopeful January 2009 will surpass January 2008. During a downturn, that is amazing.” Parsons says in a large part that’s due to people looking to minimize operating costs. People aren’t buying new, they’re keeping existing equipment running and that’s what Excel manufactures. FIT expanded recently allowing the company to get into the repair side of the business. Bahnsen says the timing of the economic downturn actually turned out to be a benefit to his company. Like Parsons, Bahnsen says people started repairing engines and other apparatus’s instead of buying new. “That business was leaking out of our area before and now we’re grabbing a hold of that business and keeping it here.” This is a whole different realm of the market for FIT and Bahnsen says their ability to diversify helped gain new market share.
Parsons beleives diversification is the key especially in the manufacturing sector. “Those who are tied to just one or two of the larger companies have had to scramble to keep their order books full. In this industry the more diversified and the more global you are, the easier you can get through it.” He says diversification pays off and in periods like this will prove that out in spades. When it comes to comparing the regional manufacturing industry to the rest of nation, Bahnsen says we are much more insulated than other areas and we’re much more fortunate because we diversified here after the downturn in the 1980’s. Small and medium sized businesses no longer depend on just one company for orders, and more local companies are global now so they don't have to depend on just one region to sell their product.
Bahnsen told us the owner of FIT also owns some Detroit companies that do manufacturing work for the auto industry. Bahnsen says you can imagine the serious problems for the parent company with the slip of the auto industry. “Those problems and the lack of revenue for the parent company trickle down to all the subsidiaries.” He expects it will get worse before it gets better, but not much worse.
There is a great deal of uncertainly out there according to Parsons. “Fear is compounded to where people are making decisions because they see other companies making those decisions. Their decisions aren’t always based on sound logic, more so on fear of unstable market.” He hopes if we can minimize that fear and get through the first quarter or two, a lot of those people laid off will be hired back or at least we will see a slowdown in job reduction. Parsons believes there are still opportunities out there. “It’s rethinking the markets you are in, look for changes in the market (like renewable energies…) there are things that will cycle up and if you can get involved in those, you’ll find opportunities.”
Dr. Joshua J. Lewer
An Overview of Manufacturing
"Remember that there is nothing stable in human affairs; therefore avoid undue elation in prosperity, or undue depression in adversity.” Socrates
The economy is subject to the business cycle and economic fluctuations. One objective of macroeconomic policy is to minimize the distortion caused by the business cycle and provide economic stability.
The average length of a recession in the post-war period is 11 months with the average expansion of approximately 59 months. Since WWII, the manufacturing sector of the economy has had a higher “beta” with respect to the rest of the economy, meaning that deviations in output are greater than the overall macroeconomic performance. For example, during the last recession (dated March 2001 to November 2001), the decrease in Gross Domestic Product was -0.6%, but the decline in Manufacturing output was -4.6%. And according to the Federal Reserve Economic Database (FRED), U.S. industrial manufacturing output has declined over 10% from its peak in July of 2007.
Locally, durable manufacturing makes up 15% of total employment for the area, down from 19% in 1990 (Bureau of Labor Statistics, 2008).
February 8, 2009