A Look at Reality: Recovery, Not Depression

My conversations with manufacturers have a universal theme: They would hire even more people if a properly trained and able workforce could be found. Obviously, business is good.

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There is no lack of hysteria when it comes to the economy. I recently heard a noted economist was touting his book on ending this depression, and I saw a TV broadcast that wondered whether the United States was slipping back into a depression. I found both positions incredible, since the United States has been in a recovery since the middle of 2009, and we have created 5.6 million jobs since the January 2010 employment low.

Let us expand on the economic reality around jobs and then look forward. In April, 896,000 private sector jobs were created; that is much better than the number you heard in the news. ITR Economics uses the non-seasonally adjusted private sector figure as our employment gauge. We find that number better reflects activity in the business environment than the often-quoted total (private and public) seasonally adjusted employment figure. My conversations with manufacturers have a universal theme: They would hire even more people if a properly trained and able workforce could be found. Obviously, business is good.

It is also important to note that manufacturing has become increasingly important in the United States. The chart shows that manufacturing as a percentage of Gross Domestic Product (GDP) has increased from the December 2009 low of 11.0 percent to 12.2 percent today. The change is impressive in that it is occurring despite the loss of some export potential to Europe because of their mild recession and the slower rate of growth in China. The advantages of U.S.-based manufacturing are becoming more evident with both domestic and foreign firms taking advantage of “near-sourcing.”

U.S. industrial production is rising, illustrating beyond a doubt that we are in recovery and not a recession/depression. The trajectory is consistent with the forecast we put in place in early 2011.

The monthly figures have been essentially flat in the early goings of 2012, but the leading indicators are pointing toward renewed ascent and more opportunities for readers in the latter half of the year. The good news is expected to last through 2013.

Market trends
Industrial Machinery New Orders through the first quarter reached $39.8 billion, which is the best we have seen in over three and a half years. New Orders for the last 12 months are 7.0 percent above the year-ago level. Quarterly New Orders gained 14.5 percent over the same quarter last year, supporting our outlook of accelerating growth in the near term. Business-to-business activity is strong; machines are moving out the door, and readers are no doubt pleased with this level of business. Look for any process flow restrictions that need to be fixed. You are going to be busier in the near term and bottlenecks will chew into profits unnecessarily or worse - cost you customers.

In case you need even more good news, March’s Machinery Manufacturing Capacity Utilization Rate of 84.8 percent is the highest in over four years and 6.1 percentage points above the historical average. The rate indicates that manufacturers are expanding production operations beyond normal to satisfy client demand. Spend money now to increase efficiencies and meet the customer demand.

“Make Your Move” Management Objectives
Spend money in the ways presented above. Now is also the time you must lead with optimism and vision. Economic fear is prowling about the plant floors, break rooms and homes of our team members. Share the good news, share the reasons for optimism, and let everyone know how you plan to take advantage of these favorable economic winds. The team will reward you with productivity, ideas and enhanced profitability, while your competitors are still trying to figure out what they should do.

>> Click here to find 2012 The Automation Conference coverage.

Alan Beaulieu, alan@itreconomics.com, is president of the Institute for Trends Research (ITR). The ITR blog can be found at www.itreconomics.com/blog.

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