Automation Suppliers Should Plan for Recovery in 2010

Ben Bernanke, chairman of the U.S. Federal Reserve Board, announced on Tuesday, Sept. 15, that the recession is “very likely over” and that the recovery has begun. We would agree, given the uptick in the U.S. Industrial Production monthly data trend.

Aw 2527 0910 Econv
Now the discussion will center around the shape of the 2010 recovery. The discussion seems to be centered around four letters: W, V, U and X.  “W” is used for those folks who are looking for a double-dip recession or even the onset of a full-fledged depression in the near term—sorry, not going to happen.  A “V” recovery would mean a sharp rebound to early 2008 levels of activity. This theory states that the United States will once again be powering along on all eight cylinders in short order; while we can appreciate the desire and the enthusiasm, this hope is misplaced and will only lead to disappointment and a potentially significant misallocation of resources. An “X” recovery means that there really is no recovery for Main Street—this is closer to reality. That leaves a “U” shaped recovery, and that is what we are expecting: a broad, rocky bottomed, slow turn to increased levels of activity.

A slow, broad-bottomed recovery is consistent with current consumer- and business-related activity. Neither suggests the near-term demise of the U.S. economy, but neither do they suggest robust growth any time soon. It will take time for the credit markets, businesses and consumers to recover from this long and painful recession. Business and personal balance sheets have taken a severe hit, and it will take a while to rehabilitate them.

We are forecasting that the U.S. economy will experience a broad trough through the near term before we slowly begin to climb up the slope toward prosperity. This is a good time to take a proactive approach and tackle the recovery head-on by taking advantage of a more stable economic environment next year. It is time to make your move and start thinking aggressively in terms of marketing and advertising.

Material Handling Equipment New Orders is in a recession that is not expected to end until the third quarter of 2010. This outlook is based on internal indicators and the rise occurring in the U.S. Leading Indicator and the Purchasing Managers Index 12/12 rates-of-change. The 12-month moving total (12MMT) has fallen 30.1 percent since the April 2008 growth peak, with about another 15 percent of decline left to be realized. Readers participating in this industry segment should expect an expanding domestic and global economy to provide for increased order activity from late 2010 through 2012.

The trend in General Industrial Machinery New Orders is also negative. We are projecting that New Orders will reach a low in June 2010 (12MMT basis).  External leading indicators are signaling that good times are coming. Plan on increased levels of activity from mid-2010 through 2012. This is a time to start planning for increased activity by mounting sales efforts into those markets that will be in recovery next year. Spend some money (we know it will be hard and somewhat counterintuitive) on sales and advertising now in anticipation of 2010. Use the next four months to plan on how you will take advantage of the recovery in 2010.

Unemployment has been making the news lately and it is not surprising, given a 9.7 percent unemployment rate. Expect the rate to go higher as we head into 2010, and for the unemployment rate to be very slow in coming down as we traverse 2010. This is a lagging indicator, and as such, we would encourage you to not be overly concerned about more bad news here. You might want to consider this as an ideal time to hire some very talented people who can help you prepare for the recovery.

Alan Beaulieu, alan@ecotrends.org, is Senior Analyst, an economist and a Principal with the Institute for Trend Research, in Concord, N.H. He invites your comments. Visit ecotrends.org and subscribe to monthly updates on EcoTrends.

Subscribe to Automation World's RSS Feeds for Columns & Departments

More in Control