US manufacturers urged to invest now

Good news for Canadian companies: US manufacturing is on the ascent

June 28, 2012   by Joe Terrett, Editor

PLYMOUTH, Mich.: “Economy expected to limp longer,” announced a sombre USA Today headline for a front-page story outlining the Federal Reserve’s latest prognostications. The EU debt crisis is creating uncertainty while factory output and retail sales have slowed and the article noted that by year’s end there will be little change in the 8.2% jobless rate.

That’s just the kind of gloomy messaging manufacturers should ignore, according to Alan Beaulieu, president of ITR Economics, who was speaking to a room full of them a conference in Plymouth, Mich.

The “Fast Forward” event, presented by the Italian Trade Commission, Machines Italia, Federmacchine and Industry Week magazine, offered its US audience strategies for solving their most challenging problems.

Beaulieu’s advice? Invest in your business. If you pay too much attention to what the media says, you’ll hold back. “You can’t afford to do that,” he said, because the conditions are ripe to take advantage of the growth anticipated over the next six years.

Indeed, he contends the US is experiencing a good recovery—especially industrial production—and it’s picking up speed.

The good news for Canadian manufacturers supplying US customers is that leading indicators are pointing up. Manufacturing is on the ascent as a percentage of GDP; consumers are spending; banks are flush with cash ($1.5 trillion) and are lending; businesses have $2 trillion in cash; and the government is providing stimulus to the economy. And the unemployment numbers that are such a worry? Useless, he said. They aren’t an indicator of what will happen in the future.

And companies should not worry about the trouble in the EU. He said US exposure is limited and even if the Euro Zone failed, the US economy would weather the fallout. Not that the EU is going to spin out of control.

“The world doesn’t want to see the Euro Zone fail. There are mechanisms in place to ensure it won’t happen.”

ITR, which boasts forecasting accuracy of 94.7%, predicts a steady 18 months or so through 2013 with a mild downturn in 2014 followed by a healthy recovery from 2015 to 2017.

Beaulieu advised manufacturers to invest in their businesses now. Rates are low (below 2% and projected to be as low as 0.25% by year-end 2014).

“Borrow until you can’t sleep,” he advised, noting rates and taxes will eventually rise.

And a good place to invest? Canada, he said, where the economy is stable, the budget will be balanced by 2015 and debt paid down by 2016; the banking system is the best; and immigration policies positive.

Mexico’s economy is “doing great” but he wryly suggested kidnapping insurance if doing business there. And avoid Russia: “Very dangerous,” he said, where partners have wound up murdered and businesses told when to sell, and to whom.

He also offered the following objectives manufacturers should target:

  • Positive leadership modelling (culture turns to behaviour)
  • Add sales staff and hire top people
  • Training programs
  • Lock in costs
  • Invest in customer market research (know what they value)
  • Judiciously expand credit
  • Ensure distributions systems can accommodate increased activity
  • Review and uncover competitive advantages
  • Improve efficiencies with investment in technology and software
  • Spend money on new products, marketing, and advertising
  • Work on “what’s next”

“All kinds of economic trends analysis says the economy is expanding,” he said. “…If you are waiting for something better to come along, you’ll be disappointed: this is it!”

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