Respondents to an annual survey of manufacturers expect the US economy to grow at a modest 2-3% this year, while four out of ten predict continued recession within their own industrial sectors, according to the US National Association of Manufacturers.
‘More than two-thirds of respondents expected earnings-per-share for the first half of 2002 to be 3% or below, confirming that manufacturing’s emergence from prolonged recession will be slower than the rest of the economy,’ said NAM President Jerry Jasinowski on the opening day of National Manufacturing Week in Chicago.
‘This trend, along with factors such as credit difficulties and the overvaluation of the US dollar, led 70% to say they plan to preserve profits by aggressively cutting costs.
‘Not surprisingly, the top three public policy issues cited as priorities were tax relief (58%), health care (55%) and tort reform (35%),’ Jasinowski added.
‘Unfortunately, most manufacturers are already so lean and mean that further economies will go well into the bone: reducing health care coverage, 401(k) matching programs, even considering moving production abroad. Congress should bear this in mind when considering burdensome new regulations or other legislation.’
The NMW survey corroborates the results of a separate poll of the NAM’s board of directors taken last week.
‘Cutting costs continues to be the preferred way of increasing profit margins,’ Jasinowski said, ‘followed closely by the introduction of new product lines and an even tighter embrace of Six Sigma or lean manufacturing.’
While the Treasury Department has been dismissive of concerns about the high value of the dollar, urging companies to simply compete, Jasinowski cited a survey question that specifically asked if exporting companies’ productivity efforts had been sufficient to offset the dollar’s increased value.
Only 18% responded yes, while half ‘told us flatly that there’s no way they can raise productivity enough to compensate for the fact that the dollar has risen by more than 30% in just a few short years,’ he said.
One respondent, with fewer than 250 employees, noted that his export sales were ‘virtually gone.’ More than 55% reported a negative impact from the dollar’s value, either through lower exports or loss of domestic market share to imports. Only 8% said the high dollar had had a positive impact by lowering costs.
‘The combined impact of a brutal recession and the overvalued dollar has left a lot of these poor companies rather shell-shocked,’ Jasinowski said.
More than 57% of respondents said their health care costs had risen by 20% or more over the past two years, and 65% predicted a further increase of at least 10% in 2002. A small manufacturer in Mississippi wrote plaintively that ‘Medical costs are killing us!’ Another said it had been forced to drop health benefits for hourly workers.
Capital investment plans were also conservative, with 78% of respondents expecting to spend either less than last year or increase spending by no more 5%. More than 60% predicted an increase of less than 2% in spending on other equipment.
Jasinowski noted, however, ‘The recently-enacted stimulus bill should help improve the capital investment picture.’
Just over 300 surveys were returned, out of 2000 sent randomly to NAM members, for a response rate of 15%.