News executives on cable business channels seem to be chatting about it endlessly. Even mainstream media is getting in on the talk. The discussion surrounds the state of the U.S. economy and recession. Are we heading into one? Are we already into it? Will it be severe or will we experience a mild one? Is US manufacturing facing a mild recession?
Of course, it will depend on who you ask, what sector of the economy you are addressing and even what their political agenda may even be.
Of course, at Wiley Metal, we are focused on the manufacturing sector. There are some reports saying we are heading towards at least a mild recession in manufacturing and others that say it has begun. Here’s a look at some various reports and what you can do to prepare your manufacturing business.
What Some Recent Numbers Indicate
The Institute for Supply Management’s (ISM) most recent monthly report says that in August, U.S. factory activity fell to its lowest level since the beginning of 2016. This activity included things like orders, hiring, and production. When looking a little closer, new orders fell to their lowest in seven years and production contracted to its lowest since December 2015. Many attribute the drop to a slowing global economy and the impact of the U.S.-China trade war.
Based on U.S. Federal Reserve guidelines, manufacturing is already in a technical recession with a reduction in output over two consecutive quarters. On a worldwide basis, manufacturing has experienced a decline in every month for nearly the last year and a half.
Keep in mind that manufacturing makes up about only 11% of the nation’s economy, so it should be kept in perspective overall. For those of us in the sector however, these numbers are more impactful. ISM’s measurement for factory employment dropped to 47.4 which is the lowest level since March 2016.
Without getting too deep in statistical weeds, the recent ISM report indicates that:
- A significant factor indicating a downturn, that of new orders, fell to its lowest level since December 2015.
- Exports, an indication of overseas demand, fell to its lowest since April 2009. That, of course, was in the depths of the last recession.
- Manufacturing companies are apparently having no issues keeping up with new orders, perhaps indicating a softening in both new orders and in the overall economy. In fact, order backlogs decreased for the fourth straight month according to the August report.
Many say with the ISM contracting for the first time in three years, the recession in U.S. manufacturing has begun. A recent article in the New York Times says the reports, at the very least, show a sign of “economic weakness” in U.S. manufacturing, tracing the results to the trade war.
The ISM report is not the only indicator of possible rougher seas on the horizon. A recently released consumer confidence survey conducted by the University of Michigan found confidence dropping to its lowest since 2012.
Preparing for a Hurricane
Preparing for a recession is not unlike preparing for a hurricane. There will be a variety of ever-changing forecasts and one day it can look like it will miss you and the next it’s coming directly toward you. It may hit as a tropical depression or as a devastating category 5 storm. The point is to be prepared and take steps to minimize its impact. There are few negatives to over-preparing.
What can those of us in manufacturing do? Here are some steps.
Be Diligent about Collections
A good economy can allow us to become more lenient with our collection policies. This, however, can quickly become problematic if slow payments begin to happen en masse. A downturn can be a reminder that good policies are good policies. They should be followed in good times and bad. Begin tightening up now.
Prepare for a Drop-Off in Orders
If there is anything some of us learned from 2008, is that orders don’t always trickle off, but may simply drop off. Answering the phone can bring a sense of doom and gloom. Begin to adopt a “we’re in this together” attitude with your clients and have a plan that will allow for flexibility for smaller orders or orders using less expensive materials.
Explore Staffing Options
Of course, you’ll want to do everything to hang onto your key employees, and loyal, longer term employees may be willing to take a small cut in pay to withstand the storm. Some, especially those in administration, may welcome the option of working from home a few days a week in exchange for reduced compensation. If not, you may have to consider other options like contract labor or outsourcing projects. It may not be your preferred option but it can potentially help you survive an extended downturn.
Tighten up on Spending
During a booming economy, waste can increase and spending can begin to creep upwards. Catered lunches, business travel, and other perks may need to take a back seat to providing quality client services.
Start the Conversation
Internally and externally it can be a good idea to begin having conversations to address the possibility of a recession. It demonstrates to your employees, partner clients and vendors that you are on top of any pending situation and are willing to work with them through the process. It may even lead to some ideas, concepts, policies or procedures that may otherwise have been missed. No, you certainly don’t want to be a part of some sort of self-fulfilling prophecy when it comes to an economic turndown, but you don’t want to ignore major indicators either.
At Wiley Metal, we consider ourselves to be major cheerleaders for the American economy and U.S. manufacturing. We do not feel, however, it is unpatriotic to be aware and prepared. If there is a downturn, we want to be ready to make sure we and our partners are ready for it. We feel it is part of our duty to minimize its impact on us, our employees and those who have been loyal to us. If we are going to experience a storm, let’s minimize its impact.