Chris Kuehl
Managing Director • Armada
It has often been remarked that there are two kinds of forecasters – those who don’t know and those that don’t know they don’t know. That has long been the case but never more than right now. There is always a period of uncertainty when leadership changes but this transition has been more dramatic than is generally the case. Politics is definitely unsettled and likely will be for quite a while. There will be salvos and counter salvos as both sides compete but frankly a lot of this drama will have a limited impact on the business and manufacturing community. It really comes down to some very basic concepts of supply and demand. Will the consumer (at whatever level) want the product and will they be able to buy it? Will there be the raw materials and/or commodities needed? Will there be an appropriate labor force and the support systems to permit growth (transportation, energy and so on). Much of the data collected suggests that the industrial sector has been managing to hold its own.
It is significant that over 68% of the respondents in our recent survey are small businesses – less than 20 employees. In fact, this is the norm as far as business in the US as a whole. Fully 99.9% of business in the US is classified as small (over 33 million of them). In general, the small business community is operating at a respectable capacity level although not as high as the national norm. The ideal position as far as capacity utilization is concerned is between 80% and 85%. Less than that there is too much slack but too much demand and too little capacity and there will be bottlenecks of varying types. According to the FFJSCR the respondents are in the high 60s and this is not terribly far from the norm. Operating capacity improved for 28.9% of respondents and remained stable for 52.4%. Only 18.7% saw a decline in operating capacity.
New order activity was either expanding or stable. Fully 26.94 saw more new orders and another 44.3% reported stable new orders. These are critical numbers as they represent new and expanding business. It is always far easier to hang on to new business than to keep turning it over.
Another good development signaling employment is an expansion of new hires. It was reported at 17.2% of employers added to their payroll and another 65.5% reported stable hiring. This is more impressive when one considers the overall labor shortage. There are simply too few qualified people to meet demand so that means that companies are likely offering higher wages to attract the talent needed or they are doing more of their own training. It is also worth noting that these workers are “stickier” in that companies are more invested in them.
Material costs are still rising. Steel and aluminum prices are increasing for 30.8% of respondents but have been stable for 51.8%. Very few (17.28% have seen decreasing prices. Logistics costs have been even more dramatic. Most have seen these costs rise (48.7%) and another 48.3% have seen stable prices with only 2.87% coming down. One of the concerns for the rest of the year will revolve around tariffs. If these are implemented as planned the cost of steel and aluminum will likely jump by at least 25%.
Capital investment continues to grow. Fully half expect their capital investment plans to focus on the first and second quarter. Another 22% plan to put these expenditures off until the end of the year. The best news from the survey is that 58.0% expect to see business expansion and 38.17 thinks the outlook is stable with less than 10% expecting a decline.
