Is manufacturing headed for a recession?

Despite headwinds, experts see slow growth

Manufacturing

When the Milwaukee area PMI showed a positive reading for the first time in nearly a year it provided a bit of good news for a manufacturing industry that has seen plenty of bad headlines in recent months.

Marquette-ISM-January2016

Citing declining production, falling oil and commodity prices, a strong dollar and trouble in developing markets, a Moody’s report in January said “the case for a prolonged slowdown is building.”

“We believe that this could be the beginning of a prolonged period of weakness for manufacturers, which may be characterized as an industrial recession,” said Chris Wimmer, Moody’s vice president and senior credit officer, in the report. “Unlike the Great Recession, when demand declined sharply but then rebounded quickly, we believe prolonged weakness is likely.”

It was many of the same headwinds that led Marquette University Center for Supply Chain Management director Doug Fisher to call the positive manufacturing activity in the Milwaukee area “a little bit surprising,” although he stopped short of saying the industry is headed for a recession.

“To me, the outlook is tepid,” said Fisher.

He said a weakening Chinese economy, collapsing oil and commodity prices, a “not particularly attractive” geopolitical environment and a strong dollar all add up to suggest it is more likely things will get softer than there will be strong growth.

“I don’t know if it’s a little bit of a short-term recovery,” Fisher said, adding that he doesn’t like to consider one data point a trend and companies may have had more activity as they work to clear out inventory. He said many were caught with large inventories at the start of the Great Recession and he feels companies are doing a better job of managing levels now.

Fisher’s view of the economy and manufacturing matched that of Buckley Brinkman, Wisconsin Center for Manufacturing and Productivity executive director and chief executive officer.

“It’s going to be a tortoise year,” Brinkman said, adding that most manufacturers will “muddle through.”

He said the companies that are able to make small bets on improving will be the ones in better position at the end of the year. Companies should get closer to their customers and understand not just what product they are making, but how to be a better value for them.

Fisher said that as he talks to companies, the ones experiencing growth are pushing new products out and taking market share from their competitors.

“Those are the exceptions,” he said.

With all the headwinds the industry is facing, Brinkman was still looking for reasons to be optimistic.

“I think that we’re at an advantage here (in Wisconsin) because we have such a diverse manufacturing economy,” he said, noting most of the companies are small and medium size firms spread across a variety of industries.

Fisher said he was interested to see what the national PMI figure would be. That number released Monday was 48.2, showing a contraction in manufacturing activity nationally for the fourth straight month. The Manufacturing ISM Report on Business found eight industries reporting growth while 10 reported contractions.

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.

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