Manufacturers brace for more pain

Like the economy in general, business for many Milwaukee-area manufacturers appears to be slowing.

According to the December 2008 survey by the Milwaukee chapter of the Institute for Supply Management, manufacturers are increasingly pessimistic about business conditions.

New orders, production, production backlog, employment and inventory levels were areas respondents felt most dejected about, according to the survey.

Supplier lead times was the only area in the survey that respondents felt optimistic about, according to the survey.

“I don’t know where this economy is headed, but there are going to be a lot of train wrecks,” said Linda Mertz, managing director with Mertz Associates Inc., a Waukesha-based investment banking firm that deals with many manufacturing companies. “If I owned a manufacturing company, I would project 20-percent lower margins and manage my cash flow to that.”

However, according to ISM’s national survey of manufacturers at the end of 2008, several manufacturing sectors may be poised for growth this year. They include petroleum and coal products, electrical equipment, appliances and components, printing and support activities, food, beverage and tobacco products, apparel, leather and allied products and chemicals.

Industries that could be subject to declines this year include primary metals, nonmetallic mineral products, fabricated metal products, textile mills, computer and electronic products, machinery, paper products, furniture, transportation equipments and plastics and rubber components.

The diverse range of manufacturers in the Milwaukee area could help the overall manufacturing sector weather the current recession, many experts say.

“One sector that has grown in size and done well in recent years has been the mining industry,” said Bret Mayborne, economic research director with the Metropolitan Milwaukee Association of Commerce. “The two largest companies in that sector – Joy Global Inc. and Bucyrus International Inc. – and their suppliers will probably benefit from the current environment.”

Mayborne believes that the mining equipment sector has strong prospects for at least 2009 and 2010.

Detroit blues

Any company that is exposed to the auto industry will have “a tough row to hoe” in 2009, Mayborne said, but some companies who sell to automotive but have a diversified customer base could see some growth.

“When you see a company like Johnson Controls Inc., they’re heavy in auto, but they’re also heavy in green technologies,” Mayborne said. “And on the auto side, they’re becoming more invested in battery technology, and in the intermediate to long run that should be a technology that benefits them.”

Similarly, companies such as Badger Meter Inc., which makes water meters and other municipal metering devices, could benefit from an increase in popularity in green technologies or conservation efforts, Mayborne said.

Like auto-related companies, Milwaukee’s Harley-Davidson Inc. may face a difficult road in 2009, Mayborne said, largely because they fall into the category of near-luxury or non-essential items.

“In some sense, during times like this, consumers are cautious, especially on higher-ticket items, with household balance sheets not looking so good now or job prospects or job opportunities looking so good,” Mayborne said. “It’s hard to read. (Harley is) not as affected as auto has been, but I think there will be some downside for them in the current environment.”

The Obama factor

Milwaukee-area manufacturers and many of their peers around the country could see increased business this year if the Obama administration passes an economic stimulus package that focuses on the nation’s infrastructure.

“If they (the administration) decide to invest heavily in bridges, schools and other infrastructure, heavy equipment manufacturers stand to benefit from that,” said Charlene Yauch, an associate professor in the industrial engineering program at the Milwaukee School of Engineering. “But if they decide to do more of a tax incentive where taxes go into consumer pockets, that’s iffy if it will have an impact on manufacturers or not.”

A weaker dollar gave some Milwaukee-area manufactures an advantage in exporting their products to markets across the globe in early to mid-2008. Because the current economic slowdown has spread to much of the rest of the world, the dollar has risen, which has complicated markets for some exporters.

“A rising dollar definitely is a problem,” said Paul Churchill, director of the Milwaukee Export Assistance Center, U.S. Commercial Service. “When it goes up, it is harder for companies to get into the marketplace.”

However, many Milwaukee companies are still interested in exporting, Churchill said. Several companies have asked his office to help them find new connections in South and Central America.

“If you look at Mexico now, they have a tremendous need for infrastructure,” he said. “And when you look at environmental, there is a tremendous need in all of the Americas for environmental companies looking to provide solutions to many problems. I go where the interest is, and there is interest in South and Central America and Mexico, and some definite opportunities.”

China has been a popular import and export market for the last decade, but the current economic slowdown has caused plant closings and layoffs there, which has helped lower commodity prices for manufacturers that are still busy.

“There’s no question – they are going to be making the supply easier to get and placing a downward price on steel and components,” said Mike Grimm, president of the Milwaukee chapter of the Institute of Supply Management. “Those (manufacturers) that are busy should get good steel pricing this year. I think the low prices should keep the Chinese exports out.”

Grimm is also materials manager with RES Manufacturing, a Milwaukee-based steel industrial stamper that serves the automotive and other markets.

“Automotive is having a tough time now, both the domestics and new domestics,” Grimm said. “I’m not sure how that will all shake out.” 

Biz Poll

Given the state of the economy, will you be cutting back on your charitable giving in 2009?

Yes    57 percent

No    43 percent

Do you believe the federal government’s bailout of the financial services industry was needed?

Yes    34 percent

No    66 percent

* Poll of readers at

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