Manufacturing is on the uptick and it bodes well for the coatings industry. But what comes next, consumer confidence or a measurable rebound in the economy?
I see the manufacturing landscape like a rumbling volcano—an undeniable presence but no one knows exactly what to expect or when to expect it. Look to the news and you see a straining industry expected to fill the air, the pages and the Internet with fresh 24/7 content. What you find is enough hyperbole, skepticism and negativity to fill a gray 40-yard dumpster. I’m cautiously optimistic. What I see is enough darts being thrown at the target that one of them is bound to hit the bullseye very soon. Therefore, the imperative is to be prepared for the right outcome.
Perhaps because it was hammered the most in this last recession, manufacturing could begin to roar back with a vengeance—attempting to service vast pent-up demand. In fact, January 2012 was its best month of growth in five years, and increased factory output is raising demand in other industries—coatings will likely feel the pull of the chain. Consider the spillover of wide-reaching trends revealing early in 2012. Could any one of them have an impact on you or your customers?
In the marketplace
- Consumer confidence increased for a fourth straight week to reach the highest level in a year as more households believe the economy is improving
- GM posted record profits in 2011 ($7.6 billion)—the biggest profits in its 103 year history—62 percent higher than the previous year’s
On the manufacturing front
- In some pockets, manufacturing has expanded at the fastest pace in four months as orders and sales picked up
- Insourcing makes the front pages as Master Lock moves factory jobs to the U.S. from China—about 100 so far—to a unionized factory in Milwaukee
- Washington reports, “billions have been invested to incentivize clean energy in the U.S.”
Coatings Industry
- Coatings demand will benefit from improved outlook for building construction and manufacturing activity in the U.S.
- Global demand for paint and coatings is forecast to rise 5.4 percent per year to 2015
- Prediction: North America will see above-average gains in demand for paints and coatings—rebounding strongly
“The development and deployment of clean energy production [alone] has the potential to both sustain existing [U.S.] manufacturing jobs and create millions of new employment opportunities.”
Emotional Rescue
“Americans are thought to respond more emotionally to a rebound in manufacturing than in [any] other sector.” A perception that U.S. manufacturing is healthy again could boost confidence in the economy. Finance professor Jeffrey Bergstrand of Notre Dame suggests there is a strong emotional connection to manufacturing in this country. “It reminds us of the period of the greatest growth we had in the U.S. economy. It’s an association with the boom in the middle class [when] they were all sharing in that economic boom”
The bet is in, and in an election year, faster job creation comes first. The confidence it instills will then drive bigger increases in consumer spending, which will propel manufacturing and demand for quality coatings. I warned you I was optimistic.
Color this one brighter
With the high demand for American jobs (unemployment) now in the sunlight of such encouraging economic trends [the supply chain] could ultimately see more manufacturers bring more production back to the states.
Offshoring is increasingly problematic and profit margins could have eroded to more slippery slopes. In a 2011 report entitled Taming The Inflation Dragon, the Hackett Group explained, “most forecasts expect inflation in both India and China to be about 10 percent by the end of 2011. With both inflation and local wage costs on the increase, there is concern that the sums may no longer add up for offshoring and that the low-cost bubble could be about to burst.” There’s more.
Deteriorating international trade agreements, rising energy cost, climate change, tax incentives, questionable labor practices, transportation cost; and (let me add just for fun) even a resurgence of pesky maritime pirates create very real obstacles to continued expansion of off-shore operations.
“Deciding that if the cost of doing business [in the U.S.] isn’t too much different than the cost of doing business in places like China, then why wouldn’t you rather do it right here in the United States of America”
—President Obama (referring to the Master Lock story)
Hence the dartboard metaphor. I believe there’s enough interest from almost every front to shake things up and make “it” happen again. With so much at stake for the country I don’t think I’m being overly optimistic to believe a tipping point is quite conceivable in the very near future.
INSIGHT:
What’s happening is the dartboard is filling up with arrows of doubt and squeezing out the status quo of the past four years (in spite of the media mongers). Throughout the nightmare of this past recession we’ve wondered what would see the light first, confidence or results? If only for the perception that U.S. manufacturing is growing again, the rest of the country will freely act on that confidence. We don’t have to know exactly what will ultimately tip the scales in our favor. We just have to believe a game shot is within throw.
I welcome your comments, questions or more discussion.
Sources:
1. Newsvine/Associated Press/Christopher Rugaber
2. CPO Agenda
3. CNN
4. Hackett Group/”Taming The Inflation Dragon”