Subpar. Subtrend. These are words economists use to forecast the U.S. economy's 2008 performance. Some even predict recession.

Despite these lackluster forecasts, companies in the materials handling industry—equipment suppliers, consultants and third-party logistics providers—expect business to be reasonably good in 2008. This means they expect your business will be good enough to need their products and services.

The U.S. economy will grow in 2008, but that growth will be slow, predicts Jim Haughey, an economist with Reed Business Information, Modern's parent company.

Haughey expects the gross domestic product (GDP) will grow 2.5 to 3% this year. Three percent is about average, he says. “But it doesn't generate big bonuses or capital plans.”

Jack Kleinhenz (216-321-9522, www.kleinhenzassociates.com), a Cleveland-based economic consultant and a member of the Governor of Ohio's Council of Economic Advisors, is also cautiously optimistic about this year's economy. Losses in residential construction and cutbacks in consumer spending, he says, should be offset by growth in business expenditures and exports.

“Overall, I don't see a recession,” says Kleinhenz. “A growth-cycle slowdown is what I would call it.”

His optimism comes with several caveats: 

• Consumer confidence is low, he says, so too much talk of a recession could become a self-fulfilling prophecy.
• Fallout from the crisis in the subprime mortgage industry could get worse and this could affect businesses' ability to borrow.
• We could have a rough winter and oil prices could go higher.

Any of these things, he says, could tip the balance toward recession.

How will these conditions affect your business?

If you're running a distribution center, says Haughey, expect volumes to increase 2 to 3% this year—a smaller increase than the 5 to 6% you've likely been seeing.

If you just built a new DC to service high-growth areas like Tampa, Miami, Phoenix or Las Vegas, you might be disappointed, he says. These areas were hit particularly hard by the downturn in the housing market, so consumers there will be watching their wallets.

If you're in the manufacturing industry, says Haughey, you'll probably see an increase in volumes this year, but not enough to justify adding new capacity. The manufacturing outlook is best for companies exporting their products outside the United States, thanks to the weak dollar and to strength in the world economy. The manufacturing outlook is worst, says Haughey, for companies in the U.S. auto industry.

The Materials Handling Industry of America expects U.S. consumption of materials handling equipment to contract about 5% in 2008. But consumption of materials handling equipment reached an all-time high of $26.8 billion in 2006, and will likely surpass $28 billion in 2007, so this should still be a big year for the materials handing industry, despite the contraction.

None of the suppliers Modern interviewed for this article gave gloomy projections for 2008.

Systems integrators Tompkins Associates (800-789-1257) and Fortna (800-367-8621) expect business to be as good in 2008 as it was in 2007.

Executives at Infor (866-244-5479), an enterprise software company with many manufacturing clients, say they expect IT spending to be relatively flat this year, with growth between 0 and 5%.

Equipment supplier Schaefer Systems (704-944-4500) reports a comfortable backlog of projects. “A lot of companies are upgrading and building new DCs,” says company vice president Klaus Wurm. The recent credit crunch, he adds, doesn't seem to be affecting corporate borrowers, and Schaefer's customers are securing the financing they need.

Perhaps the only exception to this relatively steady picture is the lift truck segment of the industry. Industrial Truck Association president Jim Malvaso (202-296-9880) says he expects final numbers from 2007 to show lift truck sales down 11 to 12%. The market might drop another 2% in 2008, he says.

With demand down, lead times for new trucks will probably shorten this year, says Malvaso. Whether prices will go down is uncertain. Manufacturers may want to lower prices to increase sales, but they may not be able to because many of their costs (e.g. steel, copper, imported components, transportation) are on the rise.

As for prices and lead times of other materials handling equipment, Peter Counihan, president of Fortna, doesn't expect any major changes this year.

“Lead times haven't been bad,” he says, “and (this) year will be about the same.” Equipment prices might go up, he says, but only enough to keep pace with inflation.

Counihan adds that the softness in the market may be enough to push weak companies out of business. So it's especially important now, he says, to ensure your equipment supplier will be around to provide future maintenance and support.

The White House has projected only a slight uptick in unemployment to 4.9% this year. With that relatively low unemployment rate, economist Jim Haughey characterizes the labor market as “on the tight side of average.”

Some areas of the country may experience spot labor shortages, says Haughey. In those more competitive markets, he says, the distribution center across the street could raise wages and lure away your experienced lift truck drivers. Most areas, however, won't feel that pressure.

If your facility is in a tight labor market, Don Firth (877-562-7678), president of JobsInLogistics.com, suggests posting job openings on the Internet. Historically, he says, companies have posted only supervisor-level warehouse positions online, but in the last six months, he's seen a surge of “aisle-way positions” posted at his site.

“We are seeing quite a phenomenon on the labor side,” he says, adding that between 20 and 50 people are applying for each job.

Firth also oversees the Web site JobsInManufacturing.com, where most postings are still for higher level positions, such as supervisors, engineers and maintenance personnel.

The third-party logistics (3PL) industry has been enjoying double-digit growth, but that pace is expected to slacken this year.

“Given the freight recession and the overall economic conditions, we're definitely scaling back our expectations for what the growth rates are going to be,” says Evan Armstrong, president of logistics consulting firm Armstrong & Associates (414-545-3838).

Armstrong predicts the U.S. 3PL industry will grow 7.5% in 2008, with international transportation management being the strongest segment of the market.

Slower growth may mean lower prices for 3PL services.

“For the end user in certain regions where there's excess storage capacity, you're going to see prices come down,” says Armstrong. “In the hot areas—like around ports—you might see pricing stabilize, but I wouldn't expect a dramatic drop.”

Slower growth in the 3PL industry also means fewer private equity firms will be buying up 3PLs for their investment portfolios, says Armstrong. That doesn't mean acquisition activity in the market will stop. Instead of private equity firms buying 3PLs, he says, 3PLs will probably buy each other.

These strategic acquisitions will be good for customers, he says, because they'll likely allow customers to get more services from a single supplier.

The sluggish economy, says Armstrong, may be good for the 3PL industry in another way: “What a slowing economy will do is force more companies to reduce costs, which means more of them might be interested in outsourcing.”