Conveyors & Sorters: Weather report for the economy

By Bob Trebilcock, Executive Editor
March 11, 2012 - MMH Editorial

If you’re like me, you’re probably looking at the unemployment rate, the stock market, the price of gasoline and March Madness for clues on what’s next for the economy. Okay, you’re probably not like me, since I obsess over this stuff. I’m told there’s a Twelve Step Program for news junkies.

According to Alan Beaulieu, a principal and economist with Industry Trends Research, a research and forecasting firm in Concord, New Hampshire, things look pretty good for the next 12 to 18 months. Expect industrial production to increase by 4.3% in 2012.  Expect GDP to expand by about 2.3% in 2012 before slowing to 1.8% in 2013. That declining rate of growth will lead to a mild recession beginning in late 2013, followed by a three-year period of growth beginning in 2015. 

What might that mean for your business? As Beualieu likes to say, I’ll give you the takeaway now so you don’t have to read all the way to the end. If your business is strong, it’s time to move from a cost-cutting mentality and to make investments that will allow you to take market share now and keep you going through 2014. “If there are bottlenecks in your processes or if you have capacity problems, now is the time to fix them,” Beaulieu said.

The other important takeaway: Beaulieu does not expect $5.00 a gallon gasoline. Yes, the price has spiked, driven in part by the Arab Spring and uncertainty over Iran, but the supply and demand of gasoline is in balance. Moreover, Beaulieu believes the major oil producing nations will increase production rather than risk a global slowdown if Iran does spin out of control. Five buck gasoline doesn’t really benefit anyone.

Beaulieu delivered his outlook at the annual meeting of the Conveyor Equipment Manufacturers Association, or CEMA, in Miami on Saturday. Attendance at the CEMA meeting is certainly a reflection of how things are going - for both the economy and the conveyor industry, which is posting tremendous growth: The meeting is packed.

Although it is an election year, Beaulieu gave what he described as a non-partisan view of the global economy, which means that he had something to cheer – and depress – supporters of the President and the Republican contenders.

For my Democratic readers:  Between economic expansion and rising employment, the wind is in the sails, which gives Obama a better than 50% chance of getting re-elected if there are no hiccups. That isn’t to say that Beaulieu gives the White House credit for jobs growth. “Our businesses are right-sized. The labor cost per unit of production stayed the same or went down in the US while its going up in China and we are exporting again,” he said. But a rising tide could raise Democratic boats.

For my Republican readers: Long-term, the country has huge problems if we don’t get control of spending. Beaulieu attributes those to spending on Social Security, Medicare and Medicaid benefits that are unsustainable and will explode in 2030. That isn’t to say he thinks a Republican president can solve the problem: “Only Congress can make those changes,” he said.

And for my readers who tune out both parties, Beaulieu had two points to make. Don’t believe any candidate who tells you he can deliver $2.50 a gallon gasoline or create jobs. “There is no button in DC that a president can push to create jobs,” he said. Or lower the price of gasoline, for that matter. 

What’s going right:

Leading indicators are up ….
Liquidity is no longer an issue ….
Exports are up …..
We have a stimulative monetary policy ….
Employment is rising ….
Banks are lending ….
Retail sales are weaker than they should be, but we had a normal seasonal rise in retail sales

“Ours is the economy to bet on,” Beaulieu said. “Will it be booming like China? No. But it will be stable and solid.”

What could go wrong?

Europe looks like it’s getting its act together, but it could still blow up ….
China’s housing/inflation bubble could burst, just like our burst in 2007 ….
Either, or both, of those could spark an international banking crisis like the one we experienced in 2008 ….
Oil prices could spike if tensions with Iran boil over ….
The US dollar loses all credibility ….

As part of his presentation, Beaulieu offered an observation in favor of investing now that I had never thought of. Most of us think that recessions put businesses out of business. Beaulieu argued that recoveries pull the plug on companies on life support. “Recoveries end weak companies,” he said.

What he meant is that weak companies cut and cut to survive the recession. But to take advantage of a recovery, they have to have equipment to make their product, inventory on their shelves and boots on the ground to service their customers. After all that cutting, weak companies don’t have the cash or a balance sheet that will allow them to borrow to take advantage of the recovery. “Without cash, you’ll lose ground,” he said.



About the Author

Bob Trebilcock
Executive Editor

Bob Trebilcock, executive editor, has covered materials handling, technology and supply chain topics for Modern Materials Handling since 1984. More recently, Trebilcock became editorial director of Supply Chain Management Review. A graduate of Bowling Green State University, Trebilcock lives in Keene, NH. He can be reached at 603-357-0484.


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About the Author

Bob Trebilcock, executive editor, has covered materials handling, technology and supply chain topics for Modern Materials Handling since 1984. A graduate of Bowling Green State University, Trebilcock lives in Keene, NH. Contact Bob Trebilcock.

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