For just about all of us, 2008 has turned out to be a tough year. According to statistics posted on Manufacturing & Technology eJournal, three straight months of no growth have plummeted the manufacturing index to 26-year lows; and it hasn’t reached bottom yet.
“It appears that manufacturing is experiencing significant demand destruction as a result of recent events, with members indicating challenges associated with the financial crisis, interruptions from the gulf hurricane, and the lagging impact from higher oil prices,” Norbert Ore, chair of the Institute for Supply Management’s Business Survey Committee, told eJournal.
Adding insult to injury, contractions in the global economy have caused export orders to decrease after 70 consecutive months of growth. Manufacturers who were running at 78.6% capacity last April were operating at just 75.2% capacity by December.
While tough times are expected to continue into the first half of 2009, all is not doom and gloom. The sun should start to peek out within a few months. Manufacturers are already realizing a small boon from decreased commodity prices and lower fuel prices. They are guardedly optimistic that the manufacturing climate will begin to ease during the second half of 2009, particularly as credit improves. As the dollar strengthens, export orders are expected to return to normal strength. Adding another item to the plus column, Ore noted, “While 2008 has been a challenging year overall, we are apparently seeing a rapid halt to the inflationary cycle of the past several years as it relates to manufacturing inputs.”
ISM predicts a 1.1% net decrease in manufacturing revenue for 2009 which would actually be an improvement over the 2.2% decrease reported in 2008. While little to no growth is expected in most manufacturing sectors over the next year, most will stop losing ground. ISM actually expects small gains in some areas, including petroleum and coal products, electrical equipment, appliances and components, printing and related activities, food and beverage products, tobacco products, apparel and leather products and chemicals.
Manufacturers and other businesses are expected to hold their ground by decreasing capital expenditures, reducing inventories and downsizing workforces to decrease labor and benefit costs.
Next time: What it will take to succeed in 2009.