Manufacturers anticipate slower recovery for industry

Respondents to an annual survey of manufacturers expect the U.S. economy to grow at a modest 2 percent to 3 percent pace this year, while four out of 10 predict continued recession within their own industrial sectors, according to the National Association of Manufacturers.

"More than two-thirds of respondents expected earnings-per-share for the first half of 2002 to be 3 percent or below, confirming that manufacturing's emergence from prolonged recession will be slower than the rest of the economy," said NAM President Jerry Jasinowski in a press release.

"This trend, along with factors such as credit difficulties and the overvaluation of the U.S. dollar, led 70 percent to say they plan to preserve profits by aggressively cutting costs.

Public policy issues

"Not surprisingly, the top three public policy issues cited as priorities were tax relief (58 percent), health care (55 percent) and tort reform (35 percent)," Jasinowski added. "Unfortunately, most manufacturers are already so lean and mean that further economies will go well into the bone: reducing health care coverage, 401(k) matching programs, even considering moving production abroad. Congress should bear this in mind when considering burdensome new regulations or other legislation."

The survey corroborates the results of a separate poll of the NAM's board of directors.

"Cutting costs continues to be the preferred way of increasing profit margins," Jasinowski said, "followed closely by the introduction of new product lines and an even tighter embrace of Six Sigma or lean manufacturing."

Value of the dollar

While the Treasury Department has been dismissive of concerns about the high value of the dollar, urging companies to simply compete, Jasinowski cited a survey question that specifically asked if exporting companies' productivity efforts had been sufficient to offset the dollar's increased value.

Only 18 percent responded yes, while half "told us flatly that there's no way they can raise productivity enough to compensate for the fact that the dollar has risen by more than 30 percent in just a few short years," he said.

One respondent, with fewer than 250 employees, noted that his export sales were "virtually gone." More than 55 percent reported a negative impact from the dollar's value, either through lower exports or loss of domestic market share to imports.

Only 8 percent said the high dollar had had a positive impact by lowering costs. "The combined impact of a brutal recession and the overvalued dollar has left a lot of these poor companies rather shell-shocked," Jasinowski said.

More than 57 percent of respondents said their health care costs had risen by 20 percent or more over the past two years, and 65 percent predicted a further increase of at least 10 percent in 2002. A small manufacturer in Mississippi wrote plaintively that "Medical costs are killing us!" Another said it had been forced to drop health benefits for hourly workers.

Capital investment plans were also conservative, with 78 percent of respondents expecting to spend either less than last year or increase spending by no more 5 percent.

More than 60 percent predicted an increase of less than 2 percent in spending on other equipment.

Jasinowski noted, however, "The re-cently enacted stimulus bill should help improve the capital investment picture."

Just over 300 surveys were returned out of 2,000 sent randomly to NAM members, for a response rate of 15 percent.

About 31 percent of respondents had 50 employees or fewer; 43 percent had between 51 and 250 workers; 8 percent employed 251 to 500; 7 percent between 1,001 and 5,000; and 6 percent had more than 5,000 workers.

The National Association of Manu-facturers, with headquarters in Washing-ton, D.C., represents 14,000 members (including 10,000 small and mid-sized companies), and 350 member associations serving manufacturers and employees in every industrial sector and all 50 states.