For a North American division of Norsk Hydro, a major global aluminum producer, business hasn’t been cheery since the summer.
“Like a lot of industries we’ve been on an 8- to 10-year growth period,” says Charles Straface, president of the $3 billion annual sales business unit that builds the “bones” of such products as trailers, trucks, cars, windows, and doors in more than 20 factories across North America. Last year, business was at a peak it hadn’t seen since 2006. This year things began to slow by 3% through July, which was still “pretty good.”
Now? “In the last two months we’re seeing pretty massive slowing,” Straface says.
Truck and trailer order rates are down between 50% and 70%. General distribution, a proxy for smaller machine shops and fabricators, is off by 4% to 7%. Automotive is down by 4%. The only question the business has is whether 2020 brings a 5% to 10% correction from a previous high or a 20% to 40% recession-type contraction. “I don’t know the answer to that,” Straface says.
Many manufacturers face similar questions. Some will pull through because they’ve been preparing for some time with innovation of technology and marketing strategies or have ridden industry rising industry trends. Others, though, might find the coming year difficult.
Crystal ball
There have been disquieting signs. The September jobs report showed a loss of 2,000 manufacturing jobs versus a gain of 18,000 at the same time last year. The Purchasing Managers Index (PMI), a manufacturing strength indicator from the Institute for Supply Management, dropped below 50 in August—a sign of industry contraction—and last month further fell to 47.8, the lowest number since 2009. Prices contracted for the fourth straight month. The result drove a nearly 500-point drop in the Dow.
A slowdown has been obvious on many factory floors. Curt Doherty, CEO of CNC Machines, a reseller of metal manufacturing equipment to manufacturers, previously told Fortune he saw a slow summer and only half of the fall sales uptick he normally expected. Things have continued along the same trend. “We’re having to get creative to land more deals than we used to,” he says.
Some things keep growing
There’s uncertainty for many companies and challenges in a global economy.
“More industrial manufacturing of certain large volume types of products [like construction and agricultural equipment] are slowing down,” says Jim Huber, COO and executive vice president of BHS, a St. Louis-based manufacturer of custom material handling equipment. But manufacturing for use in North America “for the moment continues to remain at a high level.”
Trade in China remains confusing. Donald Trump claimed victory in recent negotiations. However, China Daily, a news outlet of the country’s government, notes a breakthrough appears to have happened, “based on its past practice, there is always the possibility that Washington may decide to cancel the deal if it thinks that doing so will better serve its interests.” Companies can’t be sure of what their strategies should be.
“What we’ve been saying at the National Association of Manufacturers is manufacturers need more certainty,” says the organization’s chief economist, Dr. Chad Moutray. “We need the USMCA [NAFTA replacement] passed. Manufacturers are looking for a conclusion to the trade war with China. The other issue we’ve all been talking about is the export import bank and the need to get that fully functioning.”
General trends have buoyed the finances of some companies. Rapid growth of electronics in automobiles and of the Internet of Things means 85-year-old Chicago-based electronics manufacturer Morey expects 25% growth next year, according to president and COO George Whittier. But the situation in China has “added a bit [in cost]” that must be passed on to customers.
For many, though, market and industry trends alone haven’t been sufficiently sustaining and some serious rethinking is due.
Mother of invention
“If you’re only making one product and that’s all you do, you’re going to be affected more in a downturn,” says Mark Webb, CEO and owner of metal fabrication manufacturer Quikcut. He’s pushed to enter new markets and diversify his risk. “Some of those things are coming to fruition now. I look at it as an opportunity to grow in a declining market. It frees up resources to do things you otherwise wouldn’t do.”
The push for creativity, whether in making things better and more efficiently or locating new opportunities, has become critical to open new opportunities that—in theory at least—can surf over some big economic waves. But doing something different can be hard—and no guarantee that a company will weather the storm.
“Some of the older generations I’ve talked to, they don’t like change,” Doherty says. “I think it’s human nature and they want to stick to what they know. Unless they’re consciously making that push every year to learn the newest technology, they’re the ones that seem stuck on mentally what was working 20 years ago.”
Caldwell Manufacturing, which makes door and window hardware, also saw the August slowdown. “We will have a good year, but the last quarter is not going to be as on fire as what we felt for the last six or seven quarters,” says Gary Miller, COO of the Rochester, New York-based company.
Caldwell has invested in 3D printers for prototypes and short-run production as well as plant automation. “It allows us to redeploy our headcount [to higher skilled tasks],” Miller says. The investment should help with prospects for 2020. “We’re forecasting up slightly for the coming year, but we’re launching a lot of new products that we think will have a very good impact.”
But for Caldwell that still only means low single-digit growth. While that’s better than a significant drop, it doesn’t mean innovation alone will let manufacturers—or companies in any other industry—make an end run around big economic forces. There may not be a big new market, or even many little ones, to make up the difference.
The question for manufacturing in general is whether companies can wait out the calming of trade waters and if American consumer spending will continue to be 70% of GDP. If the public gets nervous and stops buying, expect a lot of idle time on the factory line.
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