Economy still plaguing most metal fabricators

5th annual Fabricating Update survey results

By Vicki Bell

January 12, 2010

The economy continues to weigh on the metal fabricating industry, but many "Fabricating Update" subscribers who responded to the annual business concerns survey reported improving conditions. Some said the recession has had minimal or no effect on their businesses, but some are barely hanging on or have closed up shop.

Figure 1
Results From December 2009 "Fabricating Update" Survey

A new year and decade have dawned, but for metal fabricators, the typical sayings for a new year's arrival don't apply. Forget "out with the old and in with the new," or even "good riddance." Perhaps the most appropriate cliché (paraphrased) is "new year, same old stuff," as the economy once again ranked as No. 1 among fabricators' concerns in the 5th annual "Fabricating Update" newsletter survey.

At the beginning of 2009, metal fabricators reported that the economy was their No. 1 business concern, and steel prices — a previous No. 1 that was edged out of the top spot by the economy in 2008 — was a very distant second.

In the latest survey, 75 percent of respondents (Figure 1) reported that the economy is their No. 1 concern. Only 5 percent chose steel prices, and the remaining 20 percent were divided among a list of factors, including credit crunch/interest rates, skilled labor shortage, materials availability, unfair trade and tax policies, health care costs, energy prices, foreign competition, and overvalued dollar/undervalued foreign currencies.

This survey also asked newsletter subscribers to name their No. 2 concern. Eighteen percent selected the economy. Some chose the economy for both No. 1 and No. 2, which only reinforces the magnitude of this concern.

Seventeen percent said that health care costs are their No. 2 concern, followed by steel prices (13 percent), credit crunch/interest rates (13 percent), skilled labor shortage (9 percent), materials availability (7 percent), unfair trade and tax policies (7 percent), foreign competition (7 percent), overvalued dollar/undervalued foreign currencies (4 percent), other (4 percent), and energy prices (1 percent).

Some See Conditions Improving

Figure 2
Results From December 2009 "Fabricating Update" Survey

How has the recession affected metal fabricators? Responding to the survey question about business conditions as of December 2009, 41 percent reported that their companies had bottomed out and business is picking up (Figure 2). Among them is a fabricator who said, "Yes, conditions seem to be improving. I have seen a steady increase in the orders our customers have placed in the last six months."

Also in this category is a fabricator from Wisconsin, who said that although business is picking up, customers are demanding price concessions as they reduce their supplier bases. "Maintaining margins will be a major challenge."

A survey respondent from an Illinois-based precision machining, tube cutting, and metal forming company that is experiencing a pickup in business is worried about retaining his skilled workers. "It is difficult to keep good help if you cannot afford to give them good benefits. The increases again in health care costs make this difficult to do."

Sixteen percent of respondents said business continues to decline, but they expect conditions to improve soon. Among them is the quality manager of a Texas-based company that produces specialized metal products, who shared his thoughts about health care: "If this new health care plan goes forward, our company will hurt from the taxes assessed on us."

Some Barely Hanging On

Fifteen percent said their businesses have bottomed out and are barely hanging on. In this group is a respondent from a company that makes small appliances. He believes, "Our politicians are doing nothing to stop and lower the taxes on small and medium businesses. They created this mess and still are making it worse."

A fabricator of fire protection sprinkler systems whose company is barely alive said, "We're seeing the change the majority voted for. L.O.L. to all of us."

The metal stamping industry has suffered as much as any in the recession as reflected by these comments from a toolmaker: "New metal stamping tooling built in this country has been declining for years and still is with no signs of improvement that we can see."

Down and Out

Less than 1 percent of survey respondents said their companies had closed up shop. Among those closed are a tool and die engineering group and a construction firm.

Suffering Little If Any

A full 15 percent reported that their companies have suffered minimally or not at all from the recession. These companies range from one-man welding shops to global operations. Some have remained relatively recessionproof because of the markets they serve: aerospace, defense, energy, medical, and infrastructure.

A subscriber whose company builds pumps for the energy sector said, "We have almost a two-year backlog, which we are working very hard to deliver." This subscriber's main business concerns were skilled labor and materials availability. However, 57 percent of this group cited the economy as their No. 1 concern. Runners-up at 16 percent each were steel prices and skilled labor.

A respondent who works for a manufacturer of water and waste treatment equipment said 2009 was one of the best in 20 years for his company. His main concerns were steel prices and materials availability.

A Northwest shop that works on Department of Transportation, marine, and structural steel projects has suffered minimally, but one of its workers chose health care costs and the economy as his top two business concerns. He said, "The economy is bad enough, but competitors seem to be bidding at cost or below to keep their existing employees. Costs seem to still be rising; our health insurance just went up 20 percent and our shop rates down 27 percent. How do you stay afloat like that? The proposed health care plan is not going to make it any better."

Automakers Not Suffering?

What may be most surprising about the survey is that two respondents who said that their businesses had been affected minimally or not at all by the recession work for automakers — Hyundai and General Motors.

It appears that the stimulus money and Cash for Clunkers program may have had a positive effect on the industry, but thousands of autoworkers and industry suppliers who've lost their jobs, along with U.S. taxpayers who are footing the bailout bill, might take issue with the GM employee's response. Perhaps this individual believes that factors other than the economy contributed to GM's woes that led to plant closings and brand elimination. In one respect, he's right. Many factors contributed to GM's filing for bankruptcy, but an economy that decreased an already shrinking customer base certainly didn't help matters.

Thoughts on the Economy

It's safe to say that the economy is uppermost on the minds of most Americans, even those who remain employed at a time when unemployment has reached double digits. Theories about why the U.S. is in its current economic slump abound, as do ideas about how to improve the situation.

A survey respondent who works for a Pennsylvania-based fabricating shop and reported that the economy is his No. 1 concern said, "Until we vote this administration out, we will see little real improvement. Capitalists don't respond well to Washington's Marxist doctrines. We were looking into the precipice on the eve of the election in 2009. We are now sliding into a dark hole, one of which we may never come out of again. The American people need to vote the elite Washington crowd out of office and start over again. We can't do any worse than what we have now.

"I have been in metalworking since 1965 and I have never, nor have my associates, seen things as screwed up as they are — national debt that can't be paid off without raising taxes. They never cut spending. [The debt] can only be repaid with higher taxes, and higher taxes never help anyone. Where is Ronnie Reagan when you need him?"