Flat = Good

I distinctly remember standing in line at a Starbucks counter in the Las Vegas Convention Center at FABTECH® 2008. CNN was on the TV, and the anchorman was reporting on the negative performance of some key economic indicators. A gentleman in a tie looked back at me and said, “The media just wants to drag us into a recession.”

I’m not sure how much that particular CNN personality was responsible for the Great Recession, but he certainly was right about impending economic woes. I wonder what the guy in the suit thinks about the current economic situation in the U.S.

He’s probably confused like the rest of us. The international economy is in the dumps and doesn’t look like it will bounce back anytime soon. The U.S. dollar is growing in strength, which hurts domestic companies looking to export. The domestic oil and gas sector has collapsed as prices have been driven down by oversupply to a market that was already undergoing decreased demand. Farmers are seeing low prices for their crops, so they aren’t buying new equipment. The demand for heavy equipment is down as mining efforts have slowed with the global economic slowdown and as commercial construction has yet to take off as many expected it to by now.

Depressed yet? Frankly, most fabricators don’t feel that way. In the lastest “Forming & Fabricating Job Shop Consumption Report” for the third quarter (which you can download for free here), 26 percent of the fabricators surveyed said that new-order activity is expanding, and 46 percent reported it was stable. In a recent conversation I had with Jim Sjoberg, vice president, Sjoberg Tool & Manufacturing Corp., Hartland, Wis., he mentioned that he is confident that work from core customers will be stable in 2016. The “fringe work,” the jobs that aren’t as regular and many times are off the radar screen until they appear with a sudden job order, is getting more competitive, he said. As a lot of the heavy fabrication work dries up in the Fox Valley region of northern Wisconsin, more job shops in that area have begun to bid more aggressively for the fabricating jobs that are left, which can mean the difference between year-over-year growth and a flat year for revenue, according to Sjoberg.

Having said that, Sjoberg said he was “cautiously optimistic” for 2016. Why should I argue with him?

Metal fabricators have worked hard to diversify their customer base so they aren’t solely reliant on customers tied to one industry—which is a recipe for economic tumult and sleepless nights. The diversification has brought stability as, hopefully, one industry’s slumps are balanced out with another industry’s expansions.

While the global economy still has a ways to go before completely rebounding, the U.S. manufacturing economy looks to be OK. The latest ISM report delivered a rather tepid 50.1 PMI, which indicates that the manufacturing economy is barely expanding. (Anything above 50 represents expansion; anything below it represents retraction.) However, that same report noted that the inventories of manufacturers’ customers had fallen by 3.5 points to 51, which means these folks need more goods. Coupled with the increases in consumer spending for the fourth quarter, the U.S. economy should have positive momentum heading into 2016.

Of course, 2016 could be flat for many manufacturers. But in today’s uncertain world, that’s good.