The latest big-picture economic assessment is out, and the headlines don’t tell a pretty story. As measured by gross domestic output (GDP), the U.S. economy contracted slightly during the final quarter of 2012. A surprise? Yes, even for many economists. A reflection of the national mood at the end of last year, when the fiscal cliff was looming? Probably. A cause for panic? No, even for most people in manufacturing.
Granted, if you’ve delved into the details, or if you have a lot of defense-related work, you already know the story behind the story: The biggest driver was the steep reduction in defense spending during the last few months of 2012. According to the Bureau of Economic Analysis, defense spending dropped 22 percent in the October-December timeframe. If this is a big part of your business, you have my sympathy. It’s one thing for the federal government to try to get its financial house in order; it’s quite another to make sudden, drastic cuts that upend defense contractors’ businesses and throw a lot of people out of work.
However, if the rest numbers tell an accurate story, most manufacturers weren’t doing too badly at the end of 2012. Employment in manufacturing increased every month (from 11.951 million in September to 11.988 million in December). It also increased every month in the durable goods manufacturing subsector, growing from 7.472 in September to 7.503 in December. Among fabricators, it was up and down, but overall it grew, starting in 1.407 million and ending at 1.408 million.
Capacity utilization (equipment uptime), tracked by the Federal Reserve Board, was been steady among fabricators, never above or below 83 percent in the last three months. Further upstream, capacity utilization shot up among steel mills, going from 70.3 in October to 75.7 in December. A harbinger for the future? Maybe.
The PMI, tracked by the Institute for Supply Management, has been essentially steady, moving down one percentage point from October to December. Its production, prices, and employment indexes also showed little movement. Its inventories index decreased, but still indicated growth. It had a few offsetting indicators, notably its new orders index (it fell 4 points from October to November), which is why the PMI itself slipped by a point. Overall this is neither good nor bad news, but somewhere in the middle; the PMI has registered expansion in three of the last seven months, and contraction in four of the last seven months.
Let’s get back to the data on spending. Consumer expenditures on durable goods shot up 14 percent in 2012Q4; investments in equipment and software increased more than 12 percent; spending on residential construction increased 15 percent. Apparently these big increases in spending helped offset the big drop in federal defense spending.
How will it play out in the next few months? As always, the PMI’s new orders index is a guide.
Custom fabricating shops see all kinds of jobs, large and small. Flexibility is important. But when a small job results in multiple changes that require a revised quote and the customer isn’t happy, it might be better to let the job go. Yes, you need to please customers, but you also need to make money.
The FABRICATOR is North America's leading magazine for the metal forming and fabricating industry. The magazine delivers the news, technical articles, and case histories that enable fabricators to do their jobs more efficiently. The FABRICATOR has served the industry since 1971.