Too lean to cut

March 9, 2009
By: Tim Heston

From what shop owners tell me, the metal fabrication sector has had quite a ride during the past few months. It's hard to believe that in October at the FABTECH® International & AWS Welding Show, shop managers told me stories of strong business that, though not as good as in 2007, still had enough orders to keep machines humming on the floor. They told me largely the same story in November too.

Then December happened.

The powers that be in Washington are pushing for a global stimulus for a reason: There"s nowhere to hide. Mexican manufacturing is still contracting, as is China"s (though a stimulus bill there may be helping matters). The U.S. seems to be dragging the world down with itnot a good thing. This time it"s not about jobs going to Mexico, China, or other BRIC countries. It"s about demand just drying up completely, because credit-starved consumers simply can"t go to Home Depot and fill their shopping carts anymore.

But a front-page story in today"s Wall Street Journal gave credence to a hunch I had last year that this recession would be different. First a disclaimer: I was dead wrong on most counts; I misjudged the extent to which the credit crisis would snowball into a global economic downturn. (Though seeing how most of the talking heads on TV missed this one too, I don"t feel too bad.) But on one point I may have been nearer to the mark.

News of factory layoffs can skew the big-picture view. Sure, automotive is struggling like never before. But considering just how dramatically consumer demand has fallen puts those manufacturing job losses in another light. According to today"s Journal, by February14 months into the current downturnmanufacturing had cut 9.4 percent of its work force, slightly less than the 9.5 percent manufacturing had cut 14 months into the last downturn earlier this decade. The drop in production and orders, however, has been much worse this time around, the article said, indicating that companies have sought ways to cut back other than simply shedding workers. As of January, the latest figures available, U.S. manufacturers cut production 12.8 percent since the start of this recession, compared to just 2.6 percent at the same point after the last recession began.

That backs up many shop owners" experiences. Many have cut hours, but most can"t afford to let certain skilled workers walk out the door. The shop floor is lean, batch part flow has gone the way of the dodo, and each worker contributes more than ever to the bottom line. The Journal profiled a division of Parker Hannifin in Spartanburg, S.C., in which each plant employee represents around $200,000 in sales. Some of our readers quote even higher numbers for their workers.

Today manufacturers are idling at an economic red light, hoping they don"t run out of gas. But being so efficient, manufacturers get a lot of miles to the gallon, so they can run on fumes for a long time. With so few producing so much, U.S. manufacturing is poised to compete globally like never before once the economy rebounds.

Tim Heston

Tim Heston

Senior Editor
FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-381-1314