Weathering the storm on Cape Ann

September 9, 2008
By: Tim Heston

The economy is looking like an intricate patchwork that"s still holding together, though with some seriously thread-bare areas. The housing and financial service sectors make up the brunt of those bare threads, while manufacturing continues to hold surprisingly strong, if you don"t include sectors like automotive and construction. Surprising everyone, factory orders increased 1.3 percent in July, much of it in support of the growing energy and agriculture sectors.

And though it"s really just a technicality, some are predicting the U.S. may not fall into an official recession, that is, two consecutive quarters of negative growth.

Of course, Bernard Savo probably doesn"t care about technicalities.

Savo owns Modern Heat in the coastal town of Gloucester, Mass., on Cape Ann, north of Cape Cod. I"m 66, I"ve been in the business since 1953, and I"ve never seen things as bad as they are now.

Modern Heat is proof that significant pockets of the American economy remain in a rut. The metal fabricator has a bank of Amada, TRUMPF, and older Di-Acro press brakes and a high-definition plasma cutting table with a shuttle system, among other machines. It"s safe to say that much of the equipment is having some serious downtime. Savo"s principal customer, which makes capital equipment for injection molding houses, has fallen on tough times, and so has Modern Heat.

Savo"s not alone. The company used to work with some 50 machine shops in the area that served the likes of Polaroid and Wang. The machine shops would mill and turn internal components, while Savo would take the sheet metal work. But since the OEMs have moved manufacturing elsewhere, most of the shops have shuttered their doors.

Savo has managed to keep his most valuable asset: his seven employees. Instead of laying off, he"s managed to keep most on the payroll part-time, and the state of Massachusetts, through a program called work-sharing, makes up half the balance. The workers work half-time but get paid as if they were on three-quarter time. It"s like receiving an unemployment check for those cut hours. It doesn"t add up to a full-time paycheck, but it helps.

The work-sharing program has really saved us, Savo said, who added that the worst thing he could do is lay off experienced talent.

Work-sharing isn"t a panacea. From a numbers standpoint, the program doesn"t save as much money as regular layoffs would, as Paul Osterman, a labor market economist at the Massachusetts Institute of Technology, explained to National Public Radio. The downside is that the costs don"t fall proportionately with the hours, he said. If you still have to maintain benefits and so on, two half-time people are still more expensive than one full-time person.

That"s an expense Savo said he"s willing to pay, because skilled labor is more valuable than ever. The business owner hopes to find new customers before the New England winter sets in.

My concern is, when it gets cold, these guys need to get [heating] oil in their tanks, and they need that extra money, he said. For now, we"re sucking it in to see if we can weather the storm.

Tim Heston

Tim Heston

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