Newton, Mass. — There's life in the industrial economy yet, according to regional distributors. While many agree they have never seen the economy go south so quickly, they had economic plans in place for the most part that saved money and jobs.

Financial statements of publicly held distributors for the quarter ending March 31, 2002 were mixed, but mostly down from the same period last year. Applied Industrial Technologies was down $47.3 million on net sales of $408.83 million. Barnes Distribution, part of The Barnes Group, reported sales down $5.1 million, to $194.2 million.

Other first-quarter results, however, varied widely. According to a manufacturing analyst at Cap Gemini Ernst & Young, the prevailing attitude is "very guarded optimism," with manufacturers and their supply chain members spending less on projects and spreading out the work over longer periods.

"The market is not coming back as quickly as everyone had hoped," said Rob Jorgenson, vice president of manufacturing practices at Cap Gemini. "In the first quarter, some numbers are up but we saw people taking lesser margins while filling orders for pent-up demand. Our clients are still cautious about the way they spend money."

The National Assn. of Manufacturers notes that a "mild uptick in March" of new manufacturing orders suggests recovery will be slow, but inevitable.

"The good news...is that manufacturing new orders have been positive every month in the first quarter — a clear sign of a recovery," said Jerry Jasinowski, president of NAM. However, he noted that the rate of increase slowed from February to March.

Also, wholesale inventories in March remained virtually unchanged from the month before, according to the Department of Commerce, who said it is another sign of uncertainty but not pessimism.

In its May meeting, the Federal Reserve Board said "economic recovery remains uncertain" and left interest rates at a 40-year low.

"Risks to the economy remain balanced between weakness and inflation," the Fed said.

In the manufacturing arena, productivity jumped 8.6 percent in April. However, much of the jump was attributed to fewer workers performing more tasks, as unemployment was also high, at 6.0 percent.

What does it mean for distributors?

Hank Turner, president of Empire Machinery in Norfolk, Va., said sales for the first third of 2002 have been only fair. He agrees with an economic diagnosis of mixed, slow growth over the coming six months.

"We had a record January, but a flat February and only slightly better March. April proved to be flat," he said. "In our region, we have some new major contracts but also customers moving out. Some new business seems to be moving in. It's a definite mix, depending on who you talk to."

Empire's major market segment is private and government shipbuilding and MRO products to the shops that support them.

"We were working on a five year plan for the company, getting to working leaner and tracking [expenses], when things went bad last year, so we were in a very good position to weather a severe economic downturn," he said.

Around the nation, associates tell Turner that business is down 15 to 30 percent and has not started back up, but like Turner, they are optimistic about a turnaround by the end of the third quarter, he added.

In the Midwest, Shively Bros., Inc. of Flint, Mich., does almost all its business supplying abrasives, indexable inserts and round cutting tools to various tiers of automotive suppliers, according to president Scott Shively. The volume of incoming orders has picked up since the first of the year, he said.

"Overall, we're even with last year to date," Shively said. "We have been pleasantly surprised by production schedule increases, particularly in truck-related volumes. Still, some areas are picking up and some are down from last year."

Weathering the downturn for Shively included managing inventory, a process he follows rigidly in all economic times, and activity based costing procedures. But as with so many other distributors, how soon and how far back the economy will turn for the better is a spotty problem.

"When I talk to my business friends across the country, I get different responses," he said. "Most feel the economy is picking up, but not all have seen that translate into increased business."

Shively has a separate business for integrated supply, another way in which he has diversified the company.

"We have grown from being a key-line niche focused distributor to providing total-cost reduction solutions..." he said.

According to Michael Smith, owner of Smith Fasteners, a master wholesaler, most distributors in his region are "cautiously optimistic." Located in northern New Jersey, his territory runs from New York to Virginia.

"Things are turning but you can't put a finger on an exact market segment or time frame," Smith said. "Heavy construction is the one booming area that probably won't stall at all, but others are still very spotty."

One industry that dropped considerably and is struggling to come back is telecommunications, he said.

"It's part of an overall problem affecting everyone, especially consumer product manufacturers — consumer confidence. It's way down due to a lot of factors, including [the Sept. 11 attacks]," he said.

Smith is optimistic about a turnaround happening this year in electronics, military, and structural sectors of industrial production, but exactly where and when is hard to say. At a recent trade show, two people from the same company gave him far different sales forecasts for their company, he said.

"Distributors have to watch their overhead, number one, and stay diversified," Smith added. "The more diversified the distributor, the better he weathered the downturn and the better equipped he will be to fill orders when they do start coming."