Tough year ahead?

By Staff -- Industrial Distribution, 2/1/2001

A slowdown in manufacturing that began last year will continue into the first half of 2001, though economists are looking for a stronger second half of the year.

As 2000 came to an end, the situation was causing many distributors-including those in the power transmission industry-to look with a cautious eye toward the future.

According to the Power Transmission Distributors Assn.'s Market Outlook Report, U.S. distributors' confidence was down slightly to 5.8 in October. The index measures confidence on a scale of one to 10-one meaning "very pessimistic" and 10 meaning "outstanding." U.S. distributors' confidence had remained between six and 6.7 for much of the year, with the exception of April when it slipped to 5.1. The Market Outlook Report is compiled each month by PTDA and tracks sales, accounts receivable, and inventory turn levels for distributors and manufacturers in the U.S. and Canada.

Despite the slowdown in manufacturing, economists at the National Assn. of Purchasing Management expect the economic growth cycle of the last several years to continue. That's due mainly to continued strength in the non-manufacturing sector. NAPM surveyed more than 300 purchasing managers across the country for its 60th Semiannual Economic Forecast, released in December.

Still, it's the manufacturing sector that has many distributors concerned. Just 66 percent of NAPM's manufacturing respondents expect 2001 revenues to be greater than 2000. That is a significant decline compared to last year, when 82 percent of respondents anticipated 2000 revenues to be higher than those of 1999.

According to NAPM, manufacturing industries expecting the greatest improvement over 2000 are: electronic components and equipment; chemicals; instruments and photographic equipment; industrial and commercial equipment and computers; rubber and plastic products; furniture; food; printing and publishing; tobacco; and miscellaneous.

"Manufacturing purchasers are less than bullish about their organizations' prospects for 2000," said Norbert J. Ore, chairman of the NAPM Manufacturing Business Survey Committee and vice president of purchasing and strategic alliances at Chesapeake Display & Packaging.

"Contrary to last year at this time, when Y2K was the major worry, purchasers are now facing higher interest rates, higher energy costs, a stronger dollar, slower growth in the U.S. and Europe, excess capacity in the basic materials segment, more foreign competition, and inflation," he said. "2001 will definitely be a challenge as far as the manufacturing sector is concerned."

In addition, purchasers responding to this year's NAPM survey reported operating at 82.2 percent of their normal capacity, down from the 85.4 percent reported in December 1999. Respondents' major concerns are energy costs, a weak economy, labor and benefit costs, interest rates, and inflation, NAPM reported.

While the year ahead may not be a booming one, many power transmission distributors are coming off of a solid 2000. Through October, year-to-date sales had increased between 6.7 and 8.2 percent each month, as compared to 1999.

U.S. manufacturers reported solid gains over 1999 as well last year, though the increases steadily declined as the year wore on. Year-to-date sales were up as high as 12 percent last March, but hovered around seven percent through the summer and fall. Manufacturers' confidence registered 5.9 in October, according to the PTDA report.