A Tale of Two Economies

Manufacturing Soars as Residential and Financial Markets Plummet

Dan HebertyBy Dan Hebert, PE, Senior Technical Editor

It’s the best of times and the worst of times for the economy. If you work in the industrial and manufacturing sector, things seldom have been better. If you work in finance or residential real estate, things rarely have been worse.

It’s hard to remember a time when there were so many negative opinions about a growing economy, not only in the media but among the general populace. It might be because our part of the economy, the booming manufacturing sector, is invisible to many. On the other hand, weakness in the high-profile residential housing and financial sectors is always front and center as low home and stock prices directly affect the net worth of billions of individuals.

A second factor that makes things seem worse than they are is that growth is stronger in developing nations, while relatively weaker—but still positive—in the developed world. The developed world’s media dominates, so a skewed vision arises. The facts, however, simply don’t support the widespread negativity.

In terms of economic growth, 2002 to 2006 was the world’s best five-year period since World War II. Growth in 2007 was also strong at around 4%. The International Monetary Fund recently released a revised economic forecast saying that world economic output will expand by 4.1% in 2008 and by just under 4% in 2009.

The industrial, manufacturing, and commodity sectors are booming worldwide. There are a few isolated pockets of weakness, most notably in the segment of the auto industry that makes big cars and trucks, but in general business is strong.

If you work in a developed country, it is likely that exports are strong. In 2007, the U.S. exported about $1 trillion worth of goods, up 39% from 2002. The National Association of Manufacturers estimates U.S. exports will hit $1.1 trillion this year.

The path is clear for machine and robot builders. Seek out export markets, especially to fast-growing developing countries. From a recent article in The Wall Street Journal, here’s a perfect example of how a U.S.–based OEM is doing just that. Crane maker Manitowoc exports worldwide from its manufacturing base in Manitowoc, Wis. “With demand for cranes red hot, the company has no incentive to offer discounts,” says the article. “Last year, Manitowoc saw sales grow 37% to $4 billion. The company recently reported its backlog of crane orders had climbed to $3.3 billion, up 72% from last year.”

Across the Pacific, growth in machinery sales also is strong. The China Economic News Service says Taiwan exported $8.2 billion worth of machinery in the first half of this year, up 13% from last year.

Strong exports help OEMs that sell overseas, but perhaps a bigger market for OEMs is selling to manufacturers benefiting from the export boom.

In the first half of 2008, Charlotte, N.C.-based steel maker Nucor saw earnings increase 36% compared to last year. To meet soaring demand, much of it due to exports, Nucor is planning a $2 billion facility in St. James Parish, La. Now when a big steel maker builds a new plant, it is filled with machines. But strong demand for basic commodities and for energy also has a direct favorable impact on these OEMs.

Kem-Tron Technologies in Stafford, Texas, sells solids-separation equipment such as shakers, centrifuges, de-watering units and integrated solids control units. “The oil and gas exploration markets related to our core products is very strong,” says Lee Hilpert, vice president of manufacturing and engineering at Kem-Tron.

“Our business is experiencing exponential growth, and we’ll end this year with sales up more than 50%,” he says. “In conjunction with a 30% sales increase last year, this equates to a 100% increase in sales during the period 2006-2008. Finding qualified personnel to fill new positions is challenging. The Houston-area manufacturing segment is running at capacity.”

Fortunately for Machine Builder Nation, weakness in finance and residential real estate is not having much of a negative effect on manufacturing. In fact, during the last few years there has been a noted divergence in the two economies of making stuff vs. moving money around.