It could be worse

Nobel Prize winning economist Paul Krugman said Monday, at a world capital markets conference, the worst of the global economic crisis is over but that full recovery is at least two years and more away. Nobel Prize winning economist Paul Krugman said Monday, at a world capital markets conference, the worst of the global economic crisis is over but that full recovery is at least two years and more away. He said the rapid rebound from the 1997-98 Asian financial crisis was due to a sharp rebound in exports. Showing the bright thinking that won him the Nobel, he said Asia will rebound faster led by recovery in manufacturing exports. Excuse me Mr. Krugman, exports to who if recovery for the rest of us will be two or more years in coming?

A measure of the global manufacturing economy's impact on the industrial laser market can be gained from a review of the latest financial reports from leading product supplier companies: Rofin-Sinar Technologies, Coherent Inc., Newport Corp., IPG Photonics, and II-VI Corp. and published statements by Trumpf, Bystronic, and Prima Industries. Depending on the period business has been off between 26 and 48% compared to the same period a year ago. Admittedly 2008 was, for the most part, a good year for these companies, save for the last two months for those involved in the sheet metal cutting market, so the percent decline is somewhat distorted. A better measure would be to look at a three-year period perhaps. But what we have at hand are the numbers presented to the financial analysts, which the reporters pick up and which tend to make the headlines.

Allow me to cite some remarks, from sources I will not identify, quoted in the aforementioned reports.
-We are hopeful for the beginnings of a recovery in the second half of (FY) 2009.
-Based on third quarter bookings we anticipate revenues in the fourth quarter will be...similar to the third quarter.
-With certain end markets appearing to stabilize and good customer engagement, we believe bookings will begin to recover in the September quarter and continue through fiscal 2100.
-We expect to be well positioned for renewed growth when the global economy recovers.
-We are optimistic that we have reached the bottom of the downturn. In some geographic regions we are experiencing a more positive customer settlement due to the stimulus packages.
-Regardless of capacity adjustments (we are) maintaining (our) presence in all markets and we continue to work intensively on development projects.

A recent survey by PricewaterhouseCoopers LLP (their Manufacturing Barometer), as published in the Youngstown, Ohio Business Journal, reports that while most industrial manufacturers still believe the U.S. and world economies declined in the second quarter, the outlook for the next 12 months shows improvement, with the lowest levels of pessimism (18%) and the highest levels of optimism (43%) seen in the past five quarters.

According to the report, 43% are forecasting positive growth rates, up from 34% in the prior quarter. Some 32% are forecasting negative growth over the next year. Overall the projected average revenue growth for industrial manufacturers over the next 12 months is minus 0.4% compared to minus 7.9% for 2009, a signal of less pessimism.

Market demand remains the major barrier to growth in the U.S. according to 82% of respondents and decreasing profitability is the second highest concern with 50% of those responding. Capital investment plans rose to 27% and those responding plan to spend 6.2% of total sales up from 5.4% last quarter.

These survey numbers are not as high as some would like but right now they fall into the category of "not as bad as before:" which is becoming the replacement for the overused "cautiously optimistic."

The July Business Conditions Report from the Precision Metalforming Association indicates that an economic recovery in the key sector of Fabricated Metal Products may be in the offing. An eye opening 37% of respondents (up from 21% in June) said they expect increased general economic activity in the next three months. Tangible evidence is that 31% said their shipments were up from three months ago (versus 14% in June) and 46% expect increasing new orders over the next three months versus 29% in June. These are very positive numbers that tend to support my thesis (last week's Blog) that the recovery may be more rapid than experts predict. As an example look at this change in a survey from 30 days ago. Good Stuff.