It will be a “mixed bag” for the manufacturing community as the 2011 economy will not lead to “champagne cork-popping, but be more like wine box opening time,” forecasts an economist for a leading industry trade group.
“For manufacturers, much will depend on what sector they serve,” says Dr. Chris Kuehl, economic analyst for the Fabricators & Manufacturers Association, International. “For example, housing and commercial construction will remain weak, and many states are in a severe budget crisis. This does not bode well for those who sell to industries supported by construction.
“However, the fact that oil prices are rising and that economic growth is solid in the states that are engaged in the energy field make for good news to manufacturers that sell to the energy community,” he says.
Kuehl offers these 10 predictions for 2011 that will impact both manufacturing and other sectors:
“There are some parts of this forecast that will have an impact on the rest of it and growth is at the top of that list,” Kuehl says. “The assumption that interest and inflation rates will stay low means that there is moderate and controlled growth. This also is a factor as far as the likelihood of a double dip. If the U.S. economy should suddenly start to surge and grow at a rate of 5 or 6 percent a quarter the whole system shudders to keep up.
“There instantly will be bottlenecks across the board in many categories as most companies have been reducing capacity in order to accommodate the recession,” he explains. “If they have to gear up fast there will be price hikes and even labor shortages that will add to the inflation threat. The core rate may be well under the 2 percent limit the Fed has suggested, but the real rate has already been moving upward due to the hikes in food and fuel prices that are not traditionally figured into the core rate.”
According to Kuehl, the inflation trigger will provoke the Fed to raise rates to counter the impact of the inflation surge, which will mean that the dollar will gain strength as the value rises.
“The export market dwindles as the dollar gains power, but that also reduces some of the impact of inflation as the price of imported items will start to decline – especially oil,” he says. “It turns out that too much growth and too rapid growth will be as much of an issue as no growth at all. This has actually been referred to as the ‘Goldilocks Conundrum’ – a need to get all this ‘just right’.”
And, a similar balance is how Kuehl sums up his 2011 outlook.
“It will be a period of modest growth and controlled expansion, but also one of narrow margins and lots of business and personal vulnerability,” he says.
Dr. Chris Kuehl is economic analyst for the Fabricators & Manufacturers Association, International (FMA) and managing partner of Armada Corporate Intelligence. Dr. Kuehl is the author of Fabrinomics, a biweekly economic analysis e-newsletter for members of the FMA. For more information go to fmanet.org/fabrinomics.