Many owners and leaders of manufacturing and technology-based companies are struggling with profitable growth in these difficult times. Their current plans mostly involve stopping the bleeding in 2009 so they can catch their breath and live another day. This is a survival strategy and one that should be handled with care because it may inhibit future growth because of its defensiveness.
Company leaders should also consider a plan to build a foundation for profitable growth today that will pay off in the future.
Analyzing Our Current Situation
Consider the following sobering data from Merrill Lynch / BOA on March 24, 2009, courtesy of Bill Ford at the ML Eugene, OR office:
Global trade to drop sharply
The World Trade Organization offered up its most pessimistic outlook on global trade in over 60 years. See page A8 of today’s Wall Street Journal, “WTO Predicts Global Trade Will Slide 9% This Year.” The report also suggests that trade will drop more in developed countries this year (down 10%) than in developing countries (down 2-3%).
The Chicago Fed national activity index improved a tad in February, but with earlier data being revised down the key 3-month average came in lower than the originally reported January level. The national activity index was -2.83 in February, up from -3.74 the month before, but still far below the recession threshold of -0.70. All four broad categories of indicators included in the composite made negative contributions, but if ‘less negative’ is the ‘new normal’, then this is a report that at least shows no further deterioration even if there is no indication of this recession finding its elusive bottom.
We do not see the dollar collapsing
The dollar has weakened abruptly, to be sure, but we do not see the dollar collapsing, mind you. Remember that it was as recent as early March that the greenback was testing four-year highs. Other parts of the world are in even more dire economic and financial shape than the US, with the UK, Japan, and even the Swiss already embarking on their own versions of quantitative easing. Canada is soon expected to follow suit.
Headwinds stiffer for ‘09…but ‘10 looking better
The US economy is in for a wave of stimulus come April 1, and a plan to relieve banks of their toxic assets is taking shape, finally, but in our view, none of it will arrive soon enough to prevent the steepest output decline in post-WWII history. The new information we have received since we last updated our forecasts indicates an even deeper decline in economic activity this year, a 3.4% annualized drop versus -3.0% previously. The peak-to-trough output decline will probably be 4.8%, the largest contraction since the 1930s. 2010 is looking better at almost 2%, versus 1.5% previously, but we remain cautious about whether the growth will last, barring a significant upturn in the supply, and demand, for loanable funds.
So Why Grow Now?
Based on the data above, you may be wondering if this economic downturn will ever end for manufacturers and technology-based companies. However, we do know that economic trends are cyclical. When inventories decline sufficiently there will be a pent up demand for manufactured goods of all types, and this is likely to begin in 2010. Do you know where the growth is likely to be for your business?