CHICAGO — Some manufacturers are hunkering down, others are marching on and a few are moving out of their comfort zones. This mixed pattern is likely to stretch through the middle part of next year, when the fog of uncertainty is expected to lift. In the interim, many manufacturers appear to be stalled.
“There is a bit of disconnect between manufacturing in 2012 and 2013,” said Adolfo Laurenti, deputy chief economist at Mesirow Financial. He explained that the past year’s momentum largely has hit a wall.
Manufacturers worry that expiring tax cuts, the possibility of tax hikes and government spending cuts could push the U.S. into another recession. Manufacturers that export also are dealing with Europe’s economic crisis and the slowdown of emerging economies, such as China and Brazil.
“Overall, the entire global economy is still weak,” Laurenti said. “We don’t have one growth engine. It’s clear that the U.S. faces a lot of uncertainty. Europe is problematic. If there isn’t a shock, we can get by.”
But if something does go wrong, Laurenti added, the ramifications could be devastating.
Deb Oler, a vice president and general manager with W.W. Grainger Inc., a supplier of industrial goods ranging from machine parts to trash bags, said some businesses are purchasing just enough to keep their factories open. Many customers, she said, have said that capital projects and hiring have been on hold for the last 60 to 90 days.
“They all lived through 2008-2009 and do not want to go through that again,” Oler said.
Michael DeWalt, Caterpillar Inc.’s director of investor relations, said during a recent conference that the Peoria-based maker of earthmoving equipment will not spend as much in 2013 as it had expected to upgrade its factories or to build new ones. The company has said its spending will be lower than in 2012 but has not divulged specific numbers. Spending during 2012, the company has said, was lower than the $4 billion it had projected.
That wait-and-see mode has Scott Eisen, president of Chicago-based Ideal, a corrugated box and displays maker, projecting slower growth in 2013. This year, sales of boxes and displays, the kind typically found near the registers at big-box retail stores like Target, rose by 15 to 17 percent from 2011. Eisen expects sales to grow “north” of 10 percent in 2013.
Eisen said the company’s sales could decline if retailers push back product launches because of the economic uncertainty and, as a result, hold back on orders for displays. Still, Eisen plans to move ahead with his spending about $6 million in factory equipment.
The investment is part of Ideal’s two-year spending plan totaling $12 million in equipment and installation costs. About half of that money was spent on the purchase and installation of a machine that prints and cuts corrugated sheets into parts for a display or food packaging. The corrugated sheets are made in-house by a machine that glues a ridged sheet of paper between two flat ones.
In 2013, Eisen plans to purchase a die cutter and a machine that glues additional material to targeted sections of boxes or displays, making them stronger.
Eisen said that at one point he questioned whether he should hunker down instead of investing more in machinery. He said he also reflected on a time before the recession, when he and his brother took a leap of faith and hired graphic designers to increase sales. The decision was based on the fact that retailers are more likely to buy Ideal’s products if they are presented displays adorned with their logos.
The Eisen brothers stuck with their plan during the recession and once companies started investing again, their team was ready to pitch ideas. Ideal employs 320 people, most of them working at the company’s factory and headquarters near Midway Airport. Annual sales are “north” of $100 million, Eisen said.
“We are entrepreneurial. We have to see some opportunity in this climate and stay with the strategic vision,” Eisen said.
Al Powers, chief executive of Now Foods, a maker of vitamins, tea and lotions, plans to ramp up production of Better Stevia, a sweetener, to sell in Canada and Europe in 2013, but he said he expects slower growth overall.
This year sales rose by 22 percent from 2011. To increase production, Powers hired 220 workers, bringing total employment to about 1,000. Powers said he is tapping into a growing demand for alternative health care and vitamins, especially vitamin D. Still, Powers said his company won’t create as many jobs next year.
As an S corporation, Now Foods shareholders report the company’s income and losses on their personal tax returns. That means that if President Barack Obama’s proposal to increase taxes on high earners solidifies, Now Foods’ shareholders would be among those faced with higher tax bills.
“We are not fat cats,” Powers said, adding that profits are reinvested in the business and if taxes take a cut out of those profits, there would be less money for hiring and expanding Now Foods.
On hiring expectations for next year, Robert Livingston, chief executive of Dover Corp., a diversified manufacturer of industrial products based in Downers Grove, Ill., said, “I can’t think of a single project that we have planned for the first few months of 2013 that would require additional labor or to expand our capacity.”
He later added, “Most of us looking at 2013 see modest growth for the general economy in the U.S. with a low of 1.5 percent and a high of 2.5 percent. But if we go off the (fiscal) cliff, all bets are off.”