Manufacturing Still Needs Support

February 6, 2004
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GRAND RAPIDS — Interest rates may drift a little higher this year, but generally 2004 will be a very good year for the economy, and the manufacturing sector will continue its recovery.

So said Paul L. Kasriel, director of economic research for Northern Trust-Chicago, who addressed the impact of globalization on local manufacturing at Aquinas College’s Economic Summit luncheon Wednesday.

Kasriel said he expects economic growth will continue, but at a more balanced 4.5 percent rate compared to last year’s 6 percent rate.

“In the last two years we have seen growth in corporate profits in excess of 30 percent, and that is the fastest two-year growth profits in the post-World War II period.”

Profits are essential for the economic expansion to continue, he said.

Without profits, businesses have neither the incentive nor the wherewithal to invest in plant equipment, an investment Kasriel said is key to increasing the standard of living.

Business investment is starting to happen and he expects it will continue in 2004.

He also anticipates a build-up of inventories, which are at their lowest levels in 40 years.

“The factory sector is now in direct drive,” he observed.

“When a new order comes in, there’s simply not enough stuff left on warehouse shelves to fill that order. So there’s going have to be new production associated with that new order if you’re going to get the order out the door.”

Domestic exports grew at an annual rate of 19 percent in the fourth quarter of last year.

Kasriel thinks one of the principal reasons exports are starting to grow and will continue to grow is because of China.

China has turned into “a giant assembly line” and is a huge demander of raw materials and components, he said.

“One of the reasons copper prices have soared, one the reasons ocean freight rates are at record highs, and one of the reasons there’s a three year wait list for a new ocean freighter is because China is buying up a lot of stuff,” he said.

While the United States doesn’t sell very much directly to China, it does sell to China’s suppliers. The strengthening Chinese economy is directly strengthening the rest of the world and is indirectly helping the U.S. manufacturing sector, he explained.

“You have to think of this in a global context, not just one-on-one the U.S. vs. China.”

Manufacturing is also getting a boost from a weakened dollar, which has made U.S. goods more price competitive overseas.

Adding to Kasriel’s remarks were panelists John Jackoboice, chairman of Monarch Hydraulics Inc.; Stephanie Leonardos, CEO of Amerikam, and James Zawacki, chairman of GR Spring & Stamping.

Jackoboice said what he’s most concerned about is the manufacturing sector’s sustainability.

“We are going to lose jobs, and I don’t think a lot of them are coming back.

“We have become incredibly lean and far more productive, and what we need to do is to continue to sustain that and that’s going to be through continuous innovation and research and development in this country.

“We absolutely have to make sure that the innovation and research and development stay in America.”

A company may pride itself on trust and communication with its work force, but how does it maintain trust and confidence with its work force and supplier base as things are changing, Leonardos asked.

Things do change, and companies have to figure out what they have control over and what don’t have control over, she said.

“In our precision machining industry, the differentiating factors are research and development, of being able to be creative, of finding that business growth that’s sustainable. That is key to intellectual property.”

Zawacki said it’s been forecasted that the country will lose another 6 million jobs by the end of the decade and that 30 percent to 50 percent of auto suppliers will be out of business by that time, as well.

“If we would export politicians and economists at the same rate we’re losing jobs, we would find a solution to our problems,” he quipped.

He’s been to Washington 18 times in the last 14 months and believes the problem is that nobody in Washington cares about manufacturing.

“Our governor is beginning to get the message with all these companies leaving here, but nobody cares about our jobs,” Zawacki remarked.

“I can name 10 companies that compete with me that filed For Chapter 11 or Chapter 7 in the last 45 days.

“It’s scary. If we don’t wake up our government and the American people, we’re going to lose it, folks, and the standard of living is not going to be the same.”

He believes part of the blame belongs to an American educational system that places little if any emphasis on careers in manufacturing.

The feeling seems to be, “Why go into manufacturing? That’s the 4-Ds — dark, dirty, dingy and damp.”

The government doesn’t want to listen. Educators don’t want to listen, and kids just want to be dumber and watch sports all the time, he said.

Zawacki said he’s also sick and tired of hearing about the rich vs. the poor.

“How many people that make $50,000 employ anybody?” he asked.

“It’s the people with money that employ people.

“So we have to give them the incentives to invest in capital goods but hold them accountable that the money we’re giving them to invest is invested in the United States. There’s too many of them running offshore.”

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