In this entry I’ll share comments from industry insiders taken from recent emails and phone conversations on the industrial segment of our economy. Specifically, I’ve synthesized comments from one CEO, two company presidents, eight vice presidents and Ron Nicely, an economic forecaster.

The most common view is the rate of decline in the industrial segment is finally slowing and the segment will “bottom-out” in July or August. This will be followed by gradual increases in production, factory utilization and sales. The recovery will be so slow that it is likely sales levels in October/November of 2009 will be approximately where they are today, which is down anywhere from 20% to 50% and more, year-to-year. A few pointed to the recent gains in the stock market as confirmation that a recovery is expected in a 6- (to 9-) month time-frame. If you find that disturbing, wait until you read what Ron Nicely is reporting.

Ron, who reports on and forecasts the industrial segment, and metalworking in particular, each month in his Nicely Newsletter is concerned that the future may be more bleak. In this month’s report he wrote, “I looked back at the metalworking data for early 1982…The decline in the GDP at that time was -6.4% in the lowest quarter, compared to -6.2% in GDP in the 4th quarter of 2008. At that time there was a decline in the metalworking data of  -36.4% that occurred in the 16 months before a bottom was reached. If this one [recession] is the same, the bottom will occur late in 2009. From the bottom it took 4 years and 8 months to get back to the total sales that were being recorded before the decline [1982 recession] began. This would point to the 3rd quarter of Calendar 2014 when sales would equal the high point in 2008.”

Yikes!

Economic forecasting is an inexact science so Ron qualified his remarks and offered some advice: “Every recession is different and it is possible this one may be different; however you [manufacturers and distributors] need to plan for this scenario being similar [to 1982], at least to start, and see how it develops. We did not have the financial problems then that we have now, so this recession could be more stubborn before we see a recovery…The next 1 to 2 years will be difficult and working on new products and looking for new markets will be important to your own company’s recovery.”

Some companies are using this time to reorganize and not just trim "fat," but to structure the business around market segments, such as energy or healthcare, rather than around products. Market segmentation can provide a source of differentiation in the marketplace that a product-based structure often lacks.

Steve