Welcome everybody it’s time for the manufacturing talk radio show the only show that takes a look at the obstacles and opportunities to open to small midsize enterprises to manufacture here in America; with your host Tim Grady and Lew Weiss.
Lew Weiss: Hey guys, hello everyone and welcome back Tim.
Tim Grady: Good, good Lew, we’re certainly excited to have all Robert back today.
Lew: Yes sir, always here and ready to roll here.
Tim: We are going to have Brad Holocomb join us in a minute and we will go over a very exciting forecast that the Institute of Management has put together for 2014 that can be really powerful for our listeners to hear but before we do that Lew can you give us the postscript from last week show.
Lew: Be happy to even though I wasn’t here I was here in spirit and I heard the show live Brad Holocomb was kind enough to give us his November readout on manufacturing in the US. It was a lot of great detail in the information on the good report showing everything seemingly going in the right direction. Brad had asked us some very deep questions in to some of the stats and the numbers. Brad was good enough to really delve into the numbers and give everybody good inside into their particular industry that they are involve with. we are going to be having some questions email questions sent in by email if you’d like to some questions regarding this show as we are live send it to live@MFGtalkradio.com Tim take it away.
Tim: Brad thank you for joining us again today, we’re very excited to get the word on this report that you folks have just released
Brad: Oh i am excited to be here and happy holidays to everyone
Tim and Lew: Gosh thank you thank you much
Tim: But brad before we get into the forecast what does the report say about how 2013 is wrapping up.
Brad: Yes, lets kind of set the stage with that, as we have recorded on our monthly report. manufacturing has been on a positive trend in the second half of 2013 with the PMI increasing each month, month over month, for the last six months in the PMI now in November is at 57.3 so a very, very strong second half certainly relative to the first half. Just to give a little bit of a overview of how things are going to compare to set a high level; our panel is forecasting a continuation of that growth trend into 2014 with a good first half and an even better second half of 2014. Revenues is something that we ask our panel about and essentially represents their growth expectations and for 2014 the expectation for 18 industries on average is 4.4% again revenue growth compared to 3.4% now recorded for 2013. So there you have a couple of numbers of 3.4% reported for 2013 in terms of overall revenue growth that’s kind of the bottom line if you will and looking forward to 4.4% in 2014 as our forecast.
Lew: Brad this is Lew do you see the PMI come midyear of the total PMI number reaching 60+.
Brad: That really is hard to say and honestly there are periods of time when I personally don’t like to see it 60. I think if I go back two years ago the first half of 2011 if I’m recalling right we have some 60s like for four months in a row the first half things started to slide after that; so I think the economy and manufacturing included got a little bit overheated. So I rather think about is incremental improvement where 57.3 November and as long as we stayed in that area that represents some solid growth we can have things continuing to go up; because it is not realistic and that’s really not what we are looking for but numbers in the high 50s are great.
Tim: That’s, that’s good brad couple high level before we get into the report itself was a couple of the high level highlights about what the panel predicts for 2014.
Brad: Yes perfect, I have given you one overall growth of 4.4% I think that’s a really good number another one that is really interesting I think is employment. Employment in manufacturing is expected to increase by 2.4% in 2014 and I that compares with 1.7% reported for 2013 since 1.7% reported from the last several months of 2013 since April and now improving to 2.4% for 2014 that represents the continued confidence that our manufacturing panel has forecast for solid year.
Lew: For those of you who are following along the report can be found at www.ISM.WS and you’ll find right on the homepage if you scroll down to December 10 date the December 2013 semi-annual economic forecast and Brad you can give us a manufacturing summary of how the forecast looks for 2014.
Brad: Thanks for pointing everyone to that website there a lot of numbers here to be digested if you will I think each individual can also focus in on their specific industry and will try to do some of in the next 45 minutes; but it is 18 pages long so there’s a lot. It would be great for your listeners to available by way of the website. In terms of overall summary towards the back of this report we list several aspects and dimensions of manufacturing and let me go through the summary; we will come back and will try to pick it apart a little bit. First of all the operating rate is currently at 80.3% that’s really kind of a wrap-up number for 2013; 80.3% is right on our April forecast of 80.2% that represents a pretty solid operating rate with a little bit of headroom for growth.
When I get to 85% I start to get nervous about bumping up against the our ceiling and having minimal flexibility so that’s a good number. Production capacity increased in 2013 by 5.2% and if capacity is expected to increase in 2014 by 6.3% so more than a point more in production capacity increased than 2013. 6.3% compared to 5.2%. so again the confidence shown hereby the panel. capital expenditures increased by 12.3% in 2013 and the number for 2014 is 8% lower but keep in mind that 8% is growth on top of 2013 so whatever 2013 was and it was a good number 8% more than 2013 for capital expenditures and their again indicating a great confidence.
In terms of pricing raw materials still there were very interesting territory; prices of raw material are pretty moderate in terms of increases for the whole of 2013 it was less than 1% when the dust settled. 0.9% as tallied by the panel for all of last year for 2014 the year ahead they are expected to increase a total of 1.6% and that’s pretty modest and when you couple that with the a few of the other numbers here you’ll be able to see how profit margins are expected to improve next year as well. so 1.6% in terms of raw material pricing for 2014. Labor and manufacturing as your audience know most manufacturing companies that I’m familiar with have ill 50 to 70% sure you’ll parts content in their products in terms of the cost of the goods so you know these price increases of 1.6% without much volume associated with it is this really an important number.
The next number is labor and benefits costs whereas raw material is very often as I said 50 or 70% my experience in labor benefits is maybe in the know 10 to 30% area is less of a factor is expected increased 2.3% in 2014.
Lew: I just received an email from one of our listeners and I thought it might be appropriate to interject they ask you manufacturing increasing and improving something that Thomas Met brought up to us on one of our previous shows as well about the talented workforce shortage the house that going to affect us all this upward movement and improvement in the marketplace.
Brad: Very good, very good question then we have some along the way in the last few months of some difficulties finding talented and skilled labor for example in an textile mill has been in the headlines for some months now where’s there seems to be a lot of textile were coming back into the US that workforce as has moved on and in the past couple of decades other their coming back in and requiring retraining and re-skilling so that. That’s one area but they seem to be over the hump another area is in the in terms of some construction know what the housing boom doing Welders; there’s been some slowdowns associated with not being able to find enough but qualified labor for that market nevertheless it also appears that they’re overcoming that shortage of true really focused recruiting and training. So bottom line is we don’t predict that there’s going to be any significant problems or holdouts are related to that issue because no US manufacturing is pretty creative and can go out in the and not just find talent the train talent to meet their needs with juice and a worker motivated to do and they will do.
Lew/Tim: That’s a good answer for the money.
Lew: Thank you for the to the US dollar is that is expected to strengthen the was happening with the with the US dollar.
Brad: Yes the US dollar and we track the number of currencies against the dollar the euro the Canadian dollar the British found the Japanese yen pay so other Korean law and the Taiwanese dollar and we do anticipate that the dollar will strengthen on average against all of those currencies and so that that’s what the panel predicts there okay now there any other the dealer highlights from this manufacturing summary we’d like to have included into before we take a commercial break in about three minutes or idea it was good to break that up with a question because there is a long list here and money just continue export growth in the US is expected to increase in 2014 and imports as well so we’ve seen some good robust numbers in the past several months that’s expected to increase and can continue with that fashion and 2014 revenues.
As I mentioned up 4.4% talk about the dollar and then finally we have sort of a no bottom line what is your gut feel type question the overall attitude of a manufacturing this is how we, somewhat up optimistic outlook with 87% of our respondents predicting the 2014 will be the same or better than 2013 I think that’s a pretty good outlook. I think that sums up the summary of for now and then we cannot go back in and look at some details.
Lew/Tim: okay I think when we come back from a commercial break we will certainly do that this certainly is excellent probably the best news we’ve heard coming out manufacturing sector in sometime were very encouraged to hear and I certainly encourage people look at this report as we go through it and is usually dissected for their own particular business or industry because this is a very positive information.
Brad: I agree and I would flow this all the way up to know senior management to the CFOs so that they can have this additional information and insight along with everything else they have to outline their plans for next year.
Tim: great let’s take a quick commercial break and will be back in about 90 seconds.
Tim: Now back to our interesting work at the ISM semi-annual report. welcome back to the show, Brad was on an interesting first portion of the shogun’s survey overview you have a lot of additional sense to give us some specifics on the manufacturing I would like to hear some of the information perhaps available on some heavy industries machinery builders metals because of the metals industry I think it might be pertinent if you have some comments on that.
Brad: so let’s try and drill down five we go to a manufacturing summary starting on the bottom of one although I don’t think the Internet version have page numbers but we talk about an overall manufacturing summary and that 16 of our 18 manufacturing industries expect revenue improvement in 2014. So list been listed in the order of most growth expected to least growth expected and within that list about halfway into the list’s primary metals and actually at the end of the list is as fabricated metal products so those” certainly are related to you all are focused on for the most part and they are among the 16 industries expecting our revenue improvement.
Lew/Tim: This news over the last year which was pretty good were always looking to do more and better to have read the one we continue with your deep dive on the need to charge your little a lot of information to be given to her listening audience so I don’t want to cut in on you too much work to do take away from here.
Brad: I would like to shift gears a little bit here we ask our panel and again our panel is about 350 supply management professionals long-standing within their companies across the face of manufacturing in 18 different industries in the USA and we ask this panel to special questions during this December semi-annual report to the period of time and one question is what improvements and improvement processes do they plan on working on in 2014 and is an interesting list with the 1,2,3,4,5 different strategies listed in the order of frequency in which our panel indicated them so.
That the first strategy to improve their overall operations are to zero in on strategic sourcing and supply base rationalization this is honestly something that we’ve heard about no quite often over the years but it seems to be even enhanced more so this time with more respondents indicating strategic sourcing supply base rationalization analysis of former chief procurement officer what this means is really combing through your supply base, cleaning out the non-performers if you will the zeroing in on those that perform best for you probably finding some new suppliers to serve your company and in many cases reducing the overall number of suppliers to your business. So that you can focus get to know one another and work well together so that’s number one. Number two is improvements in processes and information systems so there’s; there’s a lot of that in mind as we go forward is supplier relationship management which is one of my favorite things to of done in my career supplier relationship management know working with those really strategic suppliers around performance and cost and quality and timeliness of technology etc. So this one happens to a list this year to a number three position. For inventory management control produced improved continuing to improve solid management of inventory as we pretty much same as last year but even more so the coming year and one that is a bit new on the list as we asked this question nearly every year is looking for improved cross functional planning and scheduling.So in all of next of diverse functions coming together including all the way from procurement to scale the manufacturing and production and everything in between to look at schedules to look at plans to work them all the way back through the company so that everybody’s on the same page and can be efficient.
That’s where people are going to pour their development energy into improve manufacturing next year.
Brad: first is another question workshop in a week we say don’t tell us what your most important problems facing business in 2014 and you can think of these as problems or he can think of them as opportunities. But there’s a list of the six or eight items here which are really in the forefront of people’s minds they may be hurdles that may be problem there may be opportunities and things that are gonna drive the business next year. Number one is domestic sales growth and in these percentages will add up to 100% so that gets a full 32% to vote domestic sales grow one third think that’s the most important thing to do well at the second is international sales growth of 18% now we get into those or perhaps pretty obvious things we all need growth then and this year we split it into domestic and international to get some delineation and so we have 32% per domestic 18% for international the third one on the list is health care reform uncertainty with almost 15% is not the cost but it’s the uncertainty for businesses of all size sizes to everyone like me I can’t quite figure out. The fourth one is pointing finger at Washington the as well ongoing government shutdown and feeling concerns at 13 1/2% in all of the problems that we have done this last fall going through that it’s not over the be a continuation of these things but hopefully things will get resolved before there are problems. But again these are on people minds is as concerns the next on the list think we’re down the number five government regulations about 10% more regulations you know some very appropriate some maybe some people will question the next on the list is the healthcare cost at about eight to half percent. Finally the last two not really big issues on people’s minds inflation only 3.4% the hundred percent the year and then taxes will have to percent so the list of things that are on people’s minds whether they consider them problems or opportunities are simply things that they have to focus on it and overcome.
Lew/Tim: hey Brad this is we did just received the email from John from Chicago he says if capital equipment investment is a long with the rest of your approved numbers is that it is not expected to increase in the to what rate?
Brad: great question expenditures is as always kind of a good sign or a sign of no growth and expectation and we got of our industry showing an increase in capital expenditures for 2013 four for 2014 we got built 13 industries predicting increases for 2014 so in the same neighborhood now let’s look at 2014. In some detail on that list includes machinery that includes the primary metals so those are among the 13 list and let me just stand as well fabricated metal products is also a pretty high up on the list. So I think those are related to the special interests of your audience and look at the overall number think I mentioned it briefly 8% increase in capital expenditures expected in 2014 over last over a 2013.
Lew/Tim: thats music to my ears. Brad thank you to have read the there are some other areas of the report here on i know that the report just so listeners know also covers nonmanufacturing so for those of you were not in the manufacturing industry and are listing to us from a non-mac manufacturing perspective of this report goes into good deal of detail there as well. but Brad why dont you continue with the your comments on the manufacturing sector.
Brad: I think it is certainly thanks for pointing out of nonmanufacturing is is a huge component to know some people call it the services industry virtually covers everything but manufacturing it has equal weight in this report there are side by side the table some comparisons so all those industries as well
Lew/Tim: Brad if you would I’ll find you want to give us big, quick overview of because it is equally weighted what it includes slowly this time
Brad: it touched on a few of the overall summaries which one can find towards the end of this overall work for her nonmanufacturing whereas the manufacturing operating rate is currently at 80.3% nonmanufacturing is 86.3% so a full six point higher and I would say that that’s really a, squeaky point and certainly subject to be increasing their capacity as we look forward to 2014 in fact a the capacity expected is expected to increase by 1.9% in 2014 capital expenditures are expected to increase 4.6% in 2014 pricing is very similar to ours expect 1.9% increase they cover some of the same commodities such as fuel and steal them and things like that but also many different ones labor and benefits 2.6% think ours was 2.3% so this gives, some checks and balances the between manufacturing and nonmanufacturing things were way different than my colleague and I would withdrawal and in trying that out but the great comparisons share employment which is on everyone’s mind is expected to increase 2.1% in 2014 and nonmanufacturing they also expect the growth in exports and imports and then revenues are expected to be up 3.6% in 2014 compared to manufacturing 4.4% so a similar expectation for good solid year next year I think you were going to help each other in terms of manufacturing and nonmanufacturing as we go forward
Lew/Tim: you would mentioned a moment ago about the exports and that we spoke earlier about it as well you are continuing to see problems there seems to be a great interest in south America particularly Brazil do any of your numbers so export numbers reflect specifically the south American market
Brad: we don’t have that kind of delineation one of the things that a lot of people mention economists wall street people we talked to is the simplicity of this report and the timeliness of this report is really second to none and so a lot of times will have no higher level numbers than some people really want but that’s the nature of the report that allows us to get this out in the most timely fashion and present are our numbers and our views as the leading indicators for other things that will come along so all we can say in terms of export is that 16 of our industries are expecting growth in exports during the first half of 2014 and included on that list once again our primary metals machinery and fabricated metal products along with a host of others is pretty specific and appreciate the great detail that you gave me on that is the Brad before we take a commercial break here or a minute or so I just want to remind the audience and then have you going to little bit the well this is the December forecast you also update this report in April of that correct yes that’s why we call these semi-annual reports this December report is the biggest in the baldest of it will the most comprehensive the first look at 2014 it also sort of puts the current year in the drawer we do update this December report in the April or may late April or early may timeframe that very sometimes from year to year and we look at how well we forecast to that point first a portion of the year and then we tune-up the forecast for the balance of the year and that that should be very interesting as well
Lew/Tim: great okay we’re going to break were commercial here will be back in about 90 seconds and brad will do a little more deep dive and that you select areas of the December 2014 forecast.
Lew/Tim: welcome back everyone with Brad we’re certainly looking forward to more of the high points of the deep dive issues you want to get into in the next 10 minutes or so go ahead and the share with our audiences what you like to do here
Brad: we talked about exports on to about imports a little bit and then will look at the business revenue expectations for the first and second half of next year and try to zero in on some industries first and imports and let me let me clarify again imports generally represents raw materials from abroad exports generally represents finished product sometimes subassemblies and so there’s a little different nature to imports and exports 04 imports we have 13 industries represent the expecting growth and imports for the first half of 2014 that’s as far as we go in the case of imports and exports spent on the list fairly high up number three is primary metals then about the metal is advocated to metal products so again expecting good action in both exports and imports okay now work for your business revenue predictions we have 16 industries expecting revenue growth and on the list are primary metals and fabricated metal products so those are right there but again 16 industries representing growth and of course while we list the specific industries and get responses from them certainly there’s a lot of interconnectivity between know quite a number of these for example in housing in an auto that would the related to several of these different industries as you can roll it up to those product lines that I like to talk about the business comparisons and expectations for the first half of 2014 compared to the last half of 2013 and then the second half of 2014 compared to the first half and the lists are little different and I think it will be interesting we’ve already said that the panel expects the second half to be even better than the first half of next year and the first half is better than the current half that were in 2013 so for the first half of 2014 compared to the last half of 2013 there are 14 industries expecting improvements in on that list are primary metals and fabricated metal products but not machinery in the case of our expectation for the second half of 2014 there are 17 industries listed compared to 14 for the first half and on that list are fabricated metal products primary metals and machinery so more industries more that represent the overall metals are complex and related interests and so that’s something that people can look more deeply at and assist with the planning for next year both for Stefan second half
Lew/Tim: okay but I’m just reminder listeners the we are really pleased to have brad Holcombe as our guest today on the show twice before when the monthly ism numbers been released on the first working day of the month about 10 am in the morning and those shows are email@example.com you can also find them going through steel boards.com and list below shows because the exciting thing brad about those who those shows that you did but is that you really gave the listener that the kind of the bigger picture more in depth more detail that went so far beyond just the number that it was really impressive I think that’s the same thing but this forecast is doing and we really appreciate your presenting it’s my pleasure and I said this for a few years now I think this semi-annual report in December is as valuable or more valuable to the practitioner people that are working in these in these positions in these industries than even our monthly although those are golden as well but there this forecast is as unique it’s different than the month-to-month lots of value that I think can be beneficial with folks have the opportunity to do that again. we have the another email from one of our listeners it’s Jim from new jersey I’m not sure this is something that falls into your bailiwick of expertise ballistic a shot at it the question is when a company is looking to minimize the supplier base what are some things as the supplier can you do to stay in favor of companies to minimize their supplier base
Brad: for your listeners know my so I’m going to step away from the report itself and on my experience of being super German officer of five Berkeley fortune 500 companies over the past 20 years this honestly is been my focus and that is to really our suppliers on purpose is that I like to say that some expression I’ve used for 20 years taking our suppliers on purpose through a process in the process I referred to as total customer satisfaction as a manufacturer I want to be totally satisfied with my purchasing experience for my supplier so I work long and hard to let my suppliers know exactly what my expectations are is not just price is not just quality is not just one thing or another or yellow topic of the month if I think first this product and technology leadership and service and support leadership benefits quality then it’s you know the time and timeliness and then finally price competitiveness now notice that I didn’t say rock bottom pricing I mean competitive pricing and if you have all of those things in mind and you set expectations of your suppliers and then you measure them let’s say on a scale 1 to 5 or even use the traffic light model no green yellow red according to those five different dimensions you work with key suppliers you have quarterly meetings to talk about how they’re doing against our expectations that’s really good stuff and it’s helpful to the companies and self focus suppliers to get on the same page and that’s what’s really important to say the very best suppliers will be all over it and they’ll say I can do that because the best suppliers can literally do it all for you great response brad I appreciate that we do have one more email that I’ve been looking at the use of pertinent much or even a member responsible but she does get a job as a last question no were thrilled this is Royce from France asking are you are panel members in the steel industry pretty much unanimous anonymous regarding the 2014 forecast their products are the questions get harder as we go along while they do but you can actually know I have to delve into the report but we will have a delineation in each industry of those who say it’s going to be better it’s going to be the same boards can be worse so what one whatever industry here in, zero and look at that in terms of response and I don’t really know what the delineation was steel industry start Royce… drive traffic to your website to read them all 18 pages to get by the Brad year before we wrap up here I know that the labor department looks at this recording your monthly reports on is what you are projecting for 2014 by a dovetail if it does into what the labor department expectations are if you can answer the call and we as we go along for month-to-month each year we do correlate with the bureau of labor statistics manufacturing employment figures in fact work were a leading indicator and we come out with a report several days before the bureau of labor statistics comes out and you know in general they are highly correlated and so our news will generally speaking reflected in the news and so a lot I suspect that the elr numbers for 2014 will serve in that same way to give people a heads up and a leading indicator of what’s really to come okay great the loop
Lew/Tim: Brad I just wanted to mention that were coming up under the end of the show and there may be some folks who did not share the beginning of the show I just wanted to announce that the podcast will be available on our manufactured that, if I should talk radio.com about 15 minutes after the shows completed and you can listen to the entire show they are and you can take it away great the Brad let me once again thank you for being our guest we certainly appreciate the information that you’re able to share with our listeners and really important for them to understand the depth of information that the ism produces little we want also think all metals and forward group and two point.com for being the spot through the show we have been very excited about this list look at manufacturing and the team regulation dovetail between ism and all metals and forward group thank you much and I believe that the next show will be on January 7 the and Holocomb should be giving us the December and year-end wrap-up at that time thanks brad should man almost a permanent guest on our show by for this opportunity to talk about manufacturing in our reports and hopefully your listeners to come away with something that they can use the in the planning and their work for next year thank you much and i think that pretty much wraps it up for today’s version of manufacturing talk radio thank you everyone for listening show.