From the Charlotte Observer:
U.S. factory output at its lowest point in 60 years, and even massive job cuts haven't produced profits.
LANDRUM, S.C. Las Vegas has always served as an important – if odd – barometer for Charles Martin's manufacturing firm, which makes commercial-grade door hinges.
That's because even in bad times, casinos still went up in Nevada.
Not so today.
“When gamblers aren't building, forget about people who make rational decisions,” said Martin, president of Bommer Industries, the last completely American manufacturer of door hinges for hotels, malls, universities and other big commercial buyers. “The gamblers have quit building, and they're always optimistic.”
The U.S. manufacturing sector is trying to claw back from a deep downturn, and manufacturing globally is on the skids. The climb back will be long and painful because the situation facing the sector isn't just bad. It's awful.
The Federal Reserve's latest measure of industrial output shows that in June, U.S. manufacturers operated at 64.6 percent of capacity. It means they are producing at more than a third below their potential – the worst rate since recordkeeping began in 1948. Since December 2007, through last month, manufacturers shed 1.9 million jobs, according to the U.S. Labor Department.
Located 70 miles west of Charlotte, Bommer Industries was founded in 1876 to make hinges for barn doors. It's since come to dominate the market for spring-loaded hinges in a way that Xerox became synonymous with copiers. Martin's product isn't glamorous, but it's essential to virtually any large-scale commercial construction.
That makes Bommer a good measure of the broader U.S. manufacturing sector. Already struggling against what Martin calls the “Chinese invasion,” the company is positioning itself for the eventual economic rebound, trimming its workforce by 18 percent and hunting for new business.
Even if the recession ends in the fall, as many economists predict, significant growth for Bommer and other manufacturers will remain elusive.
“At best, the latter part of 2010,” Martin said during an in interview in tiny Landrum, where the company relocated from Brooklyn, N.Y. in 1953. “From my own perspective, we've got at least 12 (more) months in the doldrums.”
Data researcher Sageworks Inc. collects data from privately held manufacturers – those who don't offer shares of stock to the public. It recently found bad news in two belwethers: The time to collect payment from buyers and the amount of inventory on hand.
Another important measure, profit per employee, is at the lowest level since the 2001-2002 recession. Sales by private manufacturers contracted almost a percentage point in 2001, but have shrunk by more than 3.7 percent in the first half of this year. Even as manufacturers shed jobs, they're not becoming more profitable.
“Basically the economy is softer than we thought,” said Brian Hamilton, CEO of Sageworks. “It's taken us by surprise… and is worrisome. We're obviously not as reliant on the manufacturing sector, but that's the one you think always has more stability.”
The Bureau of Economic Analysis estimates manufacturing accounted for 11.5 percent of all U.S. economic activity last year – far below the record 28.3 percent of all U.S. economic activity in 1953.
In past recessions, there wasn't the blanket downturn witnessed today.
“All the key demand components have fallen off and that is unprecedented, especially when compared to the last recessions,” said David Heuther, chief economist for the National Association of Manufacturers. “This downturn has really hit manufacturing across the board.”
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