Borrow, invest, expand, grow: Advice for system integrators
Manufacturing economics: System integrators should borrow until it hurts, invest in good employees and systems, and use this time of prosperity to expand, advised Alan Beaulieu, president, Institute for Trend Research, at the CSIA Executive Conference in April in San Diego.
Control system integration firms should be full of optimism and action; 2014 can work to the advantage of firms proactive to larger economic expansion anticipated for 2015 and beyond, according to Alan Beaulieu, president, Institute for Trend Research, at the CSIA Executive Conference in April in San Diego.
What are the megatrends we will all have to contend with? What will be the impact of the Affordable Care Act?
Do the math
ITR prognosticates economic trends with 94.7% accuracy, Beaulieu said, not to boast, but because:
"I want you to have confidence in what I present; it's not just based on 'I hope' and 'I think.'"
The comments that follow are paraphrased from Beaulieu's presentation.
The U.S. is accelerating in its economic growth, with record levels of gross domestic product (GDP) and consumer spending. The U.S. is in a strong position. The worst that will happen is that the rate of growth will slow later this year and early in 2015, to perhaps 1.4% growth rate. The growth in 2013 will be hard to duplicate through the next couple of years. But the economy is healthy and vibrant, and there are opportunities. About every 10 years, we will have a recession. That will arrive 2018 in the third quarter and last until 2019 mid-year. I can add 10. I am an economist. Expand your opportunities before then.
The recession will bring a credit crunch. Contraction is painful. If you're in the right position, consider selling your business in 2017 for cash. Who should you sell it to? Someone you don't like. If it is a family business, leave it to your kids, which also can be emotionally rewarding. With a glass-half-full attitude, a recession provides opportunity. Cash is king. Amass a large war chest now. During the recession, buy a competitor, buy market share, buy equipment, or buy good personnel from companies circling the drain.
U.S. industrial production is strong. We raised our forecast from OK to "Wow." We predict industrial production growth at 2.7% for 2014, 1.9% in 2015, and 2016-2018 are also positive.
GDP is forecast at 1.9% for 2014 and 3.3% in 2015. Despite what politicians tell you, we cannot do four simple things and grow at 4.5%. Perhaps we could grow 3%-3.5% at the most because of our sheer size. We need to incorporate growth into our lexicon. We have to believe and know that we're in growth.
At home, our friends, who know what I do for a living, asked my wife, "When will the recession end?" It's over. Sometimes I think people are watching "Family Guy" and thinking it's a documentary. As business leaders, you need to ensure you know where we're going and why.
Key opportunities in manufacturing
- Light vehicle production will see less growth to mid-2015, and then faster growth.
- Medical industry growth will continue at a high 4.7% and will level out.
- Fabricated metals industry has room to grow.
- Chemicals will growth more slowly.
- Food won't see a recession until 2019.
- Consumer durable goods new orders are at 9.2%; growth will be slower.
- Semiconductor chips growth is still increasing, with slower growth in the third quarter.
In general, leading indicators are pointing up, and the world is in relative calm. Employment is rising and companies are right sized, banks are lending, retail sales are rising, nonresidential construction is improving, deficit spending continues with no fear of austerity.
Our industries want more people. We cannot find enough people with the right skills and right attitude who can pass the drug test. Anyone here from Colorado? Some locations there have done away with drug testing, which may help workplace attitudes, but we still need skills. More money is needed for training and partnering with local community colleges. Wage inflation competing for the best talent will lead to real inflation eventually. Higher wages are among major trends. We will have to pay people more. Our standard of living will fall if we don't pay them more. Poach as you can. Start training. Or move to Denver, the mile-high city in more ways than one.
Borrow now, until it hurts
Mortgage rates are increasing. Take advantage of them now. Borrow now. Grow. Do not spend cash. Pay back your loans later with inflated dollars, and you win all around. Government regulations will tighten credit in the future. In 15-20 years interest rates will be going up, to Carter-like years, where we had 20% interest rates. Next year they will increase a little, up to 4%; we'll have 7.6% mortgages in a few years. This would be bad if it were not for wage inflation. You can take advantage now and borrow. Borrow until you cannot sleep and invest in real estate rental property. Younger people should buy property now if they can. Also note that 61% of baby boomers support their children monthly in some way; there is a large amount of college student debt upon graduation.
In 2013, 84.5% of U.S. energy was produced here. We are doing things here in this country again because of a stable energy base. We now produce more oil and gas than Russia. North Dakota now has reason to exist.
Less expensive energy is revitalizing industries. Jobs and manufacturing are coming back. Many companies are moving back to the U.S. with manufacturing, including Apple, Yamaha, Michelin, Wham-O, Bayer Chemical, Caterpillar, GE, NCR, Rolls Royce, Honda, Lenovo, Airbus, Toshiba, Toyota, Flextronics, Siemens, and others. You don't want to miss out on these opportunities.
And, though Washington hasn't mentioned this, our CO2 footprint at the end of 2012 is equal to end of October 1995. We are doing things right.
Panama Canal's expansion will open late in 2015, adding economy activity to the U.S. East Coast in warehouses and shipping.
See the next page for global perspectives in manufacturing, other concerns, a list of recommendations, and another photo ...