Economist identifies hazards, opportunities for manufacturing, engineering

Despite the current economic crisis, there are opportunities now for manufacturing and engineering; growth returns later in 2009 and in 2010 in most areas, said an economist with Manufacturers Alliance/MAPI at an ODVA meeting.

03/03/2009


Bar bet joke: Surgeon, engineer, and economist
A joke cannot be less funny than the current economic picture, says Cliff Waldman, global economist, Manufacturers Alliance/MAPI. Beginning his presentation at the 2009 CIP Networks Conference & 13th Annual Meeting Waldman said a surgeon, engineer, and economist, having a beverage together, bet on whose profession was oldest. The surgeon said his profession was oldest because God took a rib from man and created woman. Before that, the engineer said, God created the heavens and earth, and integrated them as one system. The economist, smiling, knew he won the bet. Before God did either, he said, there was chaos, confusion, and darkness. Who could have done that but an economist?

Howey-in-the-Hills, FL – Though growth for some regions of the world won’t resume until later this year or next, opportunities exist now. Inherently unstable financial systems have produced about 30 crises since WWII, and in this crisis, many people are holding their collective breath, said Cliff Waldman, global economist, Manufacturers Alliance/MAPI at the 2009 CIP Networks Conference & 13th Annual Meeting.

Cliff Waldman, global economist, Manufacturers Alliance/MAPI
Cliff Waldman, global economist

Is there light at the end of this global economic tunnel? Yes. This once in 70- or 80-year crisis of confidence follows one of the strongest periods of global economic growth, Waldman said. Rapid growth in China, India, and Brazil, contributed to credit fluidity, followed by the most severe downturn since WWII.
Among Waldman’s observations:
-Housing, the sure U.S. bet of the last few decades, unraveled with deregulation and the social decision to encourage subprime lending without understanding the implications. Falling housing prices created a balance sheet problem that spread from subprime market to other financial systems. "Ill-liquid" paper (bad sub-prime loans) wouldn’t sell. Banks refused to lend to each other, clogging a key component of the U.S. credit system.
-Lack of available cash: After failure of Lehman Brothers in mid-September 2008, no one wanted to take risks, and world equity prices plunged. Since then, institutions have been working to help to create liquidity again, with careful loosening of credit to individual, commercial, and industrial borrowers. Oddly, most recent measurements show that lending has been as tight to those with few risks as those with higher risks.
- The housing downturn has fed the U.S. recession, the epicenter of crisis, and in turn businesses have commenced with layoffs at a near-panic rate, with a possible unemployment peak of 9%, the largest since the early 1980s. With too much on the backs of consumers, businesses have followed with a downturn of equipment and software expenditures.
- The Purchasing Manager Index, the best leading index of manufacturing, has been in decline (below 50) from February 2008 through January 2009, so far. The $787 billion stimulous package provides a floor for the crisis, more of a safety net, than a pump.
- Globally, third and fourth quarter 2009 growth will return to many industrialized and developing countries, with additional modest growth through 2010. Individual countries’ recoveries and growth will vary. Industrialized countries will see less than 2% growth through 2010, and developing countries will exceed 3% by 2Q10.
- China gross domestic product (GDP), nearly 13% in 2007, will fall below 10% in 2009, and exceed 10% in 2010.
- India's growth has fallen below 8%. Europe and East Asia will grow in 2010. Mexico growth is slowed with drug-related gang violence. Brazil manufacturing declined slightly in the last months of 2008 and will grow 2009-10.

MAPI provides positive numbers for 2010, with a turnaround expected later in 2009.
MAPI expects good economic news for manufacturers in 2010 with a turnaround in many areas later in 2009; more details are available at www.mapi.net.

Recommendations for growth
Government policies will govern outlook more than anything else. Waldman's recommendations, to go from stability to economic growth, include:
- Ensure that the banking system makes credit available where it makes sense, promoting investments with good prospect for return;
- Pay attention to balance sheets;
- Encourage U.S. consumers to save more and spend within their means;
- Prompt global economies to prime their own consumers;
- Take solice that more safety nets are in place than in the 1930s; and
- Carefully monitor events and consider how to create opportunities.
See a video from Cliff Waldman, global economist, Manufacturers Alliance/MAPI .
Control Engineering provides other coverage from the ODVA meeting .

Mark T. Hoske , editor in chief
Control Engineering News Desk
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