Anxious to be making money, too

Upturn: That's what the struggling manufacturing sector is being told it can anticipate later in the year.

Manufacturing

January 20, 2002|By Kristine Henry | Kristine Henry,SUN STAFF

Those who earn their living from manufacturing or manufacturing-related businesses are generally expected to continue to experience difficult times in 2002. But experts say they expect things to start picking up in the latter part of the year.

The sector has been in recession since September 2000, and more than 1 million manufacturing jobs have been lost in the past year.

"We think the worst is over," said Paul Engle, a manufacturing consultant at Grant Thornton LLP in Baltimore.

Businesses in the capital-spending arena - especially information technology - are expected to face particularly tough times.

"The bad news is that anything, and I mean anything, tied to capital spending is in the doldrums," Engle said. "Businesses are conserving cash, they are being careful, and they've also made investments in the past," which means they may not need to make more in the coming year.

Things will pick up in capital equipment, he said, although it likely won't happen this year.

"No one is looking for any growth at all in 2002," Engle said. "They're pretty much planning at this point to be reducing expenses, watching their cash, looking for mergers and business alliances that make sense in terms of being more cost effective."

Look at fiber-optics multiplexing-equipment maker Ciena Corp. of Linthicum. One year ago, Ciena was hiring 30 to 40 people a week, primarily in its manufacturing division. A spokesman said at the time that the company was "going like gangbusters."

Fast forward to November 2001, when the firm laid off 380 manufacturing workers.

"We find ourselves, purely in the manufacturing area, with some excess capacity that we cannot carry moving forward," said Gary B. Smith, the company's president and chief executive officer.

Last month, Ciena said it expects a 30 percent to 40 percent drop in first-quarter revenue.

"We think in general, barring another major shock to the system ... we think we're going to see a return to growth [in 2002]," for manufacturing overall, said Thomas J. Duesterberg, president and chief executive of the Manufacturers Alliance. "It will probably be visible in the spring and accelerate somewhat in the second half of the year."

David Huether, senior economist, National Association of Manufacturers, agreed.

"Manufacturing output in the first quarter we think is going to basically be stagnant," he said. "Maybe up a 10th of a point, maybe 1 percent in the second quarter, and then in the second half maybe 3 percent."

Relief can't come soon enough for some of those hardest hit -- particularly Bethlehem Steel Corp., which employs about 3,500 at its Sparrows Point plant in Baltimore County. The steel maker filed for Chapter 11 protection in October and is hoping for government help on several fronts.

Bethlehem and steel makers around the world are anxiously awaiting President Bush's decision -- expected in the next month or so -- on whether to impose tariffs on steel imported into the United States. Domestic producers have complained that cheap imports are dragging down prices and have led to more than two dozen U.S. steel makers fling for bankruptcy in the past several years.

Bethlehem is also asking for the government to take over its responsibility for the health care of its retirees. That $3 billion obligation has stymied Bethlehem's chances of being acquired by a more healthy company, but U.S. Steel Corp. has said it would buy Bethlehem and other domestic producers if that cost were eliminated. Bush has not yet indicated his position on the request and Congress has not made funds available.

While steel's outlook is unclear, some areas of the manufacturing sector are expected to fare well.

Good news is expected in the residential housing and security areas.

"The residential housing industry is having a great year," Engle said. "Low interest rates are probably the driver, and that carries out into all sorts of industries."

While the do-it-yourself sector has not and is not expected to get much bounce from the housing industry's strength - power-tool maker Black & Decker Corp. saw its profit fall by nearly half in the third quarter and blamed the weak economy for its results - those related more closely to contractors are doing better.

Take Dap Inc., the Baltimore-based maker of home repair and construction products such as caulk and sealant. It's in the midst of a $3 million expansion at its Baltimore County plant that will create 25 new jobs. The company employs about 325 in the Baltimore area.

"We're somewhat odd compared to what's going on in the rest of the world," said Dap President and Chief Executive Officer John McLaughlin. "Business has been very positive."

Aside from the housing-related markets, the other bright spot in the manufacturing sector is defense. Since the Sept. 11 attacks, the security and protection sector has seen its fortunes rise.

"Northrop Grumman and Lockheed Martin are seeing business levels they have not seen literally in 10 years," Engle said. "Certainly Sept. 11 was a factor, but the trend was already up because of the new [Bush] administration."

CompuDyne Corp., a security-product manufacturer in Hanover, has seen interest in its business pick up drastically since Sept. 11. One of its product lines is attack-resistant doors and windows for embassies and federal buildings.

"That business is doing very, very well, and the government has announced it is going to do more in that area in the next several years," said Martin Roenigk, chairman and chief executive officer.

He said the company expects revenue to grow in 2002 by 15 percent to 20 percent or more.

"We're quite optimistic," Roenigk said.

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