Two Ways Manufacturers Can Mitigate the Slowdown

The business-cycle peak is coming to the manufacturing sector. ITR’s forecasts have been calling for it since last year, and leading indicators signal that it will likely occur in the first quarter of this year, as we have expected. An analysis of the latest data for the US Total Manufacturing Production Index reveals that the 3/12 rate-of-change – the percent change between the most recent three months of data and the same three months of data from one year prior – has been generally declining from a September 2018 peak.

If your business correlates well to the overall manufacturing industry, this means that you will likely see a slowdown in your growth rates in the coming months, if you haven’t already. We suggest that you compute your own 3/12 and 12/12 rates-of-change to determine where you are in the business cycle. This will clearly indicate whether you have started to slow down with the overall manufacturing trend.

Many manufacturing business leaders have asked ITR economists if they are fated to follow the macroeconomy and their markets into Phase C, Slowing Growth, in 2019, or if there are ways for them to mitigate the pressure on the back side of the business cycle. There are two courses of action that may be helpful in this regard.

First, consider hiring some additional talented and proven salespeople. Bringing driven, experienced sales representatives on board right now may allow your business to obtain new clients or enter new markets. This could lessen the Phase C slope – that is to say the pace of deceleration – for your company. Of course, it would be greatly beneficial if these salespeople brought with them established client relationships that they could leverage to win new business for your firm. An added benefit of sales staff is the fact that their variable compensation is based on performance. This limits your exposure to the fixed costs associated with high base salaries.

The second course of action is to launch new products or services. Hopefully, doing so would also enable you to penetrate new market segments and alleviate some of the pressure your company will feel in 2019. After all, new ventures can help you buck the softness on the back side of the business cycle. Assess market needs to identify existing gaps in your product portfolio and uncover complementary opportunities. This is also a great time to think about diversifying your product offerings if you find your business overly reliant on a particular product or customer.

Your performance this year will be much more about what you do differently rather than what the economy will allow you to do. Manufacturers should consider employing the above strategies as a means to potentially extend the cyclical rise in their businesses or at the very least lessen the cyclical pressures on the back side of the business cycle. However, these suggestions can take some time to implement, so move quickly if you decide to pursue them. Otherwise, reach out to ITR Economics to explore some ways to establish a sound approach for Phase C, Slowing Growth, and minimize the downside pressure on your business as the manufacturing sector slows over the course of 2019.

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