Executive Outlook 2013: More Demand Will Grow An Appetite For Investment

With the economy growing around 2%, and a stock market up above 15,000 (Dow Jones), one would think that the economy is doing better—or even well. As a matter of fact, given all the uncertainties from both domestic and global perspectives, our economy is doing pretty well. So, how is it that we are still considering the recovery to be sluggish? The main reason is that unemployment continues to hover around 7.5%. Often, companies are hesitant to invest unless they absolutely have to, and unless they can see a clear and immediate return.

Two-thirds of the economy is based on consumer spending; corporate spending drives the remaining third. For several months now, consumer spending and consumer confidence has been driving GDP. Industrial spending is much more limited and often only takes place if current demand makes it absolutely necessary to add capacity, upgrade equipment and hire workers in order to avoid unhappy customers. This current lack of industrial investment can be observed by looking at the manufacturing sector of our economy in more detail. 

After the Great Recession in 2009, the manufacturing sector, driven by market demands, actually grew month after month, for an almost-unprecedented period of approximately three years. While those increases in growth were small, over time they were significant for our manufacturing sector and our economy. Companies upgraded equipment and installed new technology, including more productive, automated equipment as the demand for products increased. During the last several months, this trend in manufacturing has slowed considerably as a result of decreasing demand (again, almost unnoticed).
At Klüber Lubrication North America, however, we have continuously made substantial investments in our manufacturing and customer-service operations—which are driven by continued strong interest and high demand for both our expertise and our engineered industrial lubrication solutions.

Current economic growth is, to a large part, due to a significantly improved housing market and the automotive industry gaining strength. These are positive developments. Still, housing and automotive are mainly driven by consumers—not by corporations. To grow our domestic economy in a productive and healthy fashion, further investments in technology and advanced manufacturing equipment is necessary. This will call for long-term planning and an appetite for long-term investments, and require companies to produce the financial returns and cash flow to benefit from these investments and service associated debts.

Ever-changing and increasing rules and regulations have made it difficult for companies (and sometimes consumers) to know where we will be six, 12 or 18 months down the road. What do you do if you don’t know what you will face or what you will be able to work with in the near future and, more important, in the long-term? You wait until the dust settles before you make your mid- and long-term commitments. Investments in technology and adding to your workforce are exactly that—mid- and long-term investments that you don’t want to plan or change on short notice. The efforts with such commitments are not insignificant: Considering the financial risk exposure, management has to make sure that the return expectations for its investments are justified.MT

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