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Crain’s Cleveland Business: Will Trump's policies help manufacturing gears turn?
PMA featured in Crain’s Cleveland Business article.
Sunday, January 08, 2017
One of the most significant players in manufacturing this year isn't actually in the industry: He'll be in the White House.
Manufacturers are waiting to see what impact President-elect Donald Trump will have on their businesses. Particular factors to watch include the implementation — or not — of new tax policies and federal regulations. It's tough to say just what Trump will aim to enact, but according to a fact sheet on his economic policy, he wants to reduce significantly the tax rate on businesses, tax repatriation and eliminate "needless job-killing regulations."
But what companies are expecting and what's actually occurring haven't matched up yet, said Joseph M. Gingo, chairman, president and CEO of plastic compounds and resins supplier A. Schulman Inc. in Fairlawn. There's optimism surrounding the year, especially regarding the changes that could come to the tax system for corporations and individuals, he said, but he hasn't seen it lead to a surge in orders.
"The optimism has not turned into results," Gingo said.
But there are signs that manufacturing is strengthening, or at least that confidence in the sector is.
The Manufacturing ISM report for December 2016 did show expansion in the industry, with a sizable increase in the "new orders index." Independence-based Precision Metalforming Association's most recent survey on business conditions indicates that companies in that sector expect a "spike" in the next three months. According to the report, 43% of respondents are expecting business conditions to improve and 7% expect them to decline, compared with 21% and 25%, respectively, in November.
T.J. Monico, who works in industrial investment banking at KeyBanc Capital Markets, said he saw some restocking of inventory, which usually indicates near-term demand growth, late in the third quarter and fourth quarter of last year. Monico said he's not expecting big changes in company performance in the first quarter, but does expect to see some positive momentum.
Overall, the results of the election have given a "boost" to trends already in place, he said. There have been strong gains in the stock market, and an interest rate increase is expected. And Monico said confidence is up in the industrial markets he covers. The president-elect's effect on trade policy is an area with some concerns, but his policies on taxes, regulation and infrastructure could be possible stimulants, Monico said.
But it all comes down to whether policies change and, if they do, how quickly those changes are enacted. Confidence could dissipate if those proposed changes don't come through.
"Nothing's really happened yet," Monico said.
And that uncertainty is not great for investments.
Matthew Nipper, commercial team lead for Northeast Ohio at KeyBank, said local companies usually decide where to invest in new plants based on what their customers are doing. But recent, well-publicized decisions by Ford Motor Co. and Carrier to keep work in the United States instead of Mexico, at a time when Trump is heavily encouraging that, could lead to a wait-and-see approach.
Lourenco Goncalves, chairman, president and CEO at Cliffs Natural Resources Inc. in Cleveland, thinks manufacturing will have a strong 2017 if Trump enacts "at least a portion" of what he's been saying, particularly when it comes to keeping production in the United States. Cliffs supplies iron ore to the steel industry and could directly benefit if more of the metal was made domestically.
Richard Hipple, CEO of advanced materials company Materion Corp. in Mayfield Heights, said his biggest concern is the strong dollar and the dampening effect it can have on businesses. But he said he's bullish on 2017, pointing to robust auto sales in December, stabilizing oil prices and strong consumer confidence. And the new administration's talk about lower taxes and regulations could lead to a better environment for business, he said.
But 2017 won't be all about Trump, and not everyone's sold on the success of 2017. The economy is never just in the hands of the president, regardless of what he says or does.
(Read more here.)