June, 1998 Market Analysis Small Manufacturers Report Moderate but Slower Growth in 1999 The nation's small manufacturers expect continued but moderate growth in 1999, with a slight slowdown across-the-board in sales, wages, capital investment, exports and profitability, according to the National Association of Manufacturer's (NAM) annual survey of its 10,000 member companies with 500 or fewer employees. "The likelihood of slower business growth should help dampen the Fed's concern about an overheated economy and quell talk of a hike in interest rates," said NAM president Jerry Jasinowski. "The survey indicates that we are going to stay at a moderate speed, with low inflation and stable employment, for the foreseeable future. Given the slowing economy, there is no reason to raise rates. "The survey illustrates the extent to which the Internet is revolutionizing business," said Jasinowski. "The use of the Internet by small companies for business purposes has jumped dramatically, from 38 percent in 1996 to 85 percent in 1999. Among CEOs, the percentage using the Internet for business purposes has swelled from 12 percent in 1996 to nearly 52 percent in 1999. Clearly, small manufacturers are increasingly cyber savvy and ready to try new innovative ways to do business." Specific survey findings supporting the business and economic slowdown show: Nearly 24 percent of companies expect their sales to increase by over 10 percent in 1999, a moderate slowdown from 1998, when 29 percent experienced similar high sales. There is a modest tapering off of capital investment. Seventeen percent expect to decrease capital investment in 1999, roughly double the percentage that experienced decreases in 1998. Profits look less volatile in 1999. While fewer companies expect profits to grow or decline, 30 percent expect profits to remain the same in 1999, compared to 22 percent whose profitability stayed about the same in 1998. Moderate wage pressures indicate little danger of inflation. Only 14 percent anticipate wages to increase by more than 5 percent in 1999, compared to nearly 19 percent who experienced similar wage increases in 1998. The survey found the three most serious problems facing small manufacturers are finding and keeping qualified employees (32 percent), the rising cost of health insurance for employees (23 percent) and burdensome government regulations (19 percent). "Though the number of small manufacturers who cite rising health care costs as their company's Œmost serious problem' has nearly doubled over last year, fully 98 percent of small and medium-size manufacturers offer health care benefits to their employees," said Jasinowski. "But more than half of the firms indicated they would drop or consider dropping coverage for their workers if Congress passes the Patients' Bill of Rights or similar legislation that exposes employers to legal liability for their health care plans." The survey also asked about Year 2000 readiness. "Progress on Year 2000 readiness among small manufacturers is a mixed bag," said Jasinowski. With seven months to go, only 60 percent report that their accounting systems are compliant and 55 percent say their shop floor systems are in order. We also are concerned that 40 percent see no need for contingency planning even though there is so much uncertainty surrounding what will happens when the clock strikes midnight on Dec. 31, 1999. On the plus side, over three-quarters of those polled are communicating their Y2K readiness to vendors, suppliers and the public." The survey, sent by mail in late March to NAM's 10,000 small and medium-size manufacturing members, had a response rate of 17 percent, or more than 1,700 respondents. The Manufacturing Report © Copyright 1999 by Lionheart Publishing, Inc. All rights reserved. E-mail Editorial Dept: tmr-editorial@lionhrtpub.com Lionheart Publishing, Inc. 2555 Cumberland Parkway, Suite 299, Atlanta, GA 30339 USA Phone: 770-431-0867 | Fax: 770-432-6969 E-mail: lpi@lionhrtpub.com Web Design by Premier Web Designs E-mail: lionwebmaster@preweb.com