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As I write this column, the past week has included two bits of troubling news regarding employment. National unemployment statistics reached 9.7% for August-the highest in 26 years-according to the Bureau of Labor Statistics (BLS, www.bls.gov). The numbers may actually be higher, as the report does not include people who have been unemployed and stopped looking for work, nor do they include individuals who are employed part-time and are seeking full-time employment. Some analysts expect that with those two categories included, unemployment could be as much as 16%.
On the heels of the BLS report, Manpower Inc. released the results of its survey on hiring. Here it reports that Europe and Asia will see increased hiring rates vs. the United States, which will lag behind those regions until at least the first quarter of 2010. Manpower suggests that such a hiring recovery in Europe and Asia could be cut short without the support of the U.S. consumer.
Finally, despite the first expansion in manufacturing numbers of more than 18 months, a story from Reuters questions whether that expansion can be maintained without the support of consumers. It could be, as the story suggests, merely a short-lived spurt that is the result of replenishing inventories that were drastically cut during the past year instead of renewed consumer demand.
It would seem that the consumer holds the key to how the economy and manufacturing fares over the next several months. That is nothing new. But it’s important to distinguish between the two types of consumers so as to put these reports in perspective.
First, there is the individual consumer-you and me-who consumes various end products such as food, energy, services and manufactured goods. We buy airline tickets, big-screen televisions, cars and gas for those cars. Our purchase plans, especially in this economy, are made in the short-term, as is proved by the September Index of Consumer Confidence increasing to its highest level since June, but with consumers telling the researchers they “still see their own financial situation as problematic for quite some time.” The numbers are in flux and subject as much to emotion as anything else.
The Index of Consumer Confidence is not a reliable source of predicting manufacturing needs. Reuters, Manpower, the mainstream press and the BLS mistakenly use only these consumers as a barometer for the long-term health of the economy and manufacturing. They need to understand the power of the second type of consumer.
The second type of consumer is the companies who manufacture parts and finished goods. In the case of Quality’s audience, it is the companies for which you work. They will continue to manufacture or not based on long-term strategies, rather than short-term emotions. They forecast demand for their products and purchase equipment, software and services accordingly. They are the reason that the Purchasing Manager’s Index has shown the first signs of expansion in 18 months and four consecutive months of growth.
It’s not that the first type of consumer is unimportant in the mix; however, they are not the primary determinant in whether there is sustainability in the positive manufacturing news. Their short-term purchasing strategies and “confidence” are not the reason why manufacturers will need to purchase manufacturing and quality tools.
Manufacturers more often cater to a global consumer base, and the effect of the individual consumer on manufacturing in this current economic cycle is more a result of a global downturn in individual consumerism than any one particular region of the world. Manpower’s survey would seem to indicate there will be more consumers in other parts of the world, even if the United States is a bit slower in adding individual consumers.
Manufacturers as consumers are the primary motivators of a sustainable manufacturing and quality health; individual consumer confidence serves to ensure that improved health.
National Economic Council Director Larry Summers recently told Politico that the economy is getting better and that recovery is sustainable. That is despite the fact that Summers admits that individual unemployment is expected to remain high. Summers seems to understand there are different types of consumers.
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