Business Columns & Blogs

No sign of a recession at Tacoma Amcon show, but economic trouble might not be far off

Contract manufacturers say business is good, but could Boeing’s latest troubles hurt the local economy?
Contract manufacturers say business is good, but could Boeing’s latest troubles hurt the local economy? AP

The view from the glass-window-walled atrium of the Greater Tacoma Convention Center on a recent weekday morning was nearly tourism-brochure, economic-development-video perfect, offering a landscape of museums, the dome, the port, the water and, painted on a partly sunny sky, the mountain.

It provided a nice complement to the views provided inside the convention center’s exhibition hall that morning, the annual contract manufacturers’ show.

The Amcon show, which for at least a decade has been held in Bellevue, made the trek to Tacoma this year (hooray, Tacoma steals one back from King County!), at an opportune moment to consider the state of the economy generally and manufacturing specifically.

Contract manufacturers are the folk that make parts, subassemblies and components for other manufacturers, some of whom are in turn supplying other manufacturers. They’re bending the metal and churning out plastic parts and putting together the electronic circuit boards that go into planes, trucks, boats, medical devices and industrial equipment, just to name the more common categories.

Those contract manufacturers represent a useful barometer for determining the direction of economic weather. If customers aren’t ordering planes, trucks, boats, medical devices, industrial equipment or any other manufactured good, the contract manufacturers that make pieces and parts for those items won’t be getting orders either.

Here’s a bit of good news, then. Contract manufacturers say generally things are, like that view out the atrium windows, pretty good. They describe their outlooks as “optimistic,” although usually accompanied by adjectives such as “cautiously” or “relatively.” They’re scanning the skies for signs of trouble, but even tariffs and trade tiffs haven’t been nearly as disruptive as feared. Just as those actual clouds on the real horizon were not much to worry about (especially with what we’ve been through this winter), so too does the near-term economic outlook appear to be partly sunny.

Why just “partly” sunny? The big exception to, or condition on, these forecasts is the length of the current economic expansion. Unless someone has banned the business cycle and not told us, a recession is coming. We just don’t know when, how long it will last, how bad it will be (that last one was a doozy) or what will trigger it. By historical terms it should have already commenced. There’s no shortage of potential excuses from the political, trade and international relations realm for a downturn starting tomorrow.

Yet the economy continues to putter along, according to contract manufacturers at the Amcon show. Order flow is good, it’s distributed across a variety of industries and contract manufacturers aren’t getting beaten up on price (at least not any more than Boeing and other original-equipment manufacturers are already squeezing suppliers on cost).

For another piece of evidence that the economy is doing all right for the moment, let’s turn to mergers and acquisitions. If investors didn’t have some optimism about the economy’s prospects, they wouldn’t be buying manufacturing companies.

But they are. Most notable among recent local deals was the sale of Omax Corp., the 25-year-old Kent-based maker of waterjet cutting tools, to a New Hampshire maker of industrial equipment (which says it intends to keep Omax operating largely as is). Other recent deals include the sale of Renton-based packaging producer Allpak Container, Moses Lake potato-starch chemical maker Western Polymer, and Onboard Systems, a Vancouver (Wash.) company that makes cargo handling equipment for helicopters.

The buyers vary as much as the sellers’ motivations, and since acquisition prices aren’t disclosed, we don’t know the trend line for multiples or valuations. But between these deals, a flurry of announcements from development-stage companies raising funds and expansion projects under construction around the state, cautious optimism about manufacturing is neither too cautious nor too optimistic.

Lest we get too complacent, though, let’s fret a bit over one very important component of the regional manufacturing ecosystem — Boeing.

The two fatal crashes of the recently introduced 737 Max has led to a grounding of the fleet of planes while Boeing tries to come up with a fix that regulators will sign off on. Meanwhile, some airlines are making noises about canceling orders for the plane (presumably switching to Airbus), although it’s unclear if they’ll carry through or are looking to wring concessions out of Boeing.

Boeing already has a lot to deal with this year: the joint venture with Embraer, launching the 777X, trying to manage production rate increases for the 737 without snarling the line with supplier delays. That’s just on the commercial side. Even if it gets the cause of the Lion and Ethiopian crashes identified and fixed, it will be dealing with reputational damage and questions about its regulatory oversight for years to come.

Also thrown into uncertainty are the timetable and thinking behind the middle-of-market or 797 that Boeing was expected to start pitching to airlines this year. How fast does Boeing push on that project when it’s dealing with issues surrounding existing models? And how much does Boeing lose competitively lose if that new plane gets delayed?

Like farmers, retailers, heck, like just about anyone in business, manufacturers can always find something to worry about, and that’s not a bad thing.

Enjoy the view, while it’s there. Some day, it won’t be.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.
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