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Although the threat of a recession and a housing market slump are weighing on the U.S. economy’s stability, the outlook for some manufacturing industries and companies with plants in Iowa is still looking good. Others are anticipating a slowdown in 2008.

“In general it will slow in a lot of industries before the housing market corrects itself; that is supposed to take all year,” said Ann Wagner, a labor analyst with Iowa Workforce Development. “At the national level, they are doing all they can to stave off recession, and that environment is really unstable.”

Manufacturing makes up 15 percent of Iowa’s nonfarm employment, third in size behind only trade, transportation and warehousing and government, according to IWD data for December 2007 (see chart).

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“My main belief is that the housing market slowdown and mortgage problems are affecting consumers,” said Ron Cox, director of the Center for Industrial Research and Service, part of Iowa State University Extension. “They are not out buying big-screen TVs or putting down payments on houses.”

Unemployment insurance claims (measured in weeks of pay) filed for the manufacturing industry in December 2007 totaled 20,844 weeks, or 21.75 percent of all unemployment, the second-highest unemployment figure among the state’s labor sectors, according to IWD statistics. First payments made to the unemployed in the manufacturing industry in December added up to 2,494. Construction industry jobless claims came in at 24,342, or 25.4 percent.

Industry connections

Despite the wavering economy, manufacturers could succeed this year, depending on the goods they produce and what industries their products are linked to.

When commodities, buyers and markets connected with the industry fare well, manufacturing can prosper and grow. When they don’t, the industry can weaken and growth will slow.

“Manufacturing overall is losing jobs, but there are certain parts of manufacturing that are not; they are gaining,” said Ernie Goss, a professor of economics at Creighton University in Omaha, who compiles the monthly Mid-America Business Conditions Index.

Manufacturing plants connected with agriculture, the production of ethanol and biofuels should fare well in 2008, he said.

“Anything connected to agriculture in this part of the country, like John Deere & Co., storage for corn, irrigation … and fertilizers are doing well,” Goss said. “In terms of manufacturing, they will continue to see growth for 2008.

“Ethanol is tougher. The government is encouraging it, and that is a motivating factor. Corn prices are running up; some (ethanol producers) are not doing as well. But I still think that in 2008 and 2009 things will stack up well for ethanol producers. Manufacturers that have a connection to biofuels and energy, like the company (TPI Composites Inc.) moving to Newton, which makes turbines for wind farms, are industries that will do well. They have connections to environmental issues.”

With a factory and its corporate headquarters located in Des Moines, the Firestone Agricultural Tire Division of Bridgestone Firestone North American Tire LLC employs part of Iowa’s manufacturing work force. Firestone Agricultural products made in Des Moines are sold to three markets: agriculture, light construction and forestry.

“Forestry and light construction … are closely tied to the health of the housing industry, which we know has not been very favorable in the second half of the year,” said Ken Allen, vice president of Firestone Agricultural. “And looking forward, we are not seeing a significant rebound in the near term.”

Firestone Agricultural deals with two ag markets: open market production and small tractors. Conditions are looking favorable for its products sold to farmers, Allen said, because of the strength in the soybean, wheat and corn markets.

Sales of small tractors, which are typically purchased by people on the “fringe” of rural and urban communities, Allen said, are also related to the health of the economy and the housing market. The “buffer between urban and rural” is the area to watch, he said.

Rexco Equipment Inc., located at 5900 S.W. 56th St. in Des Moines, sells a variety of equipment, some of which is used in the “green” energy and ethanol production industries. The company expects a successful year.

“This is going to be a good year for us,” said Casey Smith, branch manager for Rexco’s Des Moines facility. “The products we sell are connected with alternative energy and ethanol plants.”

Selling cranes, a strong industry in the Midwest, is a large part of Rexco’s business. Smith said that the industry looks to keep moving forward.

Titan Tire Corp., a subsidiary of Titan International Inc. located at 2345 E. Market St. in Des Moines, produces tires for farming and off-road uses and has an optimistic projection for the year.

“2008 is going to be a record year, and I think 2009 is going to be getting even better,” said Morry Taylor, chairman and CEO of Titan International.

Following national trends

Seven out of 10 manufacturing chief financial officers expect their companies’ revenues to rise in 2008, according to an annual survey of U.S. manufacturing company CFOs commissioned by Bank of America Business Capital.

“With healthy balance sheets, manufacturing CFOs are continuing to look for and find ways to grow their businesses, whether organically, through (mergers and acquisitions) or expanding internationally,” said Joyce White, president of Bank of America Business Capital, in a release. “Strong U.S. exports are certainly contributing to an expectation among manufacturers that revenues and profits will continue to increase through 2008.”

Granite Research Consulting conducted the Bank of America Business Capital 2008 CFO Outlook survey from August through early October 2007, polling representatives of 600 mid-size and large manufacturing companies with revenues ranging from $25 million to $2 billion.

The results, released in December, did not show a favorable outlook for the U.S. economy. Forty-four percent of the CFOs anticipate that the U.S. economy will grow in 2008, down 55 percent from the 2007 survey.

Though the declining value of the U.S. dollar can cause difficulties for some sectors of the economy, it can boost sales for manufacturers that export.

“Most people feel the increase in exports, a lot of it has been tied to the weak dollar,” CIRAS’s Cox said in a radio interview with Doug Cooper of ISU Extension. “It’s a terrible time right now if you are trying to plan a trip overseas, but it’s a great time if you are a manufacturer and you want to sell your product overseas.”

Among manufacturing companies selling to foreign markets, 71 percent expect their sales to increase in 2008, up from 64 percent for last year, according to the America Business Capital survey.

According to the Purchasing Managers Index, a monthly survey put out by the Institute for Supply Management, purchasing (an indicator for the health of manufacturing) is at its lowest level since April 2003. December’s PMI stood at 47.7, a decline from 50.8 the previous month and breaking a streak of 10 months above 50. Numbers below 50 suggest the manufacturing industry is contracting. Goss’ Mid-America Business Conditions Index, also measuring purchasing, results for Iowa, jumped up in December, from 49.2 in November to 52.9.

“The Midwest is doing better than the rest of the country, and that is encouraging,” Cox said. “But Iowa only makes up 1 percent of the U.S. population and 2 percent of the manufacturing industry. It is hard to think we can sit here and behave differently, unless there is a change that will make things go up. The stocks rebounded (on Jan. 23); maybe the rate cuts will start working.”