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Manufacturing to be state’s economic cornerstone in ’08
By Dan McCue
Staff Writer
In spite of a run of bad news ranging from supply chain issues for Vought Aircraft Industries to the apparent closure of Protected Vehicles Inc. and a spate of layoffs in the waning months of 2007, industry experts think manufacturing will be a bright spot in the region’s economy in the year ahead.
Frank Hefner, chairman of the College of Charleston’s Department of Economics and Finance, said the difference-makers will be the ongoing decline of the value of the dollar and a related series of anticipated economic development announcements.
“As 2007 came to a close, we heard announcements of different things happening, and unfortunately, some of those announcements pertained to plants closing down and workers being furloughed,” Hefner said.
At the same time, however, the area also began witnessing a marked increase in foreign investment because of the weak dollar, he said.
“In the months ahead, and likely for the rest of the decade, I expect that will lead to new plants opening up and an expansion of the manufacturing sector through the state,” Hefner said.
His confidence in the state’s manufacturing sector also is reflected at the national level.
According to an annual survey of the U.S. manufacturing sector conducted by Bank of America Business Capital, seven out of 10 manufacturing company CFOs expect their companies’ revenues will increase in the coming year, and nearly half predict an increase in their profit margins.
Conducted by Granite Research Consulting during the third quarter of last year, the Bank of America Business Capital 2008 CFO Outlook surveyed CFOs from 600 U.S. mid-size and large manufacturers with revenues ranging from $25 million to $2 billion.
The survey found that 32% of respondents planned to fuel their revenue growth through increased capital expenditures, while 23% expected to participate in a merger or acquisition in 2008, up slightly from 20% in 2006.
Seventy-one percent of manufacturing companies selling to foreign markets expect their sales to increase in 2008, up from 64% last year.
“Clearly, manufacturers are looking for ways to grow their businesses,” said Joyce White, president of Bank of America Business Capital. “Strong U.S. exports are certainly contributing to an expectation among manufacturers that revenues and profits will continue to increase through 2008.”
The outlook for the Lowcountry is just as promising, said Jennifer DeWitt, executive director of the Lowcountry Manufacturers Council, a consortium of manufacturers throughout the tri-county area.
“We continue to maintain a strong base of industry in the Lowcountry, about 8% of the employment sector vs. 20% statewide, and about 10% nationally,” she said. “While other regions have seen a significant loss in manufacturing jobs, the Lowcountry has remained steady.”
That translates into approximately 24,000 jobs in the region that offer wages and benefits about 25% higher than non-manufacturing jobs, she said.
“And we continue to attract new industry,” DeWitt said.
Beyond market conditions, the Lowcountry has a host of traits that will make it attractive to manufacturers in the coming year, she said.
These include access to highways, proximity to the Port of Charleston, favorable state and local incentives, access to real estate and a strong quality of life, which is important to attracting and retaining a work force.
DeWitt pointed to recent investments in land development projects that include speculative warehouse, distribution and manufacturing facilities. These include the 1,300-acre Jafza International project in Orangeburg and several smaller projects in the Jedburg area near Interstate 26.
“These investments are all great indicators of anticipated growth in our region,” she said. “For the Lowcountry, or any region, manufacturing’s main contribution to economic growth lies in its innovation, productivity and the multiplier effect of generating more business in other sectors of the economy.”
Every dollar in final sales of manufactured products supports $1.37 in other sectors of the economy, DeWitt said.
“Manufacturing will continue to have a strong impact on our region’s success,” she said.
DeWitt predicted the state will witness continued growth in the automotive and aerospace sectors as vendors and suppliers strive to be closer to their customers, part of the clustering concept championed by New Carolina and other economic development organizations in the state.
To continue to be competitive in 2008 and beyond, DeWitt said she thinks manufacturers need to focus on innovation and continuous improvement.
“Toward that end, I think you’ll see manufacturers becoming more advanced and utilizing technology even more than they do today, which translates into a demand for a skilled work force,” she said.
That idea of change and the importance of technology was echoed by John E. Clarkin, director of the Tate Center for Entrepreneurship in Charleston.
“From my perspective, the face of manufacturing in South Carolina has already changed dramatically,” he said.
“Gone are the days when companies considering relocation to South Carolina could rely on the benefits of a relatively cheap work force. Gone too, I think, are the days when companies could depend solely on military orders for their prosperity.”
As a result, in the year ahead, Clarkin expects to see a proliferation of “specialty manufacturing” in the state, he said.
“That includes a more vibrant medical device industry developing here and an influx of technology-based firms that decide the lifestyle and ‘creative class’ of Charleston is more appealing than the Northeast or Atlanta,” he said.
In its most recent analyses of economic conditions, published in early December, the Federal Reserve Bank in Richmond found that manufacturing and the leasing of commercial real estate were among the few bright spots in a district encompassing Maryland and Virginia, as well as North and South Carolina.
According to the Federal Reserve, shipments and new orders began to expand modestly toward the end of the year, with gains being “particularly solid” at electronics, machinery, paper and plastics firms.
Looking forward for the next six months, the Federal Reserve said companies expect a steady growth in shipments and new orders and anticipate stronger growth in capital expenditures.
Along with that, firms surveyed by the Federal Reserve predicted that prices for both raw materials and finished goods would grow steadily in the first six months of this year.
Addressing the Charlotte, N.C., Chamber of Commerce on Dec. 19, Jeffrey M. Lacker,
president of the Federal Reserve Bank of Richmond, said while the housing market downturn and the attendant financial market fallout were the dominant macro-economic developments of 2007, exports will be a source of strength for the economy in the new year, owing to a weaker dollar and strong demand for U.S. goods and services overseas.
Those combined factors will lead to a modest boost in the nation’s gross domestic product, he said.
But he said an even bigger factor will be domestic consumer spending.
“I have learned not to underestimate the resilience of the American consumer, and I see some encouraging signs,” Lacker said.
Among these were wage gains that are outpacing inflation and an expansion of real income, he said.
“I believe the most likely scenario is for reasonably solid income growth (in 2008) that will support further gains in consumer spending,” he said.
The American consumer also was front and center in Hefner’s thoughts.
“There’s no question that while a weakened dollar is encouraging investment, such activity wouldn’t make sense without our consumers,” he said. “This year and going forward, I think we’re going to see a lot more activity by European and Asian companies who want to satisfy that demand.
“Now, the fact that these companies are foreign-owned might be an interesting problem for some, but the fact is, they are going to be hiring American workers and using American input.
All in all, that makes for a pretty positive outlook, especially here in South Carolina.”
Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@setcommedia.com.
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