Next stimulus for the economy: capital investments
By jeffrey t. lavery
If the national economy is to continue expanding in 2006, it will take a healthy boost in capital spending.
Economists say the consumer is getting tired, and home building has cooled as a result of rising interest rates. That puts the pressure on business to drive growth with higher spending on plants and equipment this year.Predictions are that consumer spending in 2006 will grow by just 3%, while corporate expenditures will rise by 9 percent. "Manufacturers need to find a competitive advantage to offset foreign labor costs," says Dan Meckstroth, chief economist of the Manufacturers Alliance in Virginia. "The only way to do that is to increase your capital spending intensity."
"Yes, there will be increases in capital spending," adds Maureen Dunne, professor of Economics at Framingham State College. "Will it occur here? That’s the $64,000 question."
Rising orders for equipment
A check with manufacturers in the area shows a mixed picture, with some firms ramping up outlays for factory and office upgrades, while others stand pat.
Bolton-based Broomfield, which makes machines that wind coils for electronics applications, started off its current fiscal year "with one of the biggest backlogs we have ever had," says Allan Traylor, sales manager at Broomfield. "There was a real spurt in the second half of last year and we’re starting to see people coming back to get machinery they bought in the 80s rebuilt with new controls."
Broomfield’s clients include medical manufacturers who buy the firm’s coil-winding machines for MRI equipment. Other factors boosting Broomfield’s business include rebuilding efforts in the wake of Hurricane Katrina, as well
as clients relocating operations. For example, transformer manufacturers increased orders from Broomfield to replace storm-ruined equipment, and a major client that makes generators sold by Caterpillar sent machines back for upgrading after relocating to Mexico.
Orders also are strong for Worcester-based Reed Machinery, a thread-rolling machine manufacturer. "On a national basis, sales have gone up, and our growth last year was over 40 percent," says Jim Flanagan, president and CEO.
Booming business in the oil industry has increased orders for machines that service oil refineries, and Reed builds machines that put the threads on pipes in oilrigs. Says Flanagan: "The more wells that are open and the more oil they’re pumping, the more pipe they’re replacing and the more machines they need to thread it."
Flanagan also is seeing increased orders for machinery from Northeast companies that make parts for the aircraft industry and are looking for an edge versus competitors in the West who typically have faster turn around time. On the other hand, orders from customers in the auto industry have slowed. Champion Spark Plugs has placed orders for new parts, focusing more on maintenance, rather than revamping entire machines, according to Reed.
Also in Worcester, Micro Tech Manufacturing Inc. saw a surge of demand early in the decade for its machines that build capacitors for lithium battery manufacturers. Strong demand from the military was behind that increase. Now, the company is relying more on customers involved in setting up prototype and development lines, says Ted Jasiewicz, Jr., vice president of operations
Jasiewicz notes that there has been an increase in proposals, ranging from new mobile battery technologies to automakers developing hybrid cars. "When there are proposals to buy machinery, it means clients are bumping up capacity or are building a pilot line," says Jasiewicz. "That’s where we get involved. If there’s a huge order, they’ll increase their product line and buy more machines."
Upgrades to meet demand
Other companies are enjoying strong sales, and are revamping their operations to meet the increase in demand. Manufacturing facility projects accounted for $1.66 billion in planned investment in February, says Industrial Reports Inc., a group which researches planned capital projects.
Orders are up from last year for Adcole Corporation in Marlboro, which manufactures special purpose machines for measuring engine components, says CEO Addison Cole. The hottest markets have been in China, where customers use Adcole’s machinery in the manufacture of equipment ranging from autos to lawnmowers to motor scooters. Cole had more orders in China this year than in the U.S.
As a result, Adcole is expanding its manufacturing capabilities. "We bought a $300,000 machining center, and have ordered $100,000 grinders," says Cole. "We needed to increase capacity and cut costs."
Cole noted that updates to computers and information technology equipment also help to maximize efficiency and trim the bottom line. With new purchases of computers and printers, Cole says the company can keep expanding and modernizing while keeping up with orders.
However, Adcole has seen other markets tail off, such as in aerospace. Despite the increase in orders for airplanes and equipment to build them, Adcole’s segment of equipment for communication satellites hasn’t seen much life "for nearly a decade."
Still other companies this year are investing in new energy conserving equipment. Industrial Reports, Inc. notes that spending among manufacturers on energy related systems hit an estimated $6 billion in February alone.
Typical is Fitchburg’s Alpha Rho, the largest plastic box manufacturer in New England. While the company routinely invests in new molding machines, the big priority now is to develop a more efficient energy plan. By switching to longer lasting fluorescent lighting and installing a radiant heating system, not only are the employees more comfortable, but Alpha Rho has slashed energy costs significantly. The new lights use half the power of the previous fixtures.
"Looking at the expense side of things, we tried to become more efficient with the utilities we have," says David Tall, sales manager at Alpha Rho. "As we see the need to become more efficient, and as the need arises to reduce expenses, you start to look at everything and anything."
Jeffrey T. Lavery can be reached at jlavery@wbjournal.com
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