There's A Little Bright Spot For Private US Manufacturers Right Now

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Photo: Getty Images/John W. Adkisson

Manufacturing weakened in January, the Federal Reserve said Friday, but the sector has been a relative bright spot in the economy since the recession.Indeed, recent data from Sageworks Inc., a financial information company, shows that the “State of the Union” for private manufacturing companies is fairly positive.

Preliminary estimates for 2012 show that average sales for privately held manufacturers increased nearly 9 per cent – healthy gains despite representing a slowdown from almost 15 per cent growth in 2011.

Profit margins, meanwhile, continue to expand and have surpassed pre-recession levels. Private manufacturing companies in Sageworks’ database have an average net profit margin of 6.5 per cent, according to current estimates for 2012. That compares with an average net profit margin of just over 5 per cent in 2011 and a recessionary low average of 2.7 per cent in 2009.

Nearly all employer firms in the U.S. are private (with listed companies representing less than 1 per cent), so the performance of private manufacturers is a key barometer of the sector as a whole.


Photo: SageWorks

Through its cooperative data model, Sageworks collects financial statements for private companies from accounting firms, banks and credit unions, and aggregates the data at an approximate rate of 1,000 statements a day.

Net profit margin has been adjusted to exclude taxes and include owner compensation in excess of their market-rate salaries. These adjustments are commonly made to private company financials in order to provide a more accurate picture of the companies’ operational performance.

Despite the improvement, Sageworks analyst Brandt Leahy notes that it’s difficult to say whether this is the result of increased demand or cost cutting. Privately held U.S. companies in general achieved higher per-employee sales and profits in 2012 than in recent years, indicating they are more efficient by those measures.

For some manufacturers, however, uncertainty seems to have slowed business yet again in the last month or so. And that’s causing them to reconsider hiring new workers.

“For the last two years, we don’t ever seem to be able to generate momentum,” said Stuart Rubenstein, co-owner of Kaleidoscope Limited, a Midway, Fla., manufacturer of wall décor, framed artwork, canvases, mirrors and dry erase boards. “We have a couple of good months, then one or two slow months. Things have appeared to slow down a little bit in the last three to four weeks and I’m not really sure of what’s going on.”

An uptick last year in the firm’s business supplying wall décor to hotels under renovation seems to have slowed to a crawl as customers put off giving the go-ahead on recently quoted projects, he said.

Another important customer segment for Kaleidoscope – government — has really come to a standstill, he said. “I don’t think they know if they’re going to have any money after March 1,” he said, due to the threat of automatic spending cuts unless Congress approves changes to the planned so-called sequester.

Indeed, small business online community Manta recently surveyed more than 1,300 business owners, including Rubenstein, and found that 37 per cent had decided against hiring new staff in the first quarter and 14 per cent are ending discretionary spending in response to the fiscal cliff and debt ceiling crisis.

Rubenstein said that in the last month or so, he considered hiring another production worker to his current staff of 18, but he’s decided to hold off since things slowed down in order to make sure demand doesn’t drag further. “I’m very worried,” he said. “Again, it’s like every time we seem to take a step forward, we seem to take a step backward.”

Sageworks, a financial information company, collects and analyses data on the performance of privately held companies and provides allowance for loan and lease losses solutions to the banking industry.

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