Recession? What Recession?
It’s hard to hear good news
But it does still exist
This company is growing and growing
People see what they want to see. The bears see all the bad news. The bulls see all the good news. The media reports what it wants to report. Bad news sells. Murders, wars, catastrophes, government ministers caught with their hands in the trough. This is news.
Just now there is some bad news coming out of the economy. Editors are rubbing their hands at the prospect of indebted householders being dragged from their homes by thuggish bailiffs. They want to hear of empty restaurants, of shop-owners scouring the street for customers, of bankrupt buy-to-let landlords jumping from the balcony of one of their bijou fifth floor apartments.
Good news does not make headlines. So, when last week one company came up with excellent results and said that, so far as it was concerned, there is not a cloud in the sky the amount of column inches it received was precisely none.
OK, the company is not the stuff of fantasies. Brammer is a distributor of bearings and unexciting things like ballscrews and linear actuators – whatever they are – that literally make the wheels of commerce go around. Brammer provides these crucial parts to owners of industrial machinery. But as chief executive Ian Fraser headed into a series of presentations with his investors he admitted that he expected their eyes to glaze over. ‘It’s the same one I have been making for the last five sets of results,’ he explained. In other words the story is still of steady growth, new long-term contracts with big customers such as Mars and Robert Bosch, and neat little acquisitions. Rising earnings, rising dividends, a consistent strategy – who wants to write about that?
What recession?
I asked Fraser if he saw any sign of recession. ‘No,’ was his blunt reply. ‘And neither’, he added, ‘does Applied Industrial Technologies.’ This American company is a mirror image of Brammer and Fraser advised me to tune into the recent web-cast from its chairman and chief executive Dave Pugh. I did just that. The story was the same. Sales growth of 5% plus, widening profit margins and raised expectations for the coming year. ‘We are off to a good start in 2008’, said Pugh. ‘We are positive about the economy. Sure there is some weakness in areas associated with housing. But general manufacturing is still OK.’
This is reassuring. But should we be reassured? Will the problems of the housing market on both sides of the Atlantic inevitably send ripples across the rest of the economy until at last the waves lap upon the shores of manufacturing? Or are we being too parochial? Last week I heard the views of Jim O’Neill. Jim has risen to become chief economist of Goldman Sachs, no mean feat for a modest Manchester boy. 2008, he said, would be one of the strongest years for the global economy in the last thirty years. He is projecting growth of 3.6%, not quite up to the 4.7% standard set last year, but still a number that would have been unthinkable before China, India and other developing nations joined the party.
The shape of the global economy is changing. China is doing more than just pump cheap manufactured goods into the global economy in return for nice dollar bills. The value of Chinese imports in January was $45.6bn, 45% higher than in 2006. This was still below the $51.9bn value of China’s exports – but the gap is closing.
China’s economy is no longer based solely on exporting. Its domestic sector is growing. Not only do Chinese manufacturers want foreign raw materials and high quality foreign industrial machinery, but also Chinese consumers want western goods. And they want to travel, and to spend their money overseas.
So China is just beginning to act as a locomotive of the world economy, taking some of the strain from the USA. This is no doubt one reason why, while UK and US consumers are squealing, the sounds emanating from manufacturing industry are of a sweeter note. It is only a pity that these do not make for good headlines.
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