Will We Talk Ourselves Into Another Recession?

While economic news overall these days seems ominous, what we're hearing from distributors and manufacturers hasn't been.

"Our challenges are all related to rapid growth," fluid power distributor Womack Machine Supply CEO Mike Rowlett told MDM recently for the 7 Minutes With … feature in MDM's Executive Briefing webcast series (watch it here). "Our business is improving quicker than we expected. We are struggling to get some products partly because the global industry has grown faster than the supply chain could react ..."

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Womack's story is not unlike other distributors we've spoken with. Every sector is different, and certainly some sectors (building materials, for one) continue to struggle. But overall, many distributors still expect growth in the fourth quarter and going into 2012.

The latest results from the MDM-Baird third quarter benchmarking survey bear that out. The average expected growth rate in the survey is a healthy 5.7 percent in the fourth quarter and in 2012. Still, many respondents are skeptical about the state of the economy. About 60 percent of respondents expect flat growth in the economy in the near term, and just 1 in 5 respondents expect growth in the overall economy in 2012.

So if distributors and manufacturers across sectors are concerned about economic growth, but are still expecting their own companies to grow, why does it matter? Well, half of respondents report they have already taken some sort of cost action in anticipation of economic weakness – including actions related to inventory, headcount or capital spending. It's likely that their customers have, as well.

Related: MDM Executive Briefing Annual Insights Collection on DVD

We at MDM have questioned whether reports of a potential recession may actually make one more likely – we asked in 2008 and we asked the same in August of this year. The question is whether uncertainty is keeping businesses from spending and is making them more hesitant to hire, even though demand has been strong in some areas.

As one respondent to the MDM-Baird survey wrote: "We can't help but feel that the negativism will pervade, but there's nothing to show that it's going to slow down yet."

That's the disconnect we at MDM also see. An industrial gases/hardgoods respondent said it best: "There is a lot of uncertainty in the world. I hope we don't talk ourselves into another recession."

Indeed.

The full results of the MDM-Baird survey will be published in the Oct. 25, 2011, issue of MDM Premium. We'll also be posting more snippets from the results at the MDM Blog in the next week.

Watch the interview with Mike Rowlett of Womack Machine Supply: