The latest round of earnings releases are about to begin – Fastenal’s came out yesterday – and while most expect profitability to have improved, this article from the Wall Street Journal suggests that profitability (or at least improvement) may not actually profit the economy. The article contends that many of these improved profits came from cost cuts, which means less spending.
One example cited in the article: Columbus, IN-based Cummins Inc., a manufacturer of big diesel engines. When the "bottom fell out" in October of last year, it cut 15% of its work force – or 9,000 people. And while revenues have "stabilized," according to Cummins’ president, the company has no plans to start spending again.
The article also talks to Timken Co., which says it was running at just 35% of capacity at the end of the second quarter. And again, the president of the bearings and power transmission group at the manufacturer says Timken has no plans to increase spending soon.
The bottom line: We are seeing more optimistic economic forecasts, and revenues seem to have stabilized for many; many executives and business owners have grown more optimistic.
But in the recent MDM Survey on the Economy, more than half of respondents are "very concerned" about the state of the economy, and a little more than a third are "concerned." Yet most expect the economy to stay the same or get better in the next six months.
But businesses remain cautious and continue to look for ways to save money and are not eager to pull out the wallet just yet. As we’ve said many times before on this blog, we are in an uncertain time – a transition between what many have called the "Great Recession" and Recovery. Distributors should continue to look for ways they can help their customers make it through.
Read the article from the WSJ here. (Subscription may be required.)
