In this Expert’s Corner, Mike Keating, senior editor for Government Product News, provides insight on how mid-year government budgets and spending will affect manufacturers.

A slightly more robust economy and rising government revenues signal some improvement in government budgets for the remainder of 2011. Higher consumer spending and gross domestic product (GDP) growth — albeit at a slow 1.9 percent annual rate in the January-March quarter — in addition to low inflation and slow but steady hiring in the U.S. workforce are all signs that the economy may be coming out of its deep freeze.

However, the continuing budget battle in Congress to raise the federal debt ceiling is a wild card that everyone has been monitoring closely. As part of the debt ceiling discussions, lawmakers are considering plans that could trim upwards of $4 trillion off the federal budget over the next 10 years.

Even as politicians debate budget cuts, government purchases of goods and services are expected to grow somewhat in the remaining half of 2011 and then expand by about 1.4 percent in 2012, according to the latest analysis from Macroeconomic Advisers. Total government purchases of goods and services (also called government consumption and gross investment) in the U.S. should reach $3.06 trillion in the fourth quarter of 2011, up from $3.03 trillion in 2010, according to the St. Louis, Mo.-based consultants.

In some states, April tax collections appear positive. Michigan, New Jersey, Pennsylvania, Rhode Island and Texas have all reported higher tax revenues than expected, and tax collectors in California have forecast that the state is on track to pull in $6.6 billion more this year and next year than had been initially projected.

Local governments, too, are seeing a boost in tax revenues. Workers and businesses in Toledo, Ohio, for instance, have paid more income taxes to the city so far this year compared to last year. Recent data show Toledo collected almost $2.3 million more in income tax from January through April of 2011 compared with the same period last year. The numbers seem to reflect a decrease in the local unemployment rate and increased activity at area businesses, city officials say.

Government Opportunities for Business
For the remainder of 2011, companies with an expertise in helping boost the efficiency and cost-effectiveness of government and military projects will likely have a leg up over traditional suppliers and manufacturers, according to Phil Slingerland, chief operating officer of the DeSoto, Texas-based Warrior Group, a multimillion-dollar provider of construction management services.

“For instance, the government can be expected to seek out contractors who can offer alternative methods of construction that allow buildings to be built more efficiently, in less time and with sustainable features,” Slingerland says. “This gives innovative construction methods [...] an advantage.”

Multi-function, cost-effective fire vehicles and equipment is another product line that could see a bump in second-half 2011 government spending, according to Jim Salmi, chief operating officer at Brandon, S.D.-based Crimson Fire.

“The fire truck market is showing some signs of rebound, but it is probably too early to predict a significant increase in new orders for 2011,” Salmi told IMT.

Salmi notes that funding through the federal American Fire Grant program has been proposed at a much-reduced level for 2012 vehicle and equipment purchases. “Grant funding in 2011 was $405 million, and the current proposal for 2012 is for $200 million.”

Manufacturing firms whose product offerings help agencies do more with less stand a better chance of landing government contracts, according to Henry Chou, associate vice president at Seattle, Wash.-based Onvia, which tracks government-contracting opportunities for U.S. companies.

“Our Fortune 1000 clients are telling us that the government agencies they work with are increasingly looking for energy- and cost-efficiency solutions,” Chou says. “Green products and solutions aren’t just ‘nice to have’ in agency purchases these days — they’re becoming ‘must-haves.’”

Chou expects the government-contracting marketplace for manufacturers to become increasingly competitive in the second half of 2011 as accelerated budget-cutting leaves fewer contracts for suppliers to pursue.

Best practices of successful contracting apply now more than ever, Chou told IMT.

“Get in early with agencies by researching their plans for future spending, building decision-maker relationships and keeping track of the preplanning and advance-notice announcements pertaining to your product and industry that agencies issue before bids and RFPs are released,” Chou advises.

Look for increased spending soon, Mark Amtower, a government marketing expert at Amtower & Co., says.

“I think we can expect some spike in end-of-fiscal-year spending from federal agencies in August and September, but it will be lower than usual due to the perpetual continuing resolution,” according to Amtower, founding partner of Amtower & Co. “As for the balance of 2011 (after Oct. 1), that depends on the ability of Congress to pass a budget.”

Amtower also foresees fewer federal aid dollars flowing to state and local governments due to overall reduced spending.

Michael Keating is senior editor for Government Product News and a contributing editor for American City and County, both published by Penton Media Inc. His 2011 government budget forecast is available at GovPro.com. Earlier this year he wrote about DIY market research for manufacturers and the 2011 industrial buying outlook for IMT. Keating has written articles on the government market for more than 100 publications, including USA Today, Sanitary Maintenance, IndustryWeek and the Costco Connection. Mike can be reached through his website, MikeKeat.net.