Industry Crib Sheet: Small Businesses Fighting to Stay Upbeat

February 18, 2014

Industrial Production's Hot Stretch Ends

2014 Will Be What to Make of Big Data

At the start of 2014, small business owners were optimistic about their sales and hiring expectations, but their optimism was slowing down, and one economist warns of tough conditions ahead.

The National Federation of Independent Business' (NFIB) Small Business Optimism Index

in January checked in at 94.1, only 0.2 points higher than the previous month and well below the pre-recession average of 100. Although the index has gone up for three straight months, the increases have steadily weakened. The NFIB bluntly termed the index as "treading water."

While the overall index only crept up, the hiring outlook among small businesses brightened at the beginning of the year, as the number of owners in the NFIB survey that have plans to add employees increased by 4 percentage points. Hiring intentions are at their strongest level since 2007, according to the NFIB, but while more businesses intend to add jobs, they expect to hire less numbers of people. Still, the average 0.12 workers per firm that small businesses have added in the past three months represents a rising trend.

Twenty-two percent of the surveyed business owners reported being unable to fill job openings in January, and 14 percent reported using temporary workers. Since November, nearly four in 10 owners have tried to hire new employees but been unsuccessful.

As with hiring, Main St. showed mixed signals in their outlook on sales and the economy. Fifteen percent of small business owners anticipate greater sales volumes in the next six months -- a 7 point jump from December. However, those who think the economy and business conditions will worsen outnumbered those who foresee improving economic conditions by 11 percent.

"As the midterm elections heat up, economic policy will be dominated by campaigning, not sensible strategies to improve economic growth and  job creation," said Bill Dunkelberg, NFIB's chief economist. "This will, barring a surge in economic activity, undoubtedly worsen unemployment and  job opportunities."

Dunkelberg stated that "prospects for a major recovery in jobs are not good."

In sales performance over the past three months, 20 percent of owners reported higher sales, but 34 percent reported lower business. Moreover, earnings continued to fall, with a net -27 percent of business leaders reporting lower profits. That may have had to do with a net 19 percent of them raising workers' wages and not passing those costs on to customers with higher prices; only a net 2 percent of business owners have been able to raise prices in the past 3 months.

They also said that high inventories were troubling, even as they have been successful in reducing stockpiles. More owners reported inventory reductions than owners who saw inventories rise, by a net 4 percent.

Even as small businesses were more expectant of expanding payrolls, they didn't feel the same about adding fixed capital assets. The percent of owners with plans for capital outlays in the next six months fell 2 points to 24 percent.

Only 8 percent think it's now a good time to expand, compared with 59 percent who said it's a bad time to expand. Of the latter, 27 percent said Washington politics

are keeping them from spending.

Industrial Production's Hot Stretch Ends 

U.S. industrial production

fell 0.3 percent in January, offsetting the 0.3 percent gain in December. The drop was the biggest since last April and ended five straight months of industrial output growth in the nation.

The Federal Reserve said tough winter weather had part to do with the 0.8 percent tumble in manufacturing output -- the biggest contributor of industrial production -- which was the biggest monthly drop in factory output since May 2009. The Fed also made a stiff correction to fourth-quarter 2013 manufacturing performance, drastically reducing the previously reported 6.2 percent growth to 4.6 percent.

Economists had expected to see another 0.1 to 0.3 percent expansion in factory output at the beginning of the year. After gains in each of the last three months of 2013, manufacturing was the last bastion of growth to succumb to the slowdown in the economy. Job creation

has suffered from two straight poor months, both retail sales

and durable good orders have trailed off, and export activity

has weakened.

But there were already signs that manufacturing expansion was petering out. The Institute for Supply Management's widely followed monthly index

, released earlier this month, fell 5.2 points to 51.3 for January.

Cold weather spurred demand for heat from utilities, whose output partially offset weakened activity in manufacturing and mining.

Meanwhile, utilities output jumped by 4.1 percent in January, as cold temperatures sparked demand for heat. The energized sector salvaged what could have been a worse industrial output showing last month, as mining output fell right alongside manufacturing with a 9 percent dive.

In January, production of consumer goods fell 0.5 percent, its first decrease in six months. Production of cars and auto components broke apart, dropping 5.1 percent and pulling down consumer durable output as a group (-2.6 percent). Factory output of appliances, furniture, and carpeting declined by 0.6 percent. Consumer bright spots were home electronics, with an output growth of 1.1 percent, and clothing, with a 0.5 percent rise.

Industrial goods fared no better. Business equipment production edged down 0.1 percent and fell for the third straight month, while defense and space equipment output was reduced by 1 percent and for the fourth consecutive month. Industrial materials manufacturing scaled back 0.3 percent. However, machinery (0.6 percent) and computer and electronic products (0.9 percent) both rebounded.

In durables, losses were registered by primary metals (-0.1 percent), fabricated metal products (-0.4 percent), electrical equipment and appliances (-1.9 percent), and aerospace equipment (-0.7 percent). Not only did cold weather wreak havoc on durable manufacturing, the production of food and beverage (-1.2 percent) and textiles (-1.7 percent) was impacted, as well. Paper, chemicals, and plastics product manufacturing all declined, too.

Manufacturing capacity utilization contracted from December's 76.7 to 76.0. Mine operators also had to use less of their resources last month, as the mining sector's run rate fell from 90.3 to 89.2. Utilities ran at 83.3 percent of full volume upon greater energy demand amid the harsh winter temperatures.

Total industrial capacity is projected to rise 2.3 percent this year after having increased 1.8 percent in 2013. Manufacturing capacity is estimated to advance 1.9 percent in 2014 after having gained 1.6 percent in 2013. Capacity at mines is estimated to expand 5.5 percent in 2014 after having moved up 4.4 percent in 2013. Electric and natural gas utility capacity is projected to rise 0.7 percent this year after having increased 0.9 percent last year.

2014 Will Be What to Make of Big Data

Many industry observers are predicting that this year could be a breakthrough one for Big Data. Once discrete forces, enterprise resource planning and integrated business systems, wireless and machine-to-machine networking, cloud platforms, and sensor technology are all converging toward a perfect storm of data accumulation that will give manufacturers vast troves of information. But one thing that's on the minds of some is the big data dump


Organizations will be challenged to take full advantage

of large amounts of collected data, managing, analyzing, and making sense of it and then monetizing golden nuggets of information. Some will try to use Big Data to solve specific operational problems, such as gathering intelligence on machinery to pull ahead of the maintenance curve and reduce downtime

, for instance.

Whatever the particular Big Data strategy, all companies will attempt to create more effective business processes.

"There will be specific solutions in retail, automotive manufacturing, and the energy industry," noted Oliver Frese, head of the annual CeBIT information-technology trade fair

for business-to-business that will take place March 10-14 in Hannover, Germany. "But for everyone, it will be the ability to handle Big Data in a responsible way," he said, in a recent interview with ThomasNet News.

Frese said this is why this year's CeBIT theme is "Datability," in which organizations will determine their level of skill in hunting, analyzing, and interpreting large amounts of data. The predominant chief technology officers and chief information officers who attend the fair are being relied upon to navigate Big Data risks and challenges and toward newfound insights and prosperity for their organizations.

Oliver Frese

At CeBIT -- an internationally attended show with 400 U.S. visitors last year -- Microsoft, SAP, and other IT superpowers will be on hand to highlight "concrete applications" and early "successes" in Big Data, according to Frese. CeBIT will have 3,500 exhibitors from the IT and related industries and participants from 100 countries.

In the discipline of inventory management, Big Data will allow industrial supplies distributor Grainger, for instance, to give customers closer insights into how to run their shop floors as well as across their enterprises more effectively, by way of advanced tracking and vendor-managed inventory systems.

Radio-frequency identification (RFID) tags on consumables like metalworking cutting tools, optical tracking, and geotracking will provide knowledge of how workers and items move around the plant floor, which can be leveraged to re-engineer production processes that reduce human traffic and optimize flow. Using real-time data, intelligent inventory tracking and management systems could automatically instruct the reallocation of plant materiel to areas that need supplies from departments that don't need them as much.

"This is actionable data," said Brian Norris, Grainger's vice president of inventory management, who also recently spoke with ThomasNet News. "Giving people just data isn't the solution. They're saying, 'Tell me what it means.'"

This ability is taking Grainger from managing just storerooms at manufacturing plants of clients to partnering with them on shop-floor control.

"We're asking, 'What's the next piece for us to manage [for our customers]?' Norris explained. "There's a lot of technology coming our way."


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