The gradual improvement of the U.S. economy is driving some improvement in government budgets and small increases in federal and local spending, despite the sequester. Michael Keating of Government Product News magazine outlines what manufacturers are seeing in the government market in his latest Expert's Corner.
There are a few signs that the U.S. economy is strengthening. Increased consumer spending, a booming stock market, and rising home valuations all signal this.
Sujit CanagaRetna, a fiscal analyst for the Lexington, Ky.-based Council of State Governments, said improvements in gross domestic product (GDP), coupled with shrinking unemployment numbers, are among the signs the economy is on an upswing. "Improving export figures, a booming energy market driven by natural gas extractions, and a recovering manufacturing sector are some of the positive elements in the U.S. economy that offer room for cautious optimism," he added.
As the economy strengthens, governments will loosen their purse strings. In 2014, government purchases of goods and services will reach $3.09 trillion, up from $3.02 trillion in 2013, according to Lexington, Mass.-based economic forecaster IHS Global Insight. For 2013, federal government purchases of goods and services will total $1.17 trillion, while state and local government purchases will reach $1.86 trillion. By 2018, government purchases of goods and services will rebound to $3.35 trillion, IHS predicts. Of that amount, state and local purchases will total about $2.13 trillion.
Manufacturers are getting a share of the government market. Late last month,Manchester, N.H.-based Granite State Manufacturing (GSM) announced that it has delivered the world's first commercially available tamperproof intermodal cargo container under its contract with the U.S. Navy. The container is capable of providing absolute cargo security for high-value freight.
But Defense Department buyers have dialed back a little, said Glenn Lawton, GSM president. "As a key subcontractor to government primes including General Dynamics, Northrop Grumman, and Lockheed Martin, GSM has seen a definite slowdown in defense programs across the board," he said. "Budget uncertainty, both in the time period preceding sequestration and continuing today, has delayed awards of new contracts and existing program continuations alike.
"An unintended consequence of sequestration is that it will end up costing the government more, as many aspects of manufacturing, as well as government contracts management, government auditing, and government source inspection must be inefficiently duplicated when a three-year program is split into three individual procurements."
Lawton told IMT that GSM still sees opportunities in government markets. "We actively focus our efforts on providing low-cost, robust solutions to emerging threats [to national defense]. Additionally, we are committed to helping the Navy find the most effective ways to refurbish, repair, and upgrade existing systems and equipment."
Technology manufacturers should see minimal shrinkage in government technology spending, noted Tim Larkins, a consultant at McLean, Va.-based immixGroup Inc.'s Market Intelligence Group. His firm helps technology companies do business with the government.
"Technologies related to weapon systems and business systems will take a
hit, but technology as a whole is unlikely to feel as big a pinch as other areas like research and development, [and] testing and evaluation," Larkins said. "The federal government spent around $80 billion on technology in fiscal-year 2012, and requested $82 billion for technology in fiscal-year 2014. In order to justify such a request, the spending levels in fiscal-year 2013 will need to be commensurate."
Larkins insisted federal spending will actually grow for records management, IT spending for cloud applications, and Big Data in the rest of 2013 and beyond.
Manufacturers would be smart not to rely on governments for increased spending this year, cautioned Lisa Anderson, a senior supply chain and operations executive, and founder and president of Claremont, Calif.-based LMA Consulting Group. LMA Consulting Group serves as a strategic operations expert for a variety of companies.
"In aerospace, sequestration has created uncertainty to be sure -- manufacturers saw orders cut back; however, in many cases, they ended up with a typical first six months in the end with short lead times and last-minute orders," Anderson said. "Local governments that are beginning to see the light at the end of the tunnel generally are very cautious about spending money, as they've seen how quickly funding can dry up. Overall, manufacturers are considering it risky to forecast much more than flat sales for government markets in the second half of 2013."
Dona Storey, the American Express OPEN advisor on procurement, said pent-up spending by federal procurement officers could open up before the end of the federal fiscal year on Sept. 30. "There is a general feeling that since the government has spent very little of its budget thus far, there will be a push to spend [by Sept. 30] so as not to lose their money. Any furloughs will make it a challenge to spend more money with fewer people and less time to accomplish what is already a gargantuan task. All of this makes it very important for manufacturers to pay attention to the nuances in how the government marketplace is remaking itself."
Business development teams at manufacturing companies need to stay on top of changing market conditions and educate themselves on what it means to their business, advises Mark Amtower, co-director of Government Market Master, a continuing professional education program at Capitol College, Laurel, Md. "This market is changing more now than I have ever seen it in my 30 years of marketing to the government. The marketing landscape has gone through a major shift in the past three to four years."
More infrastructure spending, where manufacturers play a crucial role, may be the key. In his June 1 radio and Internet address, President Barack Obama called on Congress to do more to ensure that progress continues. "Congress should put more Americans to work rebuilding our crumbling roads and bridges, like the one that collapsed recently in Washington state. We'd all be safer, and the unemployment rate would fall faster."
Michael Keating is senior editor for Government Product News and a contributing editor for American City and County, both published by Penton Media. Read his mid-year 2013 government budget and spending forecast at the Government Product News site. Go here for his IMT 2012 report on how to land government business. His most recent item for IMT was about how manufacturers are harnessing social media. Keating has written articles on the government market for more than 100 publications, including USA Today, Sanitary Maintenance, IndustryWeek, and the Costco Connection. Michael can be reached through his website, MikeKeat.net.