With the global economy generally in recovery mode, nearly half of respondents to a survey conducted by Control Engineering magazine in partnership with Morgan Stanley expect sales of industrial automation equipment to increase in 2010 Source: Control Engineering.
Over the next week or so, I hope
to share with you results of studies pointing the directions we can
expect technology trends likely will take next year, and in the
decade ahead. The good news for Americans, and for many national
economies around the world, is that the recovery is exactly on track.
Yammering about "jobless recovery" and doubts over the U.S.
economy's ability to expand until full employment returns simply
demonstrate the commentators' ignorance of how economies work.
Garden variety depressions, which is
what we've experienced over the past five years, take many years to
play out. Calendar year 2008 saw the acute contraction phase, but
things had been unraveling since late 2005. After a contraction,
comes a bottoming, followed by an expansion phase.
Economic recoveries - that is the
bottoming and expansion phases of a dip in economic activity -
start with stock markets, which anticipate the turn around in general
economic conditions by some months. The reason stock markets
anticipate recoveries is that investment professionals, unlike media
commentators, do understand economics, and recognize harbingers of
business improvement long before the improvement happens. Just as
meteorologists know that when days start getting longer, Spring is
just a few months away, investors know that economic harbingers, such
as inventory levels stabilizing at high levels, pre-announce changes
in economic trends by several months, and stock prices rise as these
investors put themselves in a position to capitalize on the new
trend.
After stock prices hit bottom and begin
to rise, we start seeing signs that the downward pressure on business
activity begins to ease off. High inventory levels, for example,
begin to drop. Productivity begins to rise as businesses streamline
to cut costs. Later, these more efficient businesses begin reporting
better than anticipated earnings on still-falling revenue. Still
months later, revenues begin to rise as individuals and businesses
can no longer put off purchases that have been delayed since the
beginning of the downturn. More months later, employment figures,
which conventional wisdom seems to think should lead the recovery
despite the fact that it never happens, begin to recover as the
productivity gains of a few months ago prove insufficient to meet the
growing demand for goods and services. Finally, very late in the
recovery, large capital investments, such as in real estate, reach
their bottoms and start to recover.
At present, the U.S. economy, as well
as that of most of the world, is recovering nicely. Trends in
measures like corporate earnings are showing the correct patterns in
the correct order and with the anticipated timing. Even the jobless
numbers are tracking exactly as they're supposed to. Back at the
end of 2008, when the depth of the dip became apparent, knowledgeable
pundits were able to predict that the unemployment rate would reach
just above 10%, which is just what it did, and begin to recover in
late 2009, which it also has done.
By the way, don't listen to all that
emotional drivel about some fictional "real" unemployment rate
being something like 18% instead of the published 10% level. "The
unemployment rate" is a real, clearly defined metric that we use to
compare one time period with another. The "real unemployment rate"
that Chicken-Little types yammer on about is poorly defined and very
difficult to measure, so it's useless as an economic metric. It's
only use is to give fear merchants something to shoot their mouths
off about to their poorly educated audiences.
One extremely useful metric that can
provide prescience about general industrial trends is expectations
among industrial automation buyers and sellers about their purchases
and sales (respectively) in the coming year.
To determine whether the market for
industrial automation equipment was beginning to ascend from the
depths of this latest downturn, or were destined to remain mired in
the muck at the bottom of the pit for awhile longer, our friends at
Control Engineering magazine in
partnership with analysts at financial services leader Morgan Stanley
surveyed participants in the
industrial automation market. The reason to look especially at
sentiment in this market is that factory automation is arguably the
most important trend in industrial technology of the late 20th and
early 21st Centuries.
Early in the 20th Century, factory
automation was generally non-existent. We (or more accurately, our
ancestors) simply did not have the tools available to automate
production facilities in any meaningful way.
By the middle of the 21st Century, on
the other hand, we anticipate that factories will run essentially
fully automatically. That is, there will be no production tasks that
are not done by automated machinery. Humans will generally hold
supervisory positions. There will be CEOs, managers, engineers,
maintenance technicians, and such like, but the population of
assembly line workers, for example, will drop to more or less nil.
So, unlike the situation a few decades
ago, perhaps the best measure of industrial activity available at the
start of the second decade of this century is the level of activity
in the industrial automation sector. That is what the survey set out
to study, and that is why it's the first thing we looking at as we
peer into our crystal ball.
"I'm happy to report that the
survey does, indeed, offer more than few rays of hope," wrote
David Greenfield, Control Engineering's editorial director, when
reporting the survey findings in his article entitled 2010 Global
Automation Industry Outlook. "Overall, the findings appear to indicate that a bottom in the
market has been reached, pricing is holding firm, and that customers
remain loyal - all positive signs for global automation players."
Greenfield cited four key findings of
the survey:
1. The automation market has already
bottomed; modest growth will return in 2010;
2. There is no evidence of a price war
in automation equipment;
3. There is limited differentiation
between the spending outlooks for process versus discrete industries;
4. While highly cyclical, automation is
a good business to invest in over the long term.
It is important to note that the second
finding belies the fear that inflation might be a an immediate
threat. Despite concerns over accommodative monetary policies around
the world, this survey shows no sign of inflation's return in the
immediate future. It's axiomatic that for inflation to appear,
prices must rise. This survey of a significant sector of the economy
shows no hint of rapidly rising prices.
Greenfield pointed out that the
near-term trend in demand for automation equipment appears brighter
than it did in early in 2009 because of the percentage of respondents
expecting demand to increase, more budgets going up or staying level
versus retreating, and increasing demand to replace aging equipment.
In addition, pricing appears to be stabilizing in the near term. Few
respondents expect to see prices fall, but neither are they expecting
out-of-the-ordinary upward price moves by suppliers to help offset
losses in the past year.
These results are exactly what we would
expect at this stage of the present economic recovery. Pundits
prophesying a double dip, an L-shaped recovery, or any similar
pattern find no support for their views in this important economic
indicator.