There is a lot of talk hither and yon about a “double-dip” recession. Not at all uncommon when you consider past recessions. Let’s take a look at some data from the June 2011 survey of senior financial executives from the Manufacturers Alliance/MAPI to dig into the double dip theories.

MAPI graphically shows that the business composite of indicators for growth is currently at 68 and is still well above the threshold of 50, although it has slowed down and dropped a little. You can see how closely the annualized manufacturing three-month percent change (the blue dotted line) is so closely aligned with business growth in general (the green line). Another thing that is striking in this chart is how similar the shape of other downturns and recoveries are to this one, albeit the plunge in 2007-08 is pretty steep comparatively. It is quite common for manufacturing to take a “breather” after the initial surge in recovery.

Having curtailed production steeply going into and while in the recession, manufacturers crank up production after the dip and almost always turn up the volume a little too much. And when inventories have recovered and start to look a little fat, manufacturers throttle back. When this happens, many start worrying that we are falling back into a recession. To be sure, a lot of things could happen to put us into a recession, and what happened in history is no guarantee that it will happen in the future but we have good reasons to be optimistic. Here are some of those reasons:

• The export of goods, inflation adjusted, has risen steadily since mid-2009. Hitting the peak in the second quarter of 2008, it dropped to the trough in Q1 and Q2 of 2009. Since then, we have had seven straight quarters of growth surpassing the peak high in 2008 in the 4Q of 2010. This means manufacturers are making and shipping products at a pretty good clip. And the outlook index kept by the U.S. Bureau of Economic Analysis and the Manufacturers Alliance (MAPI), indicates continued growth in exports is expected by manufacturing based companies. MAPI also tracks foreign affiliates of US based companies with regard to their forecast for export shipments and that index predicting 3Q 2011 rose in June of 2011. A good sign for economies outside of North America.
• Capital spending plans for US manufacturers will increase over the next 12 months, according to MAPI surveys of C-Levels. 16 percent expect capital spending to increase by 20 percent or more, 17 percent expect spending growth of 10-20 percent and 49 percent expect spending to increase up to 10 percent. On the other hand, 19 percent expect spending to decrease with 15 percent saying that decrease will be less than 10 percent.
• The personal savings rate continues to grow, according to the US Federal Reserve Bank. As consumers pour more into stocks and bonds (both treasuries and corporate) more capital is available to fuel growth and the consumers become more confident.
• The burden of debt is declining. Essentially, we are de-leveraging ourselves both personally and corporately (if only the federal governments would do the same!). And the ratio of disposable income is increasing. This means that consumers will increasingly move to increased consumption combing less consumer credit levels and increased savings and increased confidence, we will eventually see a more traditional recovery that is consumer led versus this recent recovery which has been more business led.
• US Motor vehicle sales are improving despite the Japanese earthquake/tsunami supply chain disruption. Although at 12 Million units, far off the 16 Million levels of 2007, this sector has shown steady growth since the bottom was hit in Q1 of 2009. As the effects of the supply chain disruption wanes and gasoline prices fall, this will only fuel (pun intended) more growth as most analysts believe.

But three dark clouds still hang over our collective heads: the lack of employment growth, the continued hyper-weakness of the housing market and the continued relatively high price of energy. The recovery of the housing market simply has to come as new households are formed through population growth and fires, and other disasters eat up inventory. This sector will have to rebound from the anemic 600K starts a year that we have been stuck on for the past 2.5 years to a more normal 1.5M starts per year. This will have a dramatic effect on the recovery when it occurs.

Likewise, if the middle east settles down from its current high levels of tension and instability, and new energy sources like Exxon’s recent Gulf field discovery and the continuation of Brazil’s energy sector growth, oil prices will contract and that can only help the recovery as consumers then have more disposable income. Plus, two other wild cards, the looming US budget agreement and the European Union debt crisis are still unknowns that may cloud our future more or less; we just don’t know for sure what will happen as forecasting politicians is worse than forecasting earthquakes.

One of the reasons I am bullish on a continued recovery is the level of investment I see companies of all sizes making to strengthen their capabilities. Whether it is software to strengthen product quality and customer satisfaction, predictive analytics deployments to improve asset utilization or integrating robust analytical solutions into their sales and operations planning (S&OP), forward thinking organizations are putting in place the technologies and processes that will make them more competitive and profitable. But all through these recessionary years, they have also insisted on proof of real value before they invest. This critical and careful evaluation I suspect is here to stay.

Gone are the days when a software vendor can just create a PowerPoint deck with some compelling ideas and expect to win an order. And top of mind of the C-levels that I have talked with is not only proving value but proving you can make their huge investments in operational and transactional systems more valuable. With the arrival of “big data,” "big analytics" must follow; who cares about big data if you can’t analyze it and make faster, better decisions? And when heavy lifting analytics are applied to solving business problems, big savings, less risk and more profits follow.

So what do you think? Are you bullish on the global economy and manufacturing?