July 31, 2012 — Manufacturing in southeastern Wisconsin and northern Illinois shrank in July for the first time in three years, with orders from the United States, Europe and China dropping as business seems almost paralyzed until the fall election is over and economic policies are addressed.
That's according to data from a monthly survey of manufacturers released Tuesday by Marquette University and the local chapter of the Institute for Supply Management.
The survey's index measuring industrial health was 46.7, much lower than June's 60.2. A reading above 50 indicates growth, while a reading below 50 indicates declining conditions.
It was the first time the area's seasonally adjusted in dex fell below 50 since July 2009.
"We are distracted by a very uncertain political environment," said Doug Fisher, director of the Center for Supply Chain Management in Marquette University's College of Business Administration. "Whether it's health care or tax law, people just don't know what to expect."
Wisconsin factories are vulnerable to economic shocks from the rest of the nation and overseas. Higher energy prices also produce an "automatic drag" on the economy, said Nick Hayes, a partner with FiveTwelve Group Ltd., a business research and consulting firm in Milwaukee.
U.S. manufacturing shrank in June for the first time in nearly three years, adding to signs that economic growth is weakening amid the recession in Europe and a slowdown in Asia.
"My clients are saying June was still acceptable, but things started slowing in July," Hayes said.
One Month Isn't a Trend
The recovery from the recession has come in fits and starts, and one month's survey data should not be taken out of context. But two more months of low numbers would be worrisome, according to Fisher.
This should be a busy time of the year at The Wagner Cos., a Milwaukee manufacturer of hand railings, light fixtures and other items used in commercial buildings and new-home construction.
But the company has not fully recovered from the recession, and it could be another five years before some of the business returns to normal, said CEO Robert Wagner.
"We were very concerned because early in (July) there was a considerable slowdown in orders. But toward the end of the month, there was a little uptick," Wagner said.
Twin Disc Inc., a Racine-based maker of power transmission equipment used in the petroleum and marine industries, on Tuesday said its recent quarterly income plunged 87% to $1 million, or 9 cents a share, from $7.59 million, or 66 cents a share, a year earlier.
The company blamed some of the poor results on softening demand for its oil-field products and weakness in its Italian mega-yacht business.
"The slowdown in the North American oil and gas markets will impact sales and profitability, and we remain cautiously optimistic about the outlook for fiscal 2013," Chairman and CEO Michael Batten said in a news release.
In the Marquette University data, a measurement of new orders at area manufacturers was 41 in July, down from 55.8 in June, while the employment index was 51.3, down from 73.8 in June.
Fisher said he was disappointed with the results but not surprised, as similar national figures fell in June.
"We are all in the same ocean together," he said. "Companies want to know more if they're going to make investments."
Some Keeping Busy
Not everyone has felt the downturn, including Waukesha Foundry, which makes custom castings for highly specialized items, sometimes one at a time.
Locally owned by Facilitator Capital Fund, the foundry generated $30 million in sales in 2011, up about 15% from the year before. Sales goals are $35 million in 2012 and $50 million in 2014.
The foundry has made metal-cast parts for Harley-Davidson Inc., Mercury Marine, AB Volvo, Rockwell Automation Inc., Oshkosh Corp., Navistar, Caterpillar Inc., Deere & Co. and many others.
"Our order backlog is at its highest level ever. If anything, we are having a little trouble getting some orders out the door," said Waukesha Foundry President and CEO Ken Kurek.
Still, economic uncertainty - and in some cases the drought - have taken a toll on manufacturers of many items including outdoor power products made in Wisconsin.
"We have seen dealers in our industry close their doors as a result of the dry weather," said Dan Ariens, president of Ariens Co., a Brillion-based maker of outdoor power equipment.
Ariens Co. felt the downturn in May and June after a good start to the year earlier in the spring.
"It was consumer caution and the weather. I think we are in a time when everyone wants to pause and see what's going to happen," Dan Ariens said.