Be Happy, The Economy is Good

By Lloyd Graff

Brian Beaulieu led off the Precision Machined Products Association (PMPA) San Antonio conclave last Friday morning. I have heard Brian and his twin brother Alan speak several times. His appearance was one of the primary reasons I decided to spend the winter weekend in Texas.

He has a remarkable record for predicting the economic future. I have bet on his predictions in my business and personal financial decisions and they have worked out.

This year Brian is very optimistic about the U.S. economy. He sees good business until 2019 at which point he envisions a short recession. For machining companies he sees the continual resurgence of the auto industry in the United States and Mexico. He acknowledged that many U.S. business executives don’t like or are afraid of going to Mexico. He recommended that they either get over it or find somebody else to go.

Brian Beaulieu says interest rates will go up 3% over the next three years, but he is not worried it will kill the economy. We will adjust to higher rates without much indigestion. But he is adamant that we should take advantage of the current low rates by refinancing home loans, buying cars or buying real estate.

He is worried about the stock market. He thinks there is a possibility of a greater than 15% drop that sticks around though he is not sure if or when it will happen. He would short the market with a  part of your savings to protect yourself from a prolonged downturn, but does not advocate getting out of stocks.

One of Beaulieu’s basic tenets is that we must  take advantage of the next three years of benign economic times to invest in change, develop new markets, get better at what we are doing, and improve our workforce. When the next recession comes in 2019 we have to be ready. If we are not going to prepare we should get out of the game. If we do not prepare to play a better hand by the next recession, we can survive by getting very lean and remembering the survival tactics of 2008-2009, but his preferred course is to develop a fresh part of the business that will be resistant to the 2019 downturn.

He repeatedly alerted us to the aging of the world population. The downside is the tremendous burden healthcare costs will exert on the economy. The opportunity is in taking advantage of the demands of aging. Medical products are big today, but they will really be growing 5-10 years from now. Orthopedic implants (I just had a knee replacement) are going to grow even faster than today.

I don’t know how many of you are getting into 3D printing, but it strikes me as a viable option to offer machining clients. We have been great at removing metal. I am sure we can add additive technologies to our bag of tricks. Just being able to tell a customer you are prepared to help them find the best method to make their product, even if it is not traditional machining, will enhance your image in the marketplace.

The message of Brian Beaulieu at the PMPA meeting was to be realistic about the economy and take advantage of it. Inflation is coming. Interest rates are low. Therefore, buy real estate and invest in a business. These are the two best ways to take advantage of what’s going on. Do not be timid. Be less concerned with pricing and more cognizant of quality and deliveries. Invest in people. If you cannot hire enough skills, build the skills in the best people you can find. Pay is going up. No worry. The issue is to get more value from the people in your organization.

Beaulieu has proved to be amazingly prescient in the past. I don’t think he has lost his touch. We have a wonderful opportunity to grow in the next 3-4 years, but it will be tough to find the courage and the people to do it.

Question: Are you optimistic about your job situation or your business prospects over the next 3 years?

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8 thoughts on “Be Happy, The Economy is Good

  1. AvatarErik

    I am optimistic. Our organization has been devoting an incredible amount of time and effort into the career development of our employees, and the dividends have been immediate and obvious. Quality and productivity are up. Wages are up. Turnover is down.

    A stable. informed, and motivated workforce drops directly to the bottom line. It also makes for a great place to work for everyone involved.

    As for the economy, as long as we continue to focus on growing manufacturing in this country, and the current re-shoring trend continues, we have a hedge against the next recession.

     
  2. AvatarVal Zanchuk

    We are seeing our best year since the beginning of the recession. Bookings have been strong and we have a good backlog. That being said, we’ve lost about 25% of our active customers since that time. The ones who are left are very active. Let’s call it “recovery inequality”, as there have been big losers and big winners. Many of our newer customers have not been showing the year to year growth we have seen historically. This may change with the strengthening economy, which, I believe, is real.

     
  3. AvatarRay Chalmers

    Excellent forecasting, Lloyd, along with some excellent comments. The media darling of the moment, additive manufacturing, will give way to the reality of the most intelligent morphing of additive and subtractive production and those that optimize time to market to their customers’ benefit. Production labor will continue to consolidate, but the kids coming up will do more with art-to-part than we ever imagined. I see commercial drones on the horizon, ever think we’ll get our flying cars?

     
  4. AvatarRobert

    Brian Beaulieu ought to live in Mexico if he thinks that a narco state is a safe place to live, especially for a high profile business person. Sending manufacturing to Mexico does not help the US economy, where our GDP is less than 2% this quarter. Manufacturing needs to return to the US. As far as interests rates are concerned it is doubtful the Fed will increase the rate over the next 3 years.

     
    +1
  5. AvatarJack

    I’m not optimistic. Do work with the DOD and they’re not buying as much of our product.
    Do business in Mexico? I don’t know, just read a story about the chopping houses, sounds like a dangerous place.
    One thing I disagree with that Mr. Beaulieu said. You don’t buy a car because interest rates are low. That’s a terrible reason. Best way to buy a car is with cash anyway.

     
    +1
    1. AvatarJack

      According to the story.
      It’s a house people are taken to if they get on the wrong side of the cartels. And they are dismembered alive.

       
  6. Avatarsemi-automatic

    Everything I’ve read about chopping houses has been about their activities in Columbia, nothing in Mexico. The gangs must be different standards there… we have not set up in Mexico but, have a customer there and have visited many times without incident. They are centrally located and not along the borders where there are real concerns and opportunity for trouble.
    The fact is that if you act badly or visit the wrong area’s in anywhere in the world you may wake up dead the next morning or jail for the rest of your life.
    Common sense and knowing about the areas you are visiting anywhere can go a long way towards making it to your next birthday party.

     

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