As we enter a new year, many springmakers are experiencing continuing growth in both sales and profits, although the pace of both has started to slow.

And how about 2008? Springmakers are anticipating a tougher economic environment.

Some have already felt the effects of the downturn in the housing market. Here are some typical reports for the past year:

The decline in the turnover of existing homes is expected to bottom out by early 2008. But the related home construction activity, which is so important to the economy, is not expected to turn around until well into the year.

“2007 was not a bad year in historical terms and overall our business was up,” reports Matthew Puz, vice president of sales and marketing at Dudek & Bock, Chicago, IL. “Our domestic sales were slightly off what we thought they would be because we were affected by negative trends in the housing market – particularly in the second half of the year. However, that was offset by significant growth in Mexico.”

“We have had a solid year of growth, although at a much slower rate than in the last few years,” says Dan Sebastian, president of MW Industries, Logansport, IN. “Sales grew at over six percent, and earnings grew above that level by a fair amount.

“The housing issues and the subsequent credit crunch have made things a little more difficult. What has happened in the housing market has had a trickle-down effect throughout many of the businesses we participate in.”

“We are ending up with a nice year,” says Donald Fazio, president of Diamond Wire Spring, Pittsburgh, PA. “We had targeted a seven-percent sales increase over 2006 and we are getting pretty close to that. From what I have learned from other spring companies, many will be in that same area. However, there appears to be some weakening in recent months of incoming orders.”

“2007 was a pretty good year,” reports Robert Kupczak, owner of Jackson Spring & Manufacturing, Elk Grove Village, IL, where half the revenues derive from the automotive industry. “Sales growth was up about five percent. While that’s not spectacular, our margins increased fairly significantly.”

Economy slows

As several of their comments suggest, springmakers are anticipating a challenging year. This cautionary stance is echoed by economists. “We have a considerably weaker near-turn outlook than we did a year ago,” warns Sophia Koropeckyj at Moody’s Economy.com, a research firm based in the Philadelphia suburb of West Chester, PA. “The economy will be performing below its potential until at least the end of 2008.”

Just how far below potential might that be? The answer is reflected in forecasts for the Gross Domestic Product (GDP), the most widely used measure of economic health. Koropeckyj expects GDP growth to come in around 2.0 percent when 2007 numbers are finally tallied. That performance is well below the 2.9 percent recorded for 2006.

Not much improvement, if any, is expected in the year ahead, when GDP is forecast to grow around 2.3 percent. That’s well below the 3.0 percent that economists say is the average rate of long-term growth in a normal economy.

And how about corporate profits? Those are expected to grow some four percent when 2007 numbers are firmed up. That’s a significant decline from the healthy 13-percent increase of 2006, a year that brought to an end a five-year string of double digit increases. As for 2008, Koropeckyj expects 4.7 percent, not much better than 2007.

Housing woes

Housing woes, of course, have hit the headlines big-time. “We could look forward and say we expect another year of modest growth, but in reality the housing market, which affects so many industries, is a very major wild card,” says Puz. “It’s particularly important for springmakers such as us, who sell into the home appliance industry. The grimness of the situation is gradually becoming more apparent and openly talked about.”

Many manufacturers tied to the housing industry have felt a tremendous impact. “Building-material and construction-equipment manufacturers have been squeezed between softening demand, and higher raw materials and energy costs,” says Koropeckyj. “They have been cutting jobs, and that is likely to continue.”

The decline in the turnover of existing homes is expected to bottom out by early 2008. But the related home construction activity, which is so important to the economy, is not expected to turn around until well into the year. As for the troubling housing price slide, that’s not expected to hit bottom until the end of 2008. “Problems with the housing market are not going to disappear overnight,” says Koropeckyj. “They will affect the economy through the end of 2008.”

Raw materials

Springmakers in particular continue to be concerned about the rise in the cost of their constructive supplies. “For the past several years, raw materials costs have been one of the front-burner issues for us,” says Puz. “We have learned to deal with it effectively on a customer-by-customer basis. Otherwise, it could dramatically impact our profitability.”

The decline in the turnover of existing homes is expected to bottom out by early 2008. But the related home construction activity, which is so important to the economy, is not expected to turn around until well into the year.

Communicating with customers is the key to success. “What makes this difficult is that our customers view pass-throughs as de facto price increases,” notes Kupczak. “That makes it much more difficult when we have a genuine need for a price increase. When we approach our customers for help, their records show they are already paying 20 percent more than two years ago. On the good side, our customers have finally understood this is something we do not control. No one is happy about it, but everyone understands the issue now. That was lacking a few years ago.”

Labor costs

One major positive factor is propping up the economy: Healthy wages. Economy.com expects a total wage growth figure of some 3.5 percent when 2007 figures are in, up from the 3.0 percent of 2006. The figure for 2008 is expected to be 3.2 percent.

These wage increases are a result of pressures on employers from the low unemployment rate, which has been hovering around 4.5 percent. It takes more money to attract and retain good people. That, of course, is just the problem as business owners feel squeezed between escalating payrolls and customer resistance to price increases in a decelerating economy.

Dollar declines

Additionally, the decline of the dollar has brought new vigor to those companies selling overseas. “In 2007 the dollar has been depreciating against every currency,” notes Koropeckyj. Currently it takes over $1.40 in U.S. cash to buy what a single Euro can. The dollar is not expected to rebound through the end of 2008.

Exporters should benefit, notes Koropeckyj. “Supposedly, U.S.-manufactured goods will become more attractive overseas, particularly with the major trading partners of Europe and Canada.”

More from less

Efforts to increase productivity, the time-honored cure for escalating labor costs, have pretty much played themselves out over the past three years. “Businesses have outsourced, moved offshore, cut back, jettisoned unprofitable lines and offered rebates,” points out Ken Goldstein, an economist at The Conference Board. “And after all of that, they are still stuck with the unholy trio of wage increases, higher costs for medical benefits and expensive retirement plans.”

When 2007 figures are finalized, productivity growth is expected to come in at a shameful one percent, about even with the performance of the previous year. Not much improvement is anticipated for 2008.

Finally: No element of labor costs has received more attention recently than the perpetually aggravating increase in health care coverage. “Health care costs are going up in astronomical figures, and my clients are asking ‘how much of this premium can I subsidize?’” notes Don Schackne, president of Personnel Management and Administration Associates, Delaware, OH. “Employer contributions have gone from 100 percent down to 60 percent in many cases, and employers are saying, ‘I cannot absorb this anymore.’”

Full speed ahead

Other factors that are cause for concern include high energy prices, global competition, shaky financial markets and the risk of a recession.

Even so, many springmakers retain their faith in robust economic underpinnings: “We remain very optimistic about 2008,” enthuses Sebastian. “The fundamentals of the economy are still exceptionally strong. We frequently don’t give the economy as much credit as it’s due for its ability to adapt to changes around it.”