State makers of goods feel little of slump

Maryland manufacturers appear to be escaping the brunt of the current nationwide economic slowdown, but some companies say they are feeling the effects of the country's declining fortunes.

National reports show manufacturing slowing more rapidly than the economy as a whole, with some even arguing that the sector is in recession.


But Maryland may be in a good position to weather the rough period: The state has already lost so many blue-collar jobs that manufacturing makes up a much smaller percentage of the labor force here than it does in the nation as a whole. Also, companies here are involved in a variety of manufacturing businesses -- including many in the booming high-tech and biotechnology areas -- and that helps level out declines.

"I think it's fair to say, yes, there has been a slowdown here, but I don't think it's an indication of a recession because we're getting this mixed feedback," said Mike Galiazzo, executive director of the Regional Manufacturing Institute. "The people I interact with, they're working hard and are not sitting around the table saying 'We're in a slowdown.' I'm just not hearing that as a chorus of voices."


Nationwide, the January purchasing managers' index of manufacturing activity fell to 41.2 -- its lowest level since 1991. A number below 50 indicates a contraction.

Industrial production also fell 0.6 percent in December and contracted at a rate of 1.1 percent in the fourth quarter -- the first negative quarterly reading in nine years.

Consumer confidence is also at its lowest level since December 1996. Meanwhile, the gross domestic product is still growing, but had slowed to 1.4 percent in the fourth quarter of 2000 compared with an astounding 8.3 percent in the last quarter of 1999.

"The GDP numbers show a two-tier economy with the manufacturing sector in recession and industrial production still declining, but the rest of the economy holding up reasonably well," said Jerry Jasinowski, president of the National Association of Manufacturers.

But it's not so cut and dried in this area.

"Many people consider [Baltimore] a blue-collar town, but if we do have blue collars, then they are on dress shirts because our largest industries happen to be service-based," said Anirban Basu, senior economist with RESI, an economics and consulting institute at Towson University.

Manufacturing jobs make up only about 7 percent of Maryland's nonfarm work force, while the average nationwide is about 14 percent.

Basu also said that the area's relatively small exposure to the automobile market -- one of the largest drivers of the country's manufacturing slowdown -- also means the region should not feel a slowdown as much as states like Michigan or Indiana do.


In July, General Motors Corp. did cut its second shift -- about 1,200 positions -- at its Baltimore van plant on Broening Highway. But that had more to do with falling demand for the Chevy Astro and GMC Safari -- which have not been redesigned since they were introduced in 1984 -- than with a softening economy.

Indeed, any slowdown in Maryland's manufacturing sector hasn't shown up in state coffers.

The revenue from sales tax on "industrial supplies," such as chemicals used for manufacturing, was up 44 percent in December 2000 compared with December 1999, and up 11 percent for the last half of the year vs. the comparable period in 1999. Revenue from sales tax on "machinery for heavy manufacture" was up 175 percent in December and 204 percent for the six-month period.

But gains across the board are unlikely.

"I think their experiences vary. The people who are going to be hurting most are the capital equipment manufacturers," said Paul Engle, a manufacturing consultant at Grant Thornton LLP in Baltimore. "When things start to look questionable, when markets turn soft or people are concerned about the future, they tend to look at expense budgets very closely."

That's why the people at the Ward Machinery Co. are scrambling to bring in revenue.


The 270-person Cockeysville company makes machines that make corrugated boxes. And when it looks like consumers are going to stop spending as much, retailers order fewer goods, manufacturers cut production and fewer boxes are needed -- and Ward customers think twice about buying new box-making machines.

"I cannot ever remember things being this difficult," said Michael D. Harris, president and chief executive.

Ward's revenue for fiscal 2001, which ends May 31, is expected to be down about 10 percent, and the company has had to rethink the way it goes after business. Instead of relying so heavily on sales of new machines, which can cost several million dollars, Harris said, Ward is seeking sales of parts and services.

"Before, we were not doing it aggressively, we were waiting for the customers to call," he said. "We have to work harder to do the same business."

Hunt Valley-based Millennium Inorganic Chemicals, which employs more than 800 people in the region, is also feeling the slowdown. It makes titanium dioxide, a key ingredient in paint, and relies heavily on sales from big chain retailers like Home Depot.

"In the second half of the year we saw a steady weakening in the economy for manufactured goods," said David L. Vercollone, senior vice president of commercial operations worldwide.


Sales volumes were up 2 percent in the fourth quarter of 2000 compared with the fourth quarter of 1999, but down 9 percent from the third quarter. Some of that is seasonal, but some reflects the state of the economy.

"The Wal-Marts and Home Depots of the world were really restricting the purchase of goods to make sure they did not have too much inventory on the shelves," Vercollone said.

So far, though, the company hasn't had to make any major work force reductions, although it did eliminate about 20 to 30 jobs in November, largely through attrition.

The retail slowdown also is hurting Towson-based Black & Decker Corp., which saw its fourth-quarter sales fall by 6 percent. It shut down its plant in Easton for three weeks in December -- two weeks longer than the normal Christmas idling -- and declined to call back 125 of its 500 temporary workers. All 1,125 full-time employees are now back at work, however. The toolmaker also plans to lay off about 400 workers, largely at a plant in the United Kingdom.

Still, many manufacturers say business is booming.

Fiber-optics multiplexing-equipment maker Ciena Corp. of Linthicum is hiring about 30 to 40 employees a week, a majority in its manufacturing division.


"We're going like gangbusters," spokesman Bill Rose said. "We haven't seen that much of a slowdown, although we have been affected by the volatility of the stock market."

Other, even more traditional manufacturers say things are steady or even picking up.

"We're running at a rate of about 10 [percent] to 15 percent ahead of where we were last year in terms of volume," said Ken Lewis, owner and president of Baltimore-based Kenlee Precision Corp., which makes parts for various sectors, including the semiconductor and medical industries. The company, which is hiring now, employs about 170 in Maryland and 60 more at a plant in Florida.

"A lot of those [problems] are self-inflicted," he said. "When you say, 'recession,' you can talk yourself into it."

Scott Macdonald, chief executive and co-owner of Maryland Thermoform Corp., agreed. "If the media projects that [the economy] is terrible, it's almost a self-fulfilling prophecy," he said.

Maryland Thermoform, which makes plastic packaging for things such as cosmetics compacts and hardware parts, saw a slight slowdown in the fall, but things have picked up since then.


"I just don't see any weakness," Macdonald said. "I think we've turned around."

Another company that isn't losing any steam in the downturn is Tate Access Floors Inc. of Jessup, which makes raised office floors to accommodate computer wiring.

The company sees plenty of room for growth because, although only about 10 percent of new offices install raised floors, that number is rising; Tate's business doubled from 1999 to 2000. Additionally, the construction sector is still on the rise.

"If twice the number of people understand and use [raised floors], the market could be softening, and for us there would still be nice growth," said Patrick Jackson, director of marketing. "Our business is very bullish."

At Poly-Seal Corp., a 450-person company in Baltimore that makes caps for bottles and tubes, business is steady.

"People continue to buy personal-care items. They may change brands from a salon product to Alberto VO5, but they're still going to buy shampoo," said William Herdrich, general manager of the overcap and closure division. "We see a very small increase per year, probably the same as the population increase."


Ray Owens, senior economist at the Federal Reserve's Richmond District, which includes Maryland, said the state is fairly well positioned to escape the worst part of the slowdown.

"Some of the weakest parts of manufacturing nationally are textile and furniture, and those are not big players in Maryland," he said. "Because the weakest components don't play into your state's economy, it could be things there, though bad, are certainly not as bad as in other parts of the country. It's a very mixed bag out there."