2020-02-10 Bloomberg Businessweek

Bloomberg Businessweek February 10, 2020

15

The tariffs stalledanindustrialrecoverythat

was gaining traction following a mini-recession in

2015-16 amid plunging oil prices. Already, compa-

nies were dealing with rising labor, raw material,

and logistics expenses. But the will-he-or-won’t-he

debate around Trump’s tariff push created an

impossible environment in which to make major

purchases of expensive machinery. Industrial com-

panies’ sales suffered.

A belief that things would recover quickly if the

U.S. and China reached a trade deal changed how

companies responded to the slowdown. Executives

didn’t want to be caught flat-footed by a swift recov-

ery or left without workers in a tight labor market.

Thus far, people have largely stayed employed

and been active consumers. Even with all the vola-

tility in 2019—which also included a six-week General

Motors Co. labor strike and the global grounding of

Boeing Co.’s 737 Max jet—the manufacturing industry

ended 2019 with a net gain of 46,000 jobs, based on

preliminary data from the Bureau of Labor Statistics.

Asked on a Jan. 28 earnings call if aerospace supplier

United Technologies Corp. would lay off employ-

ees to help it cope with the Boeing production halt,

Chief Executive Officer Greg Hayes said “that would

be the easiest thing to do, but quite frankly, given

thescarcityoftalented aerospace workers out there,

we’re not going to.”

Most industrial CEOs say they expect a challeng-

ing economic environment to linger at least through

the first half of the year. Emerson Electric Co. and

3M Co. announced fresh restructuring plans in their

earnings releases that will almost certainly include

job cuts. But a continued slow bleed in manufactur-

ing combined with moderate cost-cutting probably

won’t be enough to tip the overall employment pic-

ture negative, Adams says. With the Federal Reserve

signaling that it’s unlikely to raise interest rates soon,

things would have to change materially in the next

six months for that manufacturing weakness to leak

into the consumer sector, she adds.

One wild card is the coronavirus and the impact

it could have on consumer sentiment, particularly

in China. Unlike the trade war, the outbreak threat-

ens to hit consumer-facing companies equally as

hardif notharderthanindustrialones,withApple,

McDonald’s,andStarbucksshutteringlocationsin

ChinaandU.S.airlineshaltingtraveltothecountry.

�BrookeSutherland

THE BOTTOM LINE Worries that the slowdown in industrials

would drag on the consumer economy haven’t materialized in part

because manufacturers have avoided mass layoffs.

0% -20%

The will-he-or-

won’t-he tariff

debate created

an impossible

environment

in which to

make major

purchases

Energy

Banks

Technology

hardwareand

equipment

Foodand

staples

retailing

Food,

beverage,and

tobacco

Household

andpersonal

products

Materials

Telecommunica-

tionservices

Semiconduc-

tors and

semiconductor

equipment

Commercialand

professional

services

Capitalgoods

Mediaand

entertainment

Real

estate

Automobilesand

components

Retailing

Transportation

INFORMATION TECHNOLOGY

INDUSTRIALS

COMMUNICATIONSERVICES

CONSUMER

STAPLES

FINAN CIALS

Health-care

equipment

andservices

Consumer

durables

andapparel

Software

and services

One

Recession