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Corporate Executive Survey Commentary: “Caution” Is the Watchword in the Current Recovery

Consultant David Munson notes that the Corporate Survey reflects “caution” in projecting the arrival of a fundamentally stronger economy, and higher priority on issues that support improved productivity in existing operations.

Q1 / Winter 2013
27th Annual Survey of Corporate Executives and 9th Annual Survey of Consultants

Brett HunsakerSurvey Results Point to a "Positive Hold"
Brett Hunsaker, executive vice president and regional managing director at Newmark Grubb Knight Frank
Bill LuttrellEmergence of Big Data Affects Corporate Survey Respondents' Priorities
Bill Luttrell, senior locations strategist at Werner Enterprises
Ed McCallumA Lackluster Recovery
Ed McCallum, senior principal at McCallum Sweeney Consulting
Christopher B. SchastokCorporate Survey Results Mirror General Market Trends
Christopher B. Schastok, vice president at Jones Lang LaSalleg
Andrew ShapiroIncentives Are Still Important
Andrew Shapiro, managing director at Biggins Lacy Shapiro & Company
Thomas StringerCorporate Survey Reflects the New Economic Normal
Thomas Stringer, Business Advisory Services, Ryan & Company
Area Development's 27th Annual Corporate Survey of its readers is an excellent reference for anyone involved in site selection and facilities planning. The complete set is an important record of long-term shifts in strategies and priorities.

The first survey was published amid an extended period of economic growth following the tumultuous ‘70s, remembered for inroads made by foreign competition in the automotive sector and two oil crises.

Among five recessions occurring during the period from 1969 to 1991, only two lasted more than eight months with highest monthly unemployment rates above 7.8 percent. During the 16-month 1973–1975 recession, peak unemployment was 9 percent, and during the 16-month recession occurring 1981-1982, peak unemployment was 10.8 percent. For manufacturers (especially automotive) in the Great Lakes region, it was one prolonged recession from late 1980 through 1984. With the exception of the oil crises, the other events were regarded as normal, short-term disruptions and, therefore, did not lead to structural changes.

After a mild eight-month recession in 2001, the economy picked up for three to four years, and then began to exhibit underlying weaknesses, despite overall acceptable performance. By 2005 it was evident many durable goods manufacturers had reached unsustainable capacities.

The Great Recession of 2007–2009 was a redefining moment. Unemployment peaked at 10 percent and remained near 9 percent for 36 months (’09–’11). GDP fell 5.1 percent (nearly twice the average of previous recessions). Tough issues had to be addressed rapidly and comprehensively. Manufacturing, led by automotive, made huge structural changes. Together, we took a lot of pain all at once. Like a major illness, the symptoms linger six years after the onset.

We are now in transition from a system of “winners and losers” where permanent excess capacity led to increasingly desperate price competition (especially among suppliers) to a new system mandating lower fixed costs, higher productivity, and faster innovation through intense cooperation between OEMs and their supply chains and among suppliers at all levels.

This is the first recovery in several decades for which we do not have sufficient capacity on standby to support near-term demand. The knee-jerk reaction used to be build quickly and build big. The new normal is to find productivity improvements within, build if you have to, and build as small as you can.

This shows up across Area Development’s 2012 survey as caution in projecting the arrival of a fundamentally stronger economy, higher priority on issues that support improved productivity in existing operations, and, when necessary, smaller new locations with lower projections for capital expenditures and job creation. The good news is we are now clearly ahead of schedule in implementing large-scale changes that will help avoid mistakes of the past and lead to greater economic sustainability.

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