U.S. manufacturers try to ride out the storm

Caterpillar Group President Ed Rapp speaks during the Reuters Manufacturing Summit in Chicago February 24, 2009.

CHICAGO (Reuters) - Manufacturers are hoping to ride out the worst U.S. and global economic storm in decades, but some fear that more pain lies ahead as demand plummets and a recovery could be tentative at best.

Executives at the Reuters Manufacturing Summit in Chicago this week characterized the near-term outlook and the velocity and time of a recovery as highly uncertain.

On a positive note, many said their companies were quick to respond to changing conditions by slashing production when economic activity fell off a cliff in late 2008.

In that vein, the U.S. Commerce Department on Thursday showed durable goods orders down 5.2 percent in January, a sixth consecutive monthly decline to a six-year low. December orders were revised down sharply as well.

Ed Rapp, group president at Caterpillar Inc (CAT.N), said the world's largest producer of construction and mining equipment did not muck around when the economy turned.

"There's a difference in CAT this time around, versus maybe what we experienced in previous recessions ... We are prepared to pull the trigger," he said.

Peoria, Illinois-based Caterpillar announced in January that it would cut about 22,000 jobs. It was far from alone: U.S. payroll figures show a total of 490,000 manufacturing jobs lost in the three months through January.

"Most people in our industry have been very aggressive in adjusting production to align with sales," Rapp added. "Everyone understands that it's to nobody's benefit to get an excess level of inventory."

Without an inventory overhang -- the kind that has crippled the U.S. housing market, for example -- business could get a lift when the recession finally ends.

"A contraction in inventories ... could set up for increased production from inventory restocking down the road," economists at Goldman Sachs said in a research note following the durable goods report.

The collapse in the U.S. and global economy in the second half of 2008 surprised even industry veterans.

"Conditions in the fourth quarter deteriorated more quickly than I've seen in my time in the industry," said Ron DeFeo, chairman and CEO of diversified manufacturer Terex Corp (TEX.N). "Business went from 'full speed ahead' to 'stop' in a number of product categories."

Terex, based in Westport, Connecticut, has announced some 5,000 job cuts but might have to cut more, DeFeo said.

Several officials were disappointed with the low level of funding aimed directly at infrastructure projects in the Obama administration's $787 billion economic stimulus.

Even so, what funding is made available -- in both the United States and globally -- should fall into a sweet-spot for some manufacturers.

"I tend to amalgamate all the investments that have been announced around the world," said Charles Peters, senior executive vice president at industrial conglomerate Emerson Electric Co (EMR.N).

Peters detected a new resolve to tackle some of the problems previously on governments' "too-hard list," including energy capacity and environmental considerations.

"I see a signal, a shift in thinking, that we're finally going to get real about these things," Peters said. "That investment is very much aligned with Emerson's platforms."

WORSE YET TO COME?

The White House on Thursday forecast U.S. gross domestic product would fall by 1.2 percent in 2009 before bouncing back to 3.2 percent growth by 2010 as stimulus funds work their magic.

Executives were skeptical about a recovery, particularly with credit markets limping along and capital investment at a low ebb.

Paynet Inc, a company that tracks trends in the U.S. commercial lending market, said that demand for loans, leases and lines of credit to finance capital equipment investment is still weak, although above the extreme lows seen in October.

Capital expenditure loan demand, measured by loan originations, fell 23 percent in January, year-on-year, and is on track to be down as much as 20 percent in February, said Bill Phelan, president and founder of the Skokie, Illinois, firm.

Dan Ustian, CEO of Navistar International Corp (NAV.N), said he sees nothing that "gives us confidence that the second half will clearly be a lot better than the first."

Should the downturn persist, Ustian said Navistar might be forced to close or cut production at one of its two heavy-duty truck plants in Canada and Mexico. "We're waiting a little bit longer to see how the economy materializes," he said.

(Editing by Gerald E. McCormick)

(For summit blog: blogs.reuters.com/summits/)