In Your Own Market, Take Stock

One of the emotions that came across at this year’s Westec show was hesitancy. Not gloom—nothing that extreme.

Many machine tool OEMs and other exhibiting companies had seen orders drop recently. But those same companies saw reason to believe the demand might soon return. Their customers were still healthy. In general—and I am generalizing—the picture that emerged from talking to metalworking suppliers is that shops and plants are waiting for a sign that business will remain strong. The stock market faltered this year. Will the economy falter too?

It’s easy to forget that these two entities—economy and stock market—are not one in the same. Both influence one another, and both respond in kind to similar influences. But the doubt about the economy that seems to have crystallized in the wake of recent stock declines may be misplaced. The stock market has retreated from its highs . . . but it could be argued that those highs were the result of factors other than the economy or demand for manufactured goods.

Certainly the economy did play a role. But so too did these historic forces:

Baby boomers. They began saving in a big way and made stocks their vehicle of choice. Demand for stocks went up.
401(k)’s. These plans put stock purchasing on autopilot. People in 401(k) plans buy more shares every pay period (perhaps through a mutual fund) without even thinking about it. Thus demand for stocks has gone up all the more. And higher demand means higher prices.
“Technology” stocks. The appearance of some very different sorts of companies let investors look the other way as stock prices ascended. Optimism that computer- and Internet-related companies might defy established rules kept investors in the market as prices mounted.

In other words, the stock market answers to factors that go beyond just the health of the economy.

Right now, you’re weighing factors of your own to determine how far to go in equipping your shop for the workload it may see in the future. Circumstances close to you and close to your customers are providing you with clues. Analyze those factors coldly. Decide whether the smarter bet is to hold fast for now . . . or to prepare for coming opportunities that more cautious competitors may not be ready to take on.

Just don’t let the movements of the stock market—widely publicized though they may be—cast too dark a shadow over that analysis.