Crystal Ball Shopping: Why Not?

There are so many ways to predict business success. Here's one that you may not have predicted.

Crystal Ball Shopping: Why Not?

If only there were a crystal ball for questions like these: “How long will the economy stay so quiet? How long will it be before we’re headed to capacity again? When will we need to look for lots of people again in manufacturing?” No such things?

Actually, we have lots of our own modern versions of crystal balls in the mountains of numbers we generate about the economy every day.

We can look ahead through the eyes and deeds of the Federal Reserve and its expectations about production and investment and its interest rate decisions.

We can study the Commerce Department numbers with its huge database going back generations.

We can check out the numbers from groups like the Institute for Supply Management (for those of you over 40, that’s the formerly titled Purchasing Managers Association, which has moved to Tucson, Arizona).

You can, if you’re in an international mood, get all kinds of data and accompanying predictions from the United Nations and various European Union groups that work night and day in New York City and Brussels, Belgium, to hand us their guesses about the future.

And here’s a new one that I found especially interesting. It comes from a San Francisco real estate company, AMB Property Corporation.

AMB has developed an Industrial Absorption Indicator, the IAI. It is designed to help predict demand for industrial real estate. AMB says its IAI has so far showed an 88 percent correlation with actual demand for industrial space, a “higher level of accuracy than other indicators used to forecast such demand.”

The new index has been in the works for more than six months at AMB, and soon it will be available on the Internet at amb.com, the company notes. How does it work? They use Fed numbers from monthly manufacturing output indexes and correlate those with some 13 years of quarterly industrial activity patterns.

Such a high-accuracy predictor for industrial real estate, of course, would be quite a crystal ball. There have been others who have devised indicators for plant usage and, in fact, the use of plant capacity utilization numbers is probably the most commonly cited kind of statistic in the manufacturing crystal ball world.

The special attraction of the IAI is, however, not so much the topic but the accuracy claims AMB makes on its behalf. An 88 percent accuracy level is a much clearer crystal ball than we’ve ever had before, as several others in the business of prediction have noted.

And what are they seeing in this new crystal ball? Well, how about “38 million square feet of negative absorption for the second quarter of this year and 57 million square feet of positive absorption in the third.” Needless to say, that would signal a big turnaround for industrial space and manufacturing activity in the country in general — real big.

I’m going with AMB Property’s IAI not because it’s about the most optimistic one around that I can find these days, but because it comes with accuracy claims that are close to the old-fashioned crystal balls — which, of course claimed to be 100 percent.

Another point: Pessimists like to note that modern manufacturing growth doesn’t directly translate into more jobs. True, automation means more and more productivity directly from fewer and fewer people.

The whole manufacturing world is supported by millions of people throughout the economy who work on and in everything from software to research — all remotely. So the result of increased plant utilization is always more employment, however dispersed. If the IAI stays up that much, you can safely bet that industry will be hiring a lot of people.

Meanwhile, I can suggest an even more dependable crystal ball, except that it’s too big for anyone to look into in any simple way like statistics. The one I have in mind I will be inside of when you read this. It’s called IMTS, and I’ve been attending it for almost 30 years.

This year’s International Manufacturing Technology Show at McCormick Place in Chicago promises to be nearly as big as the last few in terms of exhibitors, which is a good sign right up front, according to sources at the prime sponsor of this greatest of all manufacturing technology shows, the Association of Manufacturing Technology in McLean, Virginia (Washington).

I’ll be trying to read that huge crystal ball of manufacturing technology and spending plans from close up, and I’ll have my reading for you next month. Of course, if you plan on attending, which is something I always encourage, look me up through the Press Room.

The IAI from AMB Properties says the year is going to surprise the pessimists with some really dramatic growth in manufacturing activity. Let’s see if the IMTS crystal ball agrees.

Contact information is as follows: Association of Manufacturing Technology, [email protected] or www.amtonline.org; IMTS, www.imtsnet.org.

George Weimer, contributing editor, [email protected]

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