DC Velocity on the Economy

newsworthy2008 economic outlook: "a lot of risks out there"

DC VELOCITY readers who responded to a survey asking about their outlook for the next 12 months are of two minds. While one-third are pessimistic and 29 percent are unsure about what the future holds, 38 percent say they're optimistic about the coming year.
By DC Velocity StaffFrom the January 2008 issue

It could be a long year.
Or then again, maybe not. DC VELOCITY readers who responded to a survey asking about their outlook for the next 12 months are of two minds. While one-third are pessimistic and 29 percent are unsure about what the future holds, 38 percent say they're optimistic about the coming year.
When it comes to the U.S. economy's prospects for growth, however, the survey respondents are significantly less optimistic. Only 19 percent expect strong growth, 44 percent expect the economy to be flat, and 37 percent expect growth will be weak.
Continues below

As it turns out, economists don't see much cause for optimism either, at least until the second half of the year. That much was clear during Global Insight's World Economic Outlook Conference in Boston in late October, when economists and invited speakers cited several risks to the economy.
In his top 10 economic predictions for 2008, released after the conference, Global Insight Chief Economist Nariman Behravesh essentially sided with the pessimists. "The U.S. economy is now in the danger zone," he wrote.
Behravesh predicted that the pace of economic growth in the United States would be the slowest since 2002, when the nation was recovering from the 9/11 terrorist attacks and the dot-com implosion. He said he expects growth of no more than 1.9 percent and that it could be even lower. Growth in the first half of the year will be particularly sluggish, he predicted, inching upward at an annual rate of 1.3 percent.
Could the nation slide into recession? Though Behravesh stopped short of saying that, he did warn that the risk is there. "The combination of the housing/subprime crisis and higher oil prices could be enough to push growth into negative territory," he wrote in his post-conference predictions. (Global Insight places the probability of a U.S. recession at 40 percent.)
Behravesh believes the housing slump could slow real growth in the U.S. gross domestic product (GDP) by a full percentage point. And he expects the slowdown to have repercussions for economies in other parts of the world.He also said he believes that the housing slump will bottom out at mid-year, when housing starts will be just half of what they were in 2005. Housing prices, though, will continue to fall through 2009, he predicted.
The second major risk to the economy is the price of oil, which stood at more than $91 a barrel in mid-December. Behravesh told conference attendees that he expects oil prices will ease to somewhere around $75 to $80 a barrel, but that he does not foresee prices falling much below $75. He added the proviso that in an era of tight supply, any sort of disruption could send prices soaring again.
Will exports save the day?Exports may be the only saving grace for the U.S. economy. Behravesh predicts exports will contribute 0.9 percent to the U.S. economy's growth—accounting for almost half of the expected total increase. Nigel Gault, managing director of Global Insight's North American Macroeconomics Group, said at the conference that his firm expects exports to grow by 9.5 percent this year,more than double the 3.4 percent rate expected for imports.
The strong export outlook may help explain why respondents to DC VELOCITY's survey are essentially bullish about their own companies' prospects, yet bearish about the U.S. economy as a whole.Nearly half (47 percent) of the respondents say they expect their employers will see strong growth.
Furthermore, half of those surveyed expect to increase their spending on material handling products, freight transportation, information technologies, and other logistics-related products and services this year. In fact, 65 percent anticipate that their spending on those areas will increase by 3 to 9 percent. Not all of that money will be channeled into new equipment and technology, of course: Fully 92 percent say the cost of fuel has been a significant factor in rising freight expenses.
Meanwhile, Behravesh expects that rising exports (a result of the weak dollar) combined with slowing imports (a result of the sluggish economy) will help shrink the nation's current-account deficit. That net flow of capital out of the country—a consequence of the nation's longstanding pattern of importing far more than it exports—has long worried economists. Even with some correction coming, Global Insight expects the deficit will be $659 billion in 2008, compared to $755 billion in 2007.
The current-account deficit for the second quarter of 2007—the latest number available at press time—was $190.8 billion, or about 5.5 percent of GDP. To be considered healthy, Behravesh said, that number should not exceed 3 percent.
The economy's relative weakness is likely to keep inflation in check, Behravesh continued. He anticipates it will fall from 2.0 percent in 2007 to 1.8 percent this year for the "core personal consumption deflator" (a measure of the average increase in prices for all domestic personal consumption), and from 2.3 percent to 2.1 percent for the Consumer Price Index (a measure of prices for a fixed basket of goods). He also believes the Federal Reserve will continue to cut interest rates.
Looking beyond U.S. borders, Behravesh foresees a difficult year for Europe, resulting from the overall global slowdown, a strong euro, the international credit crunch, its own housing crisis, and high oil prices. Meanwhile, China's economy will grow at a 10.8-percent clip, though the Chinese government is expected to tighten credit after next year's Beijing Olympics, which could lead to a "hard landing" there. Still, he noted, when you consider the nation's current rate of growth, a hard landing for China would still mean growth in the range of 5 to 6 percent.
Back in October, Behravesh characterized the risk of a U.S. recession as relatively low. But the odds of a recession have certainly increased since then. As he told the conference audience in what could turn out to be an understatement: "There are a lot of risks out there."

Robotics Online View of the 2008 Robotic Markets

Smooth and Steady: Prospects for the Robotics Industry in 2008 by Bennett Brumson, Contributing Editor(Posted 01/04/2008)

Despite the possibility of a slowdown in the economy, the outlook of those in the robotics industry in 2008 is generally optimistic.

‘‘I think 2008 will be a strong year for the robotics industry,’‘ says Richard O. Litt, President and Chief Executive Officer of Genesis Systems Group, Davenport, Iowa, and the new President of the Robotic Industries Association (RIA), Ann Arbor, Michigan. ‘‘General industry is doing well, and agricultural equipment manufacturing is very strong, as are health and fitness equipment manufacturers.’‘

This good news is tempered by challenges faced by the robotics industry, particularly by it largest user, the automotive sector. ‘‘The Big Three auto makers do not have the cash flow to fund the levels of automation of the last year or so. Yet, automotive manufacturers are under pressure to come up with new and fresh products, which helps the robotics industry,’‘ says Litt, who is the new president of the Robotic Industries Association.

Food for EnergyWhile the automotive sector is important to the robotics industry, major players are looking to general industry for growth in 2008. Craig Jennings, President and Chief Operating Officer at Motoman Inc., West Carrollton, Ohio, says, ‘‘Most markets in the robotics industry will have modest growth in 2008. 2008 will be a good year for us but a not great one.’‘ Jennings’ analysis has a caveat: ‘‘If the economy slips into recession, that will slow growth. I expect 5 to 10% growth of the robotics industry in 2008.’‘

Jennings, like Litt, points out that agricultural applications will grow well in 2008. ‘‘Agriculture seems to be a hot market for robotics because of the push for ethanol. Corn is being turned into ethanol and other crops are taking the place of corn for feed, so agriculture is still chugging along,’‘ Jennings says. ‘‘Given the huge surge in alternative energy, I think agricultural applications will do well in 2008.’‘

Alternative energy sources are a bright spot for Jeff Burnstein, Executive Vice President of RIA. Burnstein says, ‘‘Alternative energy, like fuel cell manufacturing, represents a big opportunity for robot suppliers. At the 2007 Robotics Industry Forum, members listened to a presentation on the use of robotics by the fuel cell industry.’‘

Burnstein is referring to a talk given by Raymond H. Puffer, Jr., Program Director of the Industrial Automation Center for Automation Technologies and Systems at the Rensselaer Polytechnic Institute, Troy, New York. Puffer spelled out opportunities for robotics in manufacturing fuel cells. ‘‘Ray Puffer leads an active program on how robots assist in fuel cell manufacturing. As the United States moves toward alternative sources of energy, fuel cells may be one of these alternatives. That is the kind of market that RIA can help develop’‘ says Burnstein
Food and beverage applications are among those that have potential for growth in 2008, comments Gary Zywiol, Vice President of Product Development at FANUC Robotics America, Inc., Rochester Hills, Michigan. Zywiol says, ‘‘FANUC is seeing an increase in robotic food handling, especially by big customers. Due to Food and Drug Administration (FDA) requirements for cleanliness, food handling robots have to be able to withstand caustic cleaning and must be able to be hosed down.’‘

Furthermore, Zywiol says that robots are not just palletizing boxes of food products to ready them for shipping. ‘‘Robots are increasingly used upstream for handling the food itself because manufacturers are pushing for robots that can directly handle foods. We have made significant investments in the food sector and are hoping to see growth in 2008.’‘

Food applications represents an untapped opportunity for David Arceneaux, Business Development and Marketing Manger at Stäubli Robotics, Duncan, South Carolina. Arceneaux says, ‘‘In the food industry, robots are increasingly used in assembly lines. For example, robots are cutting lettuce, then picking and placing the two halves into trays for further processing.’‘
Food and beverage applications are also on the mind of Stuart Shepherd, President of KUKA Robotics Corp., Clinton Township, Michigan. Shepherd predicts, ‘‘KUKA expects to see growth in packaging and palletizing applications in the food and beverage industries during 2008.’‘
Other ApplicationsAerospace could prove to be a source of increased business for the robotics industry in 2008. ‘‘Aerospace is a hot market, driven by a backlog at Boeing and strong activity by the defense industry,’‘ says Craig Jennings.

Jeff Burnstein is also bullish on aerospace applications, saying, ‘‘The robotics industry’s goal is to expand beyond automotive and penetrate into non-automotive markets, such as consumer goods, food and beverage, electronics and aerospace.’‘

Life Sciences are another application that is poised for growth in 2008. David Arceneaux foresees an increase in life science applications in 2008. ‘‘Stäubli hopes to get into more medical applications. Robots in this application require very high-precision positioning, as for medical procedures in out-patient surgery.’‘

Likewise, Craig Jennings of Motoman has high hopes for life science applications in 2008. Jennings says, ‘‘Life Sciences is an industry that is waking up to robotics. Laboratory applications, like the use of robotics in alternative energy applications, are areas that will grow in 2008.’‘

Gary Zywiol also envisions growth of robotics in life science applications in 2008. ‘‘The use of laboratory robots will increase. Pharmaceutical and laboratory applications are growing, but we would like to see them grow faster,’‘ says Zywiol. ‘‘Pharmaceutical uses are examples of the need of nurturing by the robotic industry to help life science companies become more comfortable with robotics.’‘

Traditional robotic applications will be able to hold steady or even increase slightly in 2008. John Burg, President of Automated Concepts, Inc., Council Bluffs, Iowa, sees some of these applications performing well this year. ‘‘Material handling, machine tending, and arc welding are up. Material removal applications seems to be pretty active, but the overall numbers are small in comparison to material handling and machine tending.’‘

Arc welding applications tied to vision systems has prospects for growth in 2008, according to Richard Litt. ‘‘In welding applications, we are seeing vision for dimensional inspection and for part presence inspection. I see a lot of interesting developments coming in 2008, such as robotic assembly, robotic servo-pressing and fastening, along with vision-guided inspection.’‘
Stuart Shepherd sees growth in several traditional robotic applications during 2008. ‘‘Process-intensive applications requiring a focus on detail, including arc welding, material removal, and polishing, will continue to grow especially as off-line programming capabilities improve.’‘ Shepherd goes on to say, ‘‘Applications in harsh and dangerous jobs will continue to drive growth.’‘

Gary Zywiol sees a potential for growth in the use of robots functioning as machine tools in 2008. ‘‘In the right application, robots can supplement machine tools. FANUC has done some robotic burr grinding from castings using a very stiff hexapod robot,’‘ Zywiol says. ‘‘When properly applied, robots are taking the place of machine tools, enabling end-users to save a lot of money.’‘

Zywiol remarks that machine tools are not going to get completely displaced by robots, but powerful, stiff robots can be used in place of machine tools in grinding and other material removal applications where a rigidity is required. Stiff robots have manipulator arms that do not flex while performing demanding tasks such as grinding, deburring or carrying heavy payloads.
Seeing the FutureThe trend of having vision systems becoming a fully-integrated feature built into robots will continue in 2008. As vision systems get more robust, more capable, easier to use and less expensive, vision is on the path to being a standard feature in robots.
Roberta Nelson Shea, General Manager at Pilz Automation Safety, L.P., Canton, Michigan, speaks of developments in vision systems that will become available in 2008. ‘‘I see new vision products, like safe vision and camera systems for robotics. Both are in use by Mercedes-Benz in Germany and sample systems in the United States are being tried out.’‘ Nelson Shea notes Pilz will begin shipping these systems in North America during 2008.

Robot makers have begun to embed vision into their robots, making it a standard feature. Gary Zywiol says, ‘‘FANUC shipped 50% more robots with vision in 2007 than in 2006, and we expect that to continue in 2008. In the last five years, our robotic vision shipments have increased by 400%, so vision is growing faster than the rate of robotic growth.’‘

More robots are vision-ready, which allows users to simply plug in a camera. Integrated vision is a handy feature for end-users new to robotics who might not see the need for vision initially but could as their manufacturing requirements change.

Michael Jacobs, President and Chief Executive Officer of Applied Manufacturing Technologies, Inc., Orion, Michigan, says, ‘‘The next new thing is integrated vision, where every robot is delivered vision capable. End-users just add a camera to have a ‘seeing’ robot. While the concept is not revolutionary, the delivery is.’‘

Jacobs feels the benefit of vision-guided robots stems from the fact they require less complex tooling to perform their tasks. Major robot makers will begin offering embedded vision as a standard feature in 2008.

End-users see the advances in vision as a vital development to increase the effectiveness of robotics. Thomas Pearson, Automation Technology Leader at Ford Motor Company, looks forward to advances in three-dimensional vision. ‘‘Three-dimensional vision is getting to the point to where we can implement this technology because increased processor speeds enables more robust vision.’‘ Pearson says he would like to see more research on biometric sensors to be undertaken in collaboration between industry and government laboratories in 2008.
Next-Generation RobotsThe evolution of ‘‘next-generation robotics,’‘ machines that will have integrated safety systems without the necessity for surrounding safeguards, will progress in 2008. Tom Pearson anticipates developments in next-generation robotics in 2008, saying, ‘‘I am looking for next-generation robotic technology. Ford sees an opening of human-robotic collaboration which can be done to a limited degree with intelligent assist devices that are commanded by a human.’‘

Pearson’s vision for next-generation robotics are robots that sense people are present and cannot hurt them. ‘‘The next generation of robotics has tremendous opportunity for Ford, but they are not here yet,’‘ says Pearson.

Roberta Nelson Shea of Pilz also expects safety systems integrated into robots to become standard in 2008. ‘‘Robot makers are introducing new models with control systems that have some embedded safety improvements for a lean and safe work cell. Compliance with safety standards will be tremendously improved when safety systems are embedded,’‘ asserts Nelson Shea.

Two Arms Could be Better than OneDual-arm robots will get more attention from both robot suppliers and end-users in 2008. Craig Jennings has high hopes for dual-arm robots. ‘‘Motoman has a line of dual-arm robots that are new to the robotics industry. We will see similar products coming from other robot companies in 2008.’‘

Ford’s Tom Pearson observes, ‘‘We find dual-arm robots an interesting idea. We see how dual-arm robots can be used in a lot of applications, especially for engine and transmission handling.’‘ Look to see a proliferation of dual-arm robots over the course of 2008.

Robots to the RescueAs globalization accelerates, robotics are increasingly vital to maintain the health of the industrial sector and keep manufacturing jobs at home. Jeff Burnstein makes the case for robots as key to provide manufacturers a choice other than relocating to a low-cost country or shutting its doors. ‘‘Now more than ever, the need to stay competitive is a driver for investing in robotics. Companies in North America are often faced with difficult choices: Do they send their manufacturing to low-cost producers overseas? Or, do they invest in robotics to continue making products here?’‘ Burnstein concludes that more companies are realizing that robotics are the better option.

Market Sentiment - Manufacturing Confidence

Manufacturing confidence: NEMA index reports choppy North American business conditions

Control Engineering -- December 31, 2007 Rosslyn, VA

The Electroindustry Business Confidence Index (EBCI) for current North American conditions decreased from 52.2 to 47.8 in December. The National Electrical Manufacturers Association (NEMA) report shows a reversal in conditions from November, when survey results revealed the first month-to-month improvement since April. News from the future conditions index for North America was better.
NEMA EBCI indexes are measures of the diffusion of sentiment across the electrical manufacturing industry; a reading of more than 50 indicates conditions favorable to industry expansion and vice-versa. A companion measure, the mean degree of change in North American business conditions, registered 0 (on a scale ranging from –5 [deteriorated significantly] through 0 [stayed the same] to +5 [improved significantly]) for a second month, implying a mostly flat business environment since October, the organization explained.
Value of the index for future conditions increased in December to 45.7 from 37 in November; NEMA said the reading amounts to a forecast of continued modest deterioration in business conditions over the first half of 2008. December was the fourth consecutive month in which the future reading registered below 50.
Current and future conditions indexes for other world regions equaled or surpassed December’s growth threshold mark of 50, the organization said. The current conditions index for Latin America rose to 56.7; the future conditions index retreated to 63.3. Current and future European conditions indicators grew to 61.5 and 50, respectively. The current conditions index for Asia/Pacific climbed to 82.1; the future conditions index remained at 67.9.Methods: EBCI indexes are based on the results of a monthly survey of senior managers at NEMA member companies and gauge the business confidence of the electroindustry in key regions. The number of respondents was 23, NEMA noted. Respondents are asked to indicate whether conditions are better, worse or unchanged (or not available). Regions are North America, Latin America, Europe, and Asia/Pacific. The survey provides space for comments on current conditions.

Automation Systems to Grow 7% Annually for 5 Years

From Control Engineering, January 2, 2008

7% annual growth: New automation systems create nimble, more profitable manufacturers
Control Engineering -- January 2, 2008 Dedham, MA

Manufacturers investing in automation systems react more nimbly to market opportunities and augment profits, according to a new ARC Advisory Group study that says discrete industry automation continues solid worldwide growth. Increased use of automation by manufacturers is crucial during this period of greater globalization, the report says.
Manufacturing plants and OEM machine builders are investing in automation to improve operations and meet market demands. The worldwide market for discrete automation systems is expected to grow at a compounded annual growth rate (CAGR) of 6.8% over the next five years, said the research firm; the market was almost $17 billion in 2006 and is expected to grow to more than $23 billion in 2011.
“One reason the automation business is doing so well today is the huge list of challenges and changing conditions in the global business environment that manufacturers must respond to,” said senior analyst Himanshu Shah, principal author of ARC’s Automation Systems for Discrete Industries Worldwide Outlook. “These challenges include globalization, the need to react quickly and with agility to emerging market opportunities, and increasing pressure to improve financial performance.”
Discrete automation products should show robust growth across industrial segments that include automotive and electronic & semiconductor to machinery and plastic & rubber industries, the report said. Discrete automation investment is driven mainly by business goals, since it helps improve plant productivity, product quality and cost, safety, flexibility, agility, and delivery performance. Developing economies are increasing demand for industrial machinery at high rates, ARC noted. Feeding this has been a surge of regional machine builders with vertical specializations beyond machine performance issues. Regional OEMs, including domestic and foreign transplants, have leveraged proximity to the customer to create an understanding of the niche their customers inhabit and are able to build machines more suitable to regional issues, the report explained.
China and India, known for outsourcing low valued production from North America and Europe, appear to be moving toward value-added manufacturing services to produce higher valued products. ARC also sees a move toward foreign domestic machine builders establishing production centers in Asia to leverage vertical specialization in industrial machinery. The growth period continues to be fueled by increasing wealth in consumers in Eastern Europe and Asia, and many industrial automation suppliers concur that the five-year capital expenditure cycle has only a ripple effect on the longer-term sustained growth patterns of automation suppliers.