A good news problem for the economy

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There's not been much good news concerning the global recovery. Today's Financial Times describes a real problem for manufacturing companies -- but its a better problem to have than most they've seen the past few years. Manufacturers will need to work out these problems before they can end their investment strike and start putting accumulating profits, that they currently hoard, to work.

Businesses warn they may be held back Suppliers battling to increase production By Hal Weitzman in Chicago Large industrial companies around the world are defying fears of a "double-dip" recession, reporting signs of increasing strength in demand and striking a cautiously optimistic note about the growth of the global economy. Many industrial groups reported better-than-expected profits for the second quarter and raised their full-year growth forecasts. However, big manufacturers could be held back by their inability to secure vital components from supply chains weakened by the downturn and unable to increase production fast enough to meet demand. Caterpillar, FedEx and Honey-well in the US, Honda and Hitachi in Japan, and Siemens in Europe all raised their outlooks last week, while results from companies such as Boeing, Nissan, BASF and VW exceeded analysts' consensus forecasts. Yet some suppliers to large industrial multinationals that cut costs sharply in the early part of the downturn are finding it hard to increase production capacity rapidly, while many report that financing remains expensive and difficult to access. Manufacturing supply chains in the US and Europe are showing signs of straining to cope with demand. "The problems that suppliers are facing in this upturn are noticeably bigger than in the comparable stages of the recoveries we saw after previous recessions," said Daniel Corsten, a supply-chain expert at IE business school in Madrid. Some 51 per cent of big US manufacturers said they experienced "significant supply chain disruptions" in the second quarter, while 42 per cent of small and medium-sized suppliers said they had received queries or work from larger companies in need of urgent assistance because of supply chain problems, according to a survey by MFG.com  , an online marketplace for manufacturers. Caterpillar, the US-based maker of earth-moving equipment, said last week that many of its most popular products were not being made as quickly as it would like because suppliers had not increased production fast enough. Boeing, the US maker of aircraft, suggested it could struggle to meet demand for commercial aircraft over the next decade because its suppliers might not be able to raise their output accordingly. Supply chain difficulties appear to be particularly affecting electronic components such as semiconductors. Audi and Porsche, the German carmakers, were forced to slow production in some plants last month because their supplier of car radios, Harman Becker, was short of microchips. "Anybody in the electronic supply chain has seen the tightness around certain components," said Jeffrey Immelt, chief executive of General Electric, last week. Keith Sherin, GE's chief financial officer, said "around $50m of revenue maybe got hung up at the end of the quarter in the supply chain". In response, some companies are building up buffer stocks of components to make sure they have them on hand.