Skiers call it a “bluebird day,” or the morning after a snow that brings sunshine, blue skies and soft powder — the perfect conditions to gracefully shuss — and, with their skis parallel, it’s all downhill from there. This is a bit like what some bakers might be feeling when they look at the books these days. As reported in Baking & Snack’s 2017 Baking Industry Confidence Survey, the baking industry, as well as consumers and broader manufacturing, looked forward with confidence and a strong U.S. dollar. This year, the momentum continues.
Of the bakers who participated in Baking & Snack’s 2018 Capital Spending Survey, 58% of respondents indicated their general outlook for commercial baking is better than it was in 2017.
“Since when have we been at this point in the industry?” asked Marjorie Hellmer, president, Cypress Research Associates, the Kansas City-based research firm that has monitored industry capital spending trends for more than 15 years. “A larger share of companies is in the black, compared with 2013 levels, reflecting broader industry stabilization over the past five years.”
After weathering some stormy days, wholesale bakers might be looking at their capital investments in a more positive light than they have in years.
The future looks bright
If industry outlook were a funnel, the state of manufacturing would be the mouth at the top with all the good vibes pouring in.
“We’ve seen industry positivity steadily increasing in the past five years, and this year it’s really bumped up, in line with broader manufacturing,” Ms. Hellmer noted.
Manufacturing industry analysts are predicting brighter days for the year ahead. In January, the Institute for Supply Management told Industry Week magazine that U.S. manufacturing expanded so quickly in December — its factory index climbed from 58.2 to 59.7 in a month — that it capped 2017 as the strongest year since 2004.
For wholesale baking, 93% of this year’s respondents reported a positive outlook for commercial baking in 2018.
This brightened outlook, some say, begins with a view from across the pond. Unlike the negative European economic climate that was reported in last year’s industry confidence survey, global optimism is playing into the hands of the projected 2018 U.S. economy, according to a report from the NPR published in January. Specifically, Europe finally saw a bounce-back in 2017 from the crushing recession that began in 2008. According to the NPR, the E.U. economy is trending toward a 2.2% expansion for 2018.
What does that mean for us stateside? Perhaps euros are burning a hole in the pockets of Europeans craving American products. Pair that with an uptick in emerging markets, and the NPR predicts global growth to surpass 3% this year.
Meanwhile, a little thing called tax reform is not only upping the game for overall U.S. manufacturing, but it’s also giving bakery and snack manufacturers reason to smile. The 2017 Tax Cuts and Jobs Act — the largest U.S. tax overhaul in more than three decades — garnered huge support from organizations such as the American Bakers Association (A.B.A.).
By lowering the corporate tax rate from 35% to 21%, the new law could not only unleash unprecedented industry growth, but it may also incentivize bakers to make investments where they had been previously reluctant to do so, according to the A.B.A.
“After a decade of piecemeal, stop-gap tax changes, bakers now have the clarity and consistency necessary to implement long-term, sustainable growth strategies,” said Robb MacKie, president and chief executive officer of the A.B.A., in an interview with Baking & Snack.
That said, don’t expect bakers to throw their money around right away. The clouds may have parted, but the wholesale baking industry knows forecasts are sometimes written in snow, rather than stone. To really understand bakers’ spending motivations, it’s best to start with the trends.
“Capital spending trends clearly demonstrate that the commercial baking industry is not an investment leader within broader U.S. manufacturing,” Ms. Hellmer said. “Still, bakers are projecting a healthy level of spend, and nearly everyone has a healthy outlook for business. There are also other indicators of positivity, such as interest in making investments with a longer expected R.O.I.”
