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24 May 2001

Vesuvius Rumbles

We're in a recession, now…or are we? It depends on whom you listen to. A depression? A panic?

I see increasing numbers of layoffs in the newspapers. Until the Great Depression of the 1930s, downturns were called "panics." President Hoover didn't like the word, so he called it a "depression." In 1937, the economy sagged again, and President Roosevelt called it a "recession" because "depression" had become a fearful word.

In a previous column ("In the Shadow of Mount Vesuvius," Motion Control, October/ November 1998), I indicated that the stock market goes up if you wait long enough. After the Great Depression, however, it took more than 20 years to surpass its previous high.

Certainly, the stock market isn't booming. But how is the motion control industry making out? One indication of how well motion control is doing is the price of the motion control companies' stocks.

Well, that indicator doesn't look as good as it did last year, but it's not too terrible. The average decline in stock price between June 2000 and April 2001 was 11%, while the S&P 500 Index (a composite of the stock prices of 500 of the largest public companies) went down 22%. So motion control did better than the average stock.

The motion control producers in Table 1 are publicly traded, and therefore their stock prices are available. Some of the companies are primarily in motion control products; others aren't. The industries in which they do operate, however, should behave in a fashion economically similar to motion control companies. Stock price is only one of the parameters that indicate degree of success. In baseball, for instance, runs batted in or batting average or slugging average are each indicative of something different.

So how are we doing? We were down last year by 11%, and while that's better than the S&P, it doesn't approach the 115% increase for these companies in the 1999–2000 period. For comparative purposes, the NASDAQ dropped 53% in the last period we selected.

As I've said before, every time I study any figures, I get some surprises. One surprise here is that, because the motion control industry sells largely to capital equipment manufacturers, it would seem to be particularly sensitive to business downturns. Yet motion control did much better than the NASDAQ stocks and better than the S&P. Some 45% of the motion control stocks made gains. It's also noteworthy that the eight stocks that more than doubled in value last year all lost value this year-most of them drastically.

Stocks that improved their relative position in each of the past three years are Dynamics Research, Penn Engineering, Parker Hannifin, Magnetek, and The Oilgear Co. On the other hand, General Electric, Lexmark, Dover, Motorola, and Hewlett-Packard continuously lost position (Table 2).

If I knew what all this meant, I'd be on Rukeyser's program, explaining how my fund made billions of dollars. The stock market must have both buyers and sellers with money to invest. That means it can't be easy.

It's unfortunate that we've substituted the gentle-sounding "recession" for the more descriptive "panic." What I've read about 1929 and what I remember about the 1930s is that the Crash was like a riot in a burning building.

"Recession" sounds mild and under control. "Panic" indicates terror and loss of reason. We aren't in state of panic yet, but I wish Mr. Greenspan looked at least a little worried. I'm keeping a close watch on Vesuvius. MC

Figures and Graphics

• Table 1: Percent change in stock prices, 1998–2001.
  
• Table 2: Rank in stock price increase, 1998–2001.
  
• Vesuvius Rumbles [PDF file]