The Kansas City Federal Reserve Bank said that manufacturing activity slowed in November but continued to expand ever-so-slightly. The composite index of general business conditions declined from 6 in October to 1 in November; yet, it was also the third straight month with this measure positive after two years of struggles. Indeed, manufacturers in the district have faced tremendous challenges due to global headwinds and reduced commodity prices, especially for crude oil. The underlying data in November mirrored the headline figure, with easing expansions for new orders (down from 14 to 6), production (down from 18 to 9) and shipments (down from 20 to 7). Export growth (down from 3 to zero) was stagnant in November after slightly improving in October for the first time since January. Read More
There are some days that are special and stand out even on the 2016 State of Manufacturing Tour, which has been an exciting, rewarding, educational and enlightening experience. Meeting with manufacturers, students and community leaders, talking about issues that matter and how to ensure manufacturers continued success is among the highlights, but today outside of Chicago, Illinois, NAM President and CEO Jay Timmons met with the future of manufacturing.
Timmons was joined by Illinois Lt. Governor Evelyn Sanguinetti, Illinois Manufacturers’ Association (IMA) President and CEO Greg Baise, Siemens Foundation CEO David Etzwiler and the Manufacturing Institute Executive Director Jennifer McNelly to meet students and faculty at Palatine High School and Harper College. Both schools offer programs that not only encourage future jobs in manufacturing, but also show students how manufacturing careers can be life changing.
At the event, Timmons delivered his 2016 State of Manufacturing address and focused on key issues impacting workforce and the perception of manufacturing.
Highlights on Developing America’s Workforce:
“Over the next decade, the United States will need to fill 3.4 million manufacturing jobs. But 2 million of those jobs are likely to remain empty because there’s a shortage of trained workers. It’s what we call the ‘skills gap,’ and it affects all of us…through lost innovation, lower productivity and suppressed economic activity. The problem is especially disheartening given how hard it’s been lately for even college graduates to find good jobs…even though manufacturers have plenty to offer. The average manufacturing worker earns over $79,000 annually…$15,000 more than the national average for other industries. These wages can provide a good life for a family while saving for education and retirement. Why, then, are only 37 percent of parents encouraging their kids to pursue manufacturing careers? And why do only 18 percent of students view manufacturing as a top career choice? Because many people don’t understand modern manufacturing. Images of gritty factory floors of a century ago still hold sway. Manufacturers need to replace those images with visions of what manufacturing is today.”
Highlights on Changing the Perception of Manufacturing:
“Want to feed the world? Manufacturing is transforming agricultural technologies to provide plentiful, nutritious food for a growing population. Want clean energy and a sustainable economy? Well, that’s manufacturing, too—and it will require creativity and innovation. Want to save lives and treat debilitating diseases? Manufacturing includes pharmaceuticals. Want to invent the next revolutionary smart device? That’s manufacturing. More students—and their families, teachers and mentors—need to realize the opportunities that exist in manufacturing.” To read the whole speech, don’t forget to check out the President’s blog.
While at Palatine High School and Harper College, Timmons and the team met with students who have a passion for manufacturing.
Leading into today’s event and highlighting the key workforce issues, Timmons and Baise had an op-ed run in a popular Chicago area political blog.
Joint Op-Ed in ReBoot Illinois: U.S., Illinois Manufacturing Depends on Educated Workforce for 21st Century
By Jay Timmons and Greg Baise
No matter what issues the presidential candidates raise in their speeches, this election is about one thing: What will be the future of the United States?
If we want a future that produces better opportunities and raising standards of living, then we need to strengthen our global economic leadership. To do that, we will have to marshal all the human talent available to us.
Unfortunately, there are barriers preventing us from producing a workforce worthy of our people and our potential. To read the full op-ed, check it out here.
Leading up to the event, Timmons was on Chicago’s WIND AM 560 – The Answer with Dan Proft. Listen to the show here. Timmons also appeared on CNBC’s “Squawk on the Street” with Rick Santelli live from the Chicago Board of Trade.
Social Media Wrap Day 5
We came to Chicago excited for what the Windy City has to offer. Check out the highlights from our social media and don’t forget to follow @shopfloorNAM on Twitter and Shopfloor on Facebook for the latest updates from the road.
Want to keep in touch with the NAM as we continue on the 2016 State of Manufacturing Tour? Follow us on Facebook, Twitter @shopfloorNAM and online at www.nam.org/stateofmfg and share your tweets and pics with #stateofmfg and #weareMFG.
The National Association for Business Economics (NABE) reported decelerated growth in its latest Business Conditions Survey. The net percentage of respondents saying that their profit margins had increased over the past three months dropped from 24 percent in January to 10 percent in April, reflecting both weaker demand and higher costs. On the positive side, sales continue to expand, just at a slightly eased pace. This is especially true in the goods-producing sectors, which had half of those taking the survey say that their sales were higher in the quarter. Yet, 56 percent of respondents noted that slower growth in China had negatively impacted their businesses, with two –thirds saying that a stronger U.S. dollar had made a negative “material impact” on them. Read More
Today is the day that – every year – employers can begin to file applications for H-1B visas. Today is also the day that – every year – enough applications will be filed to exceed that cap; applications filed will likely more than double the 85,000 annual limit to H-1Bs issues each year, clearly proving this is an arbitrary number that is completely unresponsive to employer demand.
In a recent study by the Manufacturing Institute 66 percent of manufacturing executives said that when looking for engineers, researcher and scientists “finding candidates to enter the initial screening process” was by far the largest challenge they faced – more than “Offering compensation that appeals to qualified applicants” or “Making position requirements appeal to qualified talent.” Meaning that it is easier to create a positive work environment and provide a competitive salary, than it is to actually find someone to apply at all. Read More
Here is the summary for this week’s Monday Economic Report:
The U.S. economy grew 3.9 percent at the annual rate in the third quarter, according to revised real GDP data released last week. This was better than the 3.5 percent original estimate, and more importantly, it suggests real GDP increased at an annualized 4.2 percent over the past two quarters. The report highlighted a number of positive elements in the economy, including healthy increases in consumer and business spending, goods exports and end-of-fiscal-year government spending. The revision also included better inventory replenishment numbers than originally estimated. Read More
The Dallas Federal Reserve Bank said that manufacturers continued to expand in November. The composite index of general business conditions was unchanged at 10.5 for the month. It has averaged 9.7 over the past nine months, which was progress from the 0.3 index reading in February. As such, we continue to see modest gains among manufacturers in the Dallas Fed district, with mostly positive expectations about the future. Read More
The Federal Reserve Bank of Kansas City said that manufacturing activity picked up somewhat in its district in November. The composite index rose from 4 in October to 7 in November, its highest level in four months. Along those lines, the pace of production (up from 3 to 9), shipments (up from zero to 7) and employment (up from 6 to 9) improved for the month. In addition, export sales (up from -9 to 8) were positive for the first time since April. Yet, growth remains far from robust, with new orders (down from 2 to 1) decelerating for the fourth consecutive month and just barely above neutral. Read More
The Kansas City Federal Reserve Bank said that manufacturing activity expanded at a slower rate in June; nonetheless, growth was positive for the sixth straight month. The composite index of general business activity fell from 10 in May to 6 in June. Several indicators eased for the month, including production (down from 14 to 2), shipments (down from 5 to 2), new orders (down from 11 to 8) and the average workweek (down from 14 to 7). To illustrate this, 34 percent of respondents said that their production had increased In June, down from 40 percent in May.
The largest negative in the report was exports (down from 6 to -11), with 16 percent of those taking the survey suggesting that their international sales had fallen in June. In addition, hiring (down from 10 to 1) slowed to a crawl, with 23 percent suggesting that they had added employees but 17 percent noting declines.
Still, there continue to be some encouraging signs for the months ahead, albeit with somewhat weaker sentiment than earlier data. The forward-looking composite index has edged down from 21 in April to 13 in May to 12 in June. Yet, at least 35 percent of survey respondents anticipate sales, shipments, and output to be higher six months from now, and 28 percent plan to add workers. Capital spending (up from 19 to 23) was expected to pick up slightly. Pricing pressures declined a bit for the month, but remain elevated with 48 percent of survey-takers anticipating increased raw material costs ahead.
Several of the sample comments noted workforce challenges. As one manufacturer put it, “It is not so much a question of short supply of workers, but rather a question of workers who are reliable and possess a strong work ethic.” Others noted the limited availability of possible employees with the right skills in their community and challenges with competition for workers in terms of compensation.
Chad Moutray is the chief economist, National Association of Manufacturers.
Here are the files for this week’s Monday Economic Report:
The latest NAM/IndustryWeek Survey of Manufacturers—being released today—found that roughly 86 percent of manufacturers were either somewhat or very positive about their own company’s outlook, essentially unchanged from three months ago. Yet, the underlying data show higher levels of anticipated activity across the board over the next 12 months. For instance, sales are expected to grow 4.1 percent on average over the next year, up from an average of 3.6 percent in the last survey and the fastest pace in two years. Capital spending and hiring plans were also anticipated to increase, with almost half of respondents planning to add workers in the coming months.
Nonetheless, the survey also found that manufacturers remain frustrated with the slower-than-expected pace of economic growth this year and with the political process. The top challenges continue to be health care costs, the tax and regulatory environment and the skills gap. Along those lines, the Federal Reserve’s Beige Book reported that manufacturing activity expanded across the country in its analysis, with rebounds noted in many of its districts. In addition, several businesses are having difficulty finding skilled workers, a challenge that has concerned manufacturers for some time. For instance, a recent study from Accenture and the Manufacturing Institute found that more than 75 percent of manufacturers have a moderate to severe shortage of skilled resources.
Several data releases last week support the view that the economy is rebounding. For instance, the number of nonfarm payroll workers rose by 217,000 in May, with an average of 231,000 over the past four months. This helped push nonfarm payrolls over its pre-recessionary levels for the first time—a feat that took roughly five years. The news for manufacturers was more mixed. While manufacturing has averaged just shy of 12,000 additional workers per month since August, the pace has slowed this year, and May’s 10,000-worker gain stemmed mainly from durable goods firms. We would like to see broader-based job increases in the sector moving forward, with monthly hiring growth between 15,000 and 20,000 on average.
Meanwhile, the Institute for Supply Management’s Purchasing Managers’ Index (PMI) has risen each month since January, up from 54.9 in April to 55.5 in May. The data were mostly positive, with higher levels for both new orders (up from 55.1 to 56.9) and production (up from 55.7 to 61.0). The output index exceeded 60—signifying strong monthly gains—for the first time since December. At the same time, new factory orders increased for the third straight month, up 0.7 percent in April and building on healthy figures for both February and March. This release was another sign of recovery in manufacturing sales after weather-related softness in December and January. Yet, the underlying data also indicated some weaknesses beyond defense capital goods spending. Excluding defense, new durable goods orders would have shrank by 0.1 percent for the month. As such, there is room for improvement even with the recent rebound in activity.
While total construction spending increased for the third straight month, manufacturing construction declined 1.1 percent in April, and it has been down slightly since December. Still, the longer-term trend remains more encouraging, up 7.3 percent year-over-year. On the trade front, manufactured goods exports have seen marginal gains so far in the early months of 2014 relative to 2013, but we have seen increased exports in each of the top-five export markets so far this year. Still, export growth has been disappointing of late, and due to a significant increase in goods imports in April, the trade deficit rose to its highest level in 12 months. One positive continues to be energy, with the petroleum trade deficit narrowing on increased exports and fewer imports.
This week, we will get new data releases for consumer confidence, job openings, producer prices, retail trade and small business sentiment. In particular, we will see if Americans are becoming more confident and if the rebound will translate into increased purchasing. The expectation is that May retail sales will bounce back from slower April numbers. Regarding inflation, producer prices in April were higher mainly due to increased costs for food—namely, meat, eggs and dairy products. Energy costs were also up a bit. Analysts will be looking to see if core inflation creeps ever closer to the Federal Reserve’s 2 percent goal, which is anticipated.
Chad Moutray is the chief economist, National Association of Manufacturers.
Yesterday Senators Tom Harkin (D-IA), Lamar Alexander(R-TN), Patty Murray (D-WA) and Johnny Isakson (R-GA) along with Representatives John Kline(R-MN), George Miller(D-CA), Virginia Foxx(R-NC) and Ruben Hinojosa (D-TX) introduced the Workforce Innovation and Opportunity Act which replaces the Workforce Investment Act and creates a modified workforce development system.
The legislation is a significant breakthrough based on language from a House bill passed last year and a Senate bill passed out of the HELP committee last summer. WIA was originally passed in 1998 and has been due for reauthorization for over a decade, but it has continually stalled due to political wrangling. The bipartisan, bicameral legislation works to prioritize funding towards industry-recognized credentials, a top priority for manufacturers in worker training programs. The legislation also eliminates programs, reduces the size of the workforce boards, and streamlines reporting requirements.
The skilled workforce shortage is a significant problem facing American manufacturers. Over 80 percent of manufacturers report a moderate or serious shortage of qualified applicants for skilled and highly skilled production positions, reducing net earnings by up to 11 percent. Promoting training that is in-demand and recognized by employers as necessary to success will go a long way towards solving that problem.
The NAM and its members look forward to working with both the House and the Senate as this legislation moves forward.