Around the U.S., the major manufacturing regions are taking stock of the fallout from the pandemic and how they can navigate out of the lockdowns in 2020 to thrive once again.
Generally speaking, “the slope of recovery across the regions will be heavily influenced by the type of manufacturing occurring in the regions, the general availability of labor and specific supply chain issues impacting different sectors —think computer chips inhibiting U.S. manufacturing in the automobile industry,” explained Brian Beaulieu, CEO of ITR Economics, Manchester, N.H. “The issue facing manufacturers across these regions is the need for labor and the government’s apparent goal of making unions larger and stronger at the expense of right-to-work states. The political resolve has the potential to pit one region and ideology against the other.”
Supply chain issues “will normalize over the course of 2021-22 as supply catches up to slowing ascent in demand,” he added, “but the specifics are going to be influenced by recent political factors. For instance, manufacturing tied to oil production could be slower than normal coming back despite today’s profitable prices because of the added emphasis on all things “green” and the banking industry’s purported unwillingness to provide liquidity in a manner consistent with the past.”
Region to region, the story is one of cautious optimism, tales of resilience and some hard lessons learned. One recurring theme—already a significant hurdle before the pandemic but now exacerbated—is a lack of skilled workers.
Up to the Challenge
With 1,700 members, the Michigan Manufacturers Association represents businesses ranging from those with about 20 employees up to those that employ 10,000 or more in automotive, aerospace, healthcare, furniture and other sectors. And, by and large, they are positive about coming out of the pandemic with room to grow.
“I have good news across the board,” asserted MMA President and CEO John Walsh, who served as state budget director under former Gov. Rick Snyder. After a recent survey, he said, “what we hear back from our members, small and large, is that they feel optimistic about this year and next— but they have some major headwinds.”
Labor is the biggest headwind, he noted.
“Orders are up from last year to this year in every category. We’re not seeing any soft spots in our membership, in our industry, in Michigan. But everyone is struggling for manpower; they just can’t get enough people to get to work.”
No one is talking about adding people, he continued, “simply because they don’t have enough people right now to begin with. The concern is so great that they’ve not talked about expanding; it’s not that it’s off their mind, but it falls far behind just getting today’s job done.”
The other issue that is dampening their optimism is prices of raw product goods and fuel, Walsh said. Such increases “could choke off a recovery if inflation does start to run away.”
At the time of his comments, Michigan’s plan was to get workers and schools back after the summer. “The extra unemployment benefits end Sept. 6, and then schools go back. Our governor (Gretchen Whitmer) has indicated that she’s going to work hard to get every school on a full-time, regular basis—and we’re going to do that right there with her.”
With those two pieces in place, Walsh said, “hopefully people will continue to be confident they’re back at work. Wages are good; hopefully, stability will offset what’s looking like rising prices.”
On the technology innovation front, “I am seeing more interest in Industry 4.0,” Walsh asserted. “It’s been a little bit of every hand on deck trying to manage the pandemic and all the federal and state orders that were coming through—and international, for that matter. Now that things are calming down, there is renewed interest in turning to AI and Industry 4.0 at all sizes. We’re trying to work with academic groups and other associations to provide the training and assessment necessary to help them implement those technologies.”
To be clear, he noted, this is smart automation—“not in the manner of automation replacing people much like it was in the ’70s, ’80s and ’90s.” It’s about “how to get more out of the machine, how to be more productive because we have the data to be productive.
“The larger companies are looking at what’s referred to as Industry 5.0—really looking at where humans and robots are working together. Picture a robotic machine now often caged off from the operator, the operator is outside and the robot does it’s work, then the cage is opened and the work is extracted and replaced with the next product. The prediction is you’ll have more of what you and I might think of as a robot from a sci-fi movie: humanoid in nature and performing more than menial tasks, but some that require judgment.”
A big boost is coming to the state in the form of about $17 billion in federal relief funding—with about $14 billion going toward industry investments like training and industrial infrastructure. About $400 million was being discussed for education. “It doesn’t provide help today but sure provides help a year from now.”
Manufacturing spending during the pandemic mostly took the form of on-site improvements, Walsh said. Manufacturers “took the time during the shutdown, particularly a year ago, to change their floor plans or invest in equipment, upgrade where they could while they had the opportunity. We have not seen much in the way of expansion throughout our membership other than what might be reported periodically by some of the large companies that are making significant investments in their plants. For the most part, people managed what they had through the pandemic. If there are incentive dollars—and we’re certainly arguing for that from the federal relief funds—I think companies would gravitate to those and make the investment to stay in Michigan or locate here. But the federal rules on that are a little nebulous so far, and the state budget director is waiting for a little more instruction.”
Demand for “normal and routine products” is up, “but nothing that’s showing its hand yet as to a systemic change.”
Demand for workers is another matter. Walsh estimated about 30,000 manufacturing jobs were posted in the state. “Just before the pandemic, we had 628,000 Michiganders working directly for the manufacturing industry; that dropped to below 500,000 during the shutdown. But as soon as things came back, we gradually rose to roughly 560,000, 565,000 employees. I bet we can get back to the 628,000 in time.”
Staying flexible is ultimately what made the difference, Walsh concluded.
“Nimbleness is what made many of our members—our industry in general, frankly—survive; that ability to turn on a dime. About 300 of our members participated in personal protection equipment manufacturing when they would have otherwise been idle last year. That kept them alive for a couple of months until their supply chain was back up and running. I’m hearing from some of our CEOs and operations managers that they have executives on the floor filling in some days to meet their orders. Others are using kind of day-by-day incentives: If you join us for a day, a week, a month, you make more and more and more money to get people there.
Energy Centers Hit Hard
Despite having regained about a third of jobs lost in the pandemic, the vital energy-producing region around Houston is still “hurt pretty bad,” according to Wayne Mausbach, director of the Greater Houston Manufacturers Association and membership chair of SME’s Houston chapter.
“There is hope, he asserted, noting that “predictions are that the PMI (Purchasing Managers’ Index) for the next quarter, end of the year, is going to be gangbusters. Our index is positive and it has been for a few months, which means that people are starting to gear up—but it’s been relatively flat in terms of manufacturing. “
Mausbach cites rising fuel prices as a possible aggravating factor, but there are positive signs as well—such as Elon Musk announcing in July a second central Texas SpaceX factory for building Raptor engines.
“A friend of mine is one of the premier integrators here,” Mausbach said. “He started in the oil industry but does a lot of other things. He’s got a whole series of machines he’s developed for the new car manufacturing. He’s done three with I think another three or four on the way.”
And with Austin serving as “kind of the Silicon Valley of Texas,” the startup world is still vibrant. “There’s a lot of movement in Houston to get into green energy. We just had two big facilities come almost online: one is a big maker space (East End Maker Hub) on the east end of downtown, a 300,000-square-foot facility. It’s coupled with another facility south of town called The Ion, an entrepreneurial startup office space partly supported by Rice University, with a lot of emphasis on the medical side.”
Medical manufacturing, while still small compared to the energy sector, is holding its own. “One of our past presidents is president of an injection molding company, and they cross all sectors. He just bought a couple of machines and moved into a new plant so … it’s starting to look up.”
Mausbach is also quite familiar with the supply chain issues that have arisen and how they are changing how business is done.
“People are starting to realize that, when building halfway across the world and shipping items back, the economics weren’t there,” he asserted. “We moved a lot through our Singapore plant, but their cost of living has gone up and the hidden costs are like what we used to call above the line. Shipping costs are not part of the cost of goods, so because of our supply chain being so lengthy, we wound up having to air freight a lot of our product, which was a downhole tool. That ate up any type of cost savings.
“And, you have the quality issue; people don’t realize that oil and gas is fairly sophisticated in a lot of its manufacturing,” he continued. “There’s a real big movement of people —and it started before the pandemic. People were starting to move [manufacturing] back, especially for some of the high-end expensive stuff, because there has been disenchantment with a lot of the Chinese manufacturers. [Area manufacturers] wound up having to do a lot of rework or build a lot more installations over there just because their manufacturing is not as mature.”
Another issue was achieving consistent quality. “They can deliver your first articles; it’s the regular production that you have a problem with because sometimes they get overanxious in trying to whittle down the cost aspect so much so that your quality starts hurting. And in our experience they don’t tell you anything until you start finding out in your product.”
The hot-button workforce issue is also quite pronounced, Mausbach said.
“The skill gap is real and starting to raise its ugly head. At a lot of plants around here, the average age of a worker is over 50. And it’s going to get worse.” To combat that, the Heroes MAKE America program provides manufacturing training to veterans leaving the service at Fort Hood.
Ultimately, the long-term outlook “is more speculative because the landscape’s changing a lot,” Mausbach concluded. While a furious push continues to fund green industries and employ workers there, “whether it’s successful or not we can’t say. ... The general consensus is that the energy side will change … but the inertia of it is such that we’ll be doing conventional energy for some time, despite all the subsidies.”