U.S. Manufacturing Growing At The Fastest Pace In Three Years

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February 16, 2016
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February 16, 2016
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U.S. Manufacturing Growing At The Fastest Pace In Three Years

After several years of shrinking and languishing in the economic doldrums, the U.S. manufacturing industry is growing rapidly regardless of the economic yardstick you choose to measure it by. Each positive milestone is excellent news for hard-hit manufacturers, but each positive outcome brings new challenges along with the benefit. Manufacturers will need to take steps to overcome the challenge as they benefit from the growth. Here are a few of the key indices and what they mean for manufacturers.

ISM

The Institute for Supply Management’s most recent metric shows 59.0 for October, which is one of the highest readings in years. Any reading over 50 indicates growth. Also, the gap between the U.S. index and other parts of the world is widening, so eventually the torrid growth rate may slow down.

Benefit: Strong growth means increasing demand for products of all types. Companies are enjoying robust backlogs and the ability to raise prices for the first time in many years.

Associated Challenge: Manufacturers need to maximize throughput to fill demand while keeping costs low. The increased pace means that suppliers may have difficulty meeting demand, so long-range planning and communication is crucial. In addition, companies may have difficulty finding enough skilled employees to meet their needs, but at the same time they need to be careful not to over-hire.

Solution: Keep communication channels open with key suppliers and focus on honing forecast accuracy. Be selective in hiring to avoid future layoffs in case the growth rate slows, but don’t delay hiring or necessary skills may be in short supply.

Productivity

The U.S. Bureau of Labor Statistics reports that manufacturing productivity rose in 40 of the 57 manufacturing-related NAICS codes in 2012, the latest year available. In addition, a recent report showed the U.S. as the second most productive country in the world, ranking behind only China. The report goes on to state that China’s position is under pressure from U.S. gains.

Benefit: With increased productivity, the U.S. is no longer the high-cost manufacturing location. This enables it to compete on a level playing field with low-wage regions that are not as productive. As a result, much of the manufacturing work that had been outsourced is coming back to U.S. shores.

Associated Challenge: Other regions will not be eager to lose jobs and the prosperity that goes with them, so they will be working hard to regain their edge. The U.S. will need to keep improving its productivity without increasing costs or losing focus on quality.

Solution: Innovation is key to staying ahead of competitors. The government-sponsored Manufacturing Centers for Excellence are doing their part, but individual companies must also allow time and resources for in-house innovation.

Employment

After long periods of high unemployment, the U.S. unemployment rate now ranges from a low of 2.8 percent in North Dakota to a high of 7.9 percent in Georgia, according to the U.S. Bureau of Labor Statistics.

Benefit: With more people working, there is money to spend on goods and services, which will help to keep the manufacturing sector growing. In addition, the strong “Buy American” sentiment will help to keep the focus on products manufactured in the U.S.

Challenge: Manufacturers have had difficulty finding skilled workers even when unemployment rates were at record high levels, so this will only make finding the right people for a role harder.

Solution: Manufacturers need to be creative in finding people. Offering flexible schedules, especially to people approaching retirement, is one way to keep skilled workers on the job. Manufacturers should also work with local schools and community colleges to ensure that the curricula meets their needs so they are assured of a steady stream of qualified applicants.