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Home / Three Manufacturing Trends the Pandemic Fast-Tracked

Three Manufacturing Trends the Pandemic Fast-Tracked

National Association of Manufacturers Chief Economist Chad Moutray explains how pandemic-driven disruption is influencing digitization and data sharing, re- and near-shoring, and hiring.

Posted: November 17, 2020

Surprising as it may be given last year’s dramatically altered labor market, one of the most critical issues facing manufacturers in 2021, says NAM Chief Economist Chad Moutray, will be the difficulty in finding talent.
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BY CHAD MOUTRAY

Editor’s note: Formed in 1895, the National Association of Manufacturers (NAM) is the largest manufacturing association in the United States, representing 14,000 member companies. In addition to advocating federal policies that enhance members’ global competitiveness, the association supports workforce development and polls members, which represent 19 manufacturing sectors, to produce a quarterly outlook survey.

Q: Were particular National Association of Manufacturers membership sectors positively or negatively impacted by the pandemic? If so, which ones, and why?

A: Overall manufacturing production declined 20.2% between February and April 2020, and employment dropped by 1,363,000 over the period. Firms were forced to cope with severe disruptions in demand, their supply chain, and their overall operations because of the pandemic. But while all 19 manufacturing sectors polled for our quarterly outlook survey experienced reductions in output and workforce last March and April, there were wide variances in the effects.

Motor vehicle production, for instance, was virtually shut down for several weeks, with output down a whopping 83.5% between February and April. With durable goods demand squeezed globally and notable pullbacks in the energy market, primary metals including steel and aluminum fell 25.5%.

At the other end of the spectrum, chemicals (down 5.8%), computer and electronic products (down 5.1%), and paper (down 3.9%) had the smallest declines in manufacturing production between February and April.

Even though manufacturing overall improved in the five months after April, activity remained below the pre-pandemic pace. By August, production was 6.7% below February levels and there were 647,000 fewer workers in September than in February. However, the sector kept moving in the right direction.

Sentiment has also improved notably, with the Institute for Supply Management’s Manufacturing PMI (purchasing managers’ index) reflecting strong rebounds and our outlook survey bouncing back in September after falling to its lowest level since the Great Recession in May.

Q: The pandemic challenged many manufacturers financially. Looking ahead, how might prospects change?

A: Business operations were negatively impacted by the abruptness and severity of the disruptions in the marketplace due to the pandemic. Nearly 83% of respondents to our third-quarter 2020 outlook survey experienced hits in cash flow and, of those companies, 72.1% had obtained funds through the Paycheck Protection Program, Main Street Lending Program, or other federal liquidity programs established or enhanced in response to the pandemic. Those programs were an important tool to help serve as a “bridge” until firms were past the worst of the crisis.

Manufacturers continued to cite improvements in their operations, with roughly half of survey respondents suggesting production was higher in the third quarter than in the second quarter. Even so, roughly 62% don’t expect revenues to return to pre-pandemic levels until 2021 or later. That said, 17.6% reported revenues had already recovered and 12.5% predicted revenues to bounce back in the third or fourth quarter of 2020.

These findings are consistent with my thinking: I don’t expect production to return to pre-pandemic levels until the second half of 2021.

Q: What are the three most-critical issues manufacturers face in 2021, and how can they be overcome?

A: First and foremost, uncertainty about COVID-19, including news on a possible vaccine, will serve as a drag on growth. Worries about another round of outbreaks dampen the overall outlook, and likely hinder some capital spending and hiring. Even with a vaccine, consumer and business behaviors will likely be altered — some permanently — for the foreseeable future.

As hard as it might be to believe, especially given last year’s dramatically altered labor market, finding talent remains difficult.

In August 2020, there were 460,000 job openings in manufacturing, with 55.1% of our survey respondents identifying the inability to attract and retain workers as a primary challenge. Despite a 7.9% unemployment rate as of October 2020, firms continued to struggle to hire the employees they need, especially in highly sought fields. The skills mismatch is ominous given the aging of the workforce. That’s why the Manufacturing Institute, our workforce development arm, continues to stress such initiatives as Manufacturing Day (which is Oct. 1 this year, by the way) and the Creators Wanted campaign launched in 2019.

Lastly, trade will continue to be an important driver for growth for most manufacturers. After a challenging 2019, manufacturing was seeing signs of improvement in January and February 2020 before the pandemic struck. In 2019, firms were challenged by an uncertain trade environment and slowing global growth. However, passage of the U.S.-Mexico-Canada Agreement (USMCA), which supports increased U.S. automotive production; and the “Phase One” deal requiring China to buy $78 billion more in manufactured goods by the end of 2021, boosted spirits heading into 2020.

As a result, we expect trade volumes to rebound strongly in 2021.

Q: What three trends do you see developing over the coming year? For example, more automation via robotics? More virtual collaboration with employees and customers?

A: Manufacturers will continue to embrace digital technologies and automation. This trend was firmly in place before the pandemic, but it’s accelerated rapidly since then. The sector will become increasingly advanced, with technology dramatically altering the way manufacturers think about innovation, production, and after-sale services. This will make hiring even more difficult because it changes the types of workers firms need.

And yes, there will also be more collaboration. Manufacturing leaders realize the benefits sharing of data within the supply chain and with customers. Indeed, the World Economic Forum and the Boston Consulting Group estimate that data sharing could reduce costs by $100 billion as manufacturers find new ways to optimize operations.

Another trend the pandemic accelerated was the need to re-evaluate the supply chain. Again, manufacturers were already doing this, largely as a reaction to trade trends, global events, and rising costs elsewhere. We urge policymakers to continue promulgating policies that stimulate production in the United States by improving business economics, supporting workforce development, and maintaining the necessary transportation infrastructure.

Q: What impact do you think the election will have on the U.S. economy, trade, and labor?

A: Manufacturers have a long history of working across the political spectrum, so they’ll work with whoever gets elected, regardless of party. Regardless of the administration, we’ll make sure policymakers understand our members’ priorities regarding taxes, regulations, trade, infrastructure, immigration, innovation, trade, and the environment.

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