On top of ongoing trade disputes and the disruptive GM strike, two statistical gauges of the U.S. manufacturing industry hit new lows, leaving economists and manufacturers preparing for a meaningful economic shift from a decade of growth.
The U.S. manufacturing Purchasing Managers’ Index (PMI) from the Institute for Supply Management dropped to 47.8 in September, shy of the market expectation of 50.1 and the lowest level since March 2009. This marks the second consecutive month of contraction, which is represented by any reading below 50.
Earlier this month, U.S. manufacturers also shed jobs despite the unemployment rate continuing to fall to record lows for the 108th straight month, according to the U.S. Department of Labor.
That’s particularly notable in West Michigan, where manufacturing jobs account for about 15 percent of total employment, according to The Right Place Inc., a Grand Rapids-based economic development organization.
These data points are important indicators of the overall economy, said Susan Houseman, vice president and director of research at the Kalamazoo-based W.E. Upjohn Institute for Employment Research. Manufacturing only accounts for about 10 percent of the U.S. economy, but overall, it has large and unique spillover effects, she said.
“Manufacturing, especially durable goods, is something to pay attention to,” Houseman told MiBiz. “The reason not to dismiss it is that consumer spending on those goods is going to go down and business spending on those goods is going to go down first.”
Amid rising costs from trade disputes and combative negotiations between the United Auto Workers union and General Motors that led to a disruptive worker strike, manufacturers could be currently laying off even more workers than have been reported by the U.S. Labor Department.
“An awful lot of the people on the line are employed through temporary help agencies so they don’t show up in manufacturing employment numbers,” Houseman said. “It wouldn’t be unusual to go into some parts supplier and find a third of the people on the line are working for temps. So as people got laid off, they don’t show up in manufacturing and they’re often on the leading edge of recession — they’re going to get laid off first.”
Grand Rapids-based Cascade Die Casting Group Inc. is feeling the effects of a sluggish economy and responding in real time, said company President Patrick Greene.
“It’s not falling off a cliff, but it is slower and it feels that there is just this general slowdown that we’re experiencing right now,” Greene told MiBiz. “The big indicators that you read are really playing out in our business. It’s not a desperate situation, but it certainly is a situation that we’ve got to be working to react to or at least anticipate what it all means.”
In addition to a general easing in the automotive supply chain, Cascade Die Casting, a Tier 2 supplier, has been hit by the nearly month-long strike between the UAW and GM. In response, the company has instituted short, voluntary layoffs on a week-by-week basis, according to Greene.
The company also is “taking the opportunity to get everything in order,” he said.
“(We’re) getting all the automation projects that we’ve started or the advancement projects that we’ve started completed because I think those are all going to be things that, regardless of where the volume is, it’s going to be beneficial for us to have those advancement projects completed,” Greene said.
However, many manufacturers outside of the automotive sector are still in a period of notable growth. Downers Grove, Ill.-based manufacturer of conveyor maintenance equipment Flexco Grand Rapids recently announced plans to expand into a new 300,000-square-foot industrial building in Walker. The company expects to add about 50 employees at the location during the next three to five years, as MiBiz previously reported.
“We’re still hiring,” Doug Saunders, director of operations for North America, told MiBiz. “We’ve got five jobs in North America right now at Flexco and there are a few more that are going to get posted. So the current job market situation or economy right now hasn’t been impacting us significantly.”
In the tight labor market, some jobs at the company have taken six to eight months to fill, according to Saunders.
Analysts at Flexco put more weight into indicators that are “very specific” to the products that the company manufactures, as opposed to “general” statistics, he added.
“We’ve been somewhat insulated by a lot of it,” Saunders said. “Mining, package handling and agriculture probably are still our biggest ties, but it’s still a hugely diversified market.”
Flexco employs 159 people in West Michigan and 870 globally, the majority of whom are in North America. Although the costs of the company’s goods have “gone up significantly” because of foreign trade disputes and tariffs, Flexco is relatively protected from changes in the U.S. economy with its reach around the world, according to Saunders.
“When we were less global, we’d have a lot more dips and jumps because of North American or Northern Hemisphere-related business,” he said. “Like with our agricultural products, when there’s not as much ag business going on in North America, there’s a ton of it going on in South America.”
The company’s outlook for the rest of the year and going into 2020 is still positive, he said.
Automation to the rescue?
Dave Warner, president of Next Level Manufacturing LLC in Jenison, a manufacturer of machined parts, told MiBiz his outlook for the coming year also is “looking great.”
“It’s an election year, so our firearms division is doing better than ever,” he said. “With our standard, everyday customers in the machining division, things are gung-ho.”
The company is “diverting to automation” rather than bringing on new positions, according to Warner.
“If we have a slowdown, it’s easier to shut off a piece of equipment than lay someone off,” he said.
Although the implementation of automation in manufacturing may account for some redirected jobs, its effects on the sector have been “overstated and misunderstood,” according to Upjohn Institute’s Houseman.
“The displacement from automation, while certainly it has occurred in individual factories and you can point to certain cases at aggregate levels, that’s been less important in terms of the overall decline in manufacturing jobs,” she said.
After a decade of growth in the manufacturing sector and in the overall economy, Houseman warns everyone needs to be ready for the downturn.
“This has been a very long expansion and so people have been looking to see if a recession is around the corner for a long time,” she said. “What you’re seeing right now is a slackness, a weakening, a softening of the economy. That’s always a leading indicator of recession.”