NAM survey finds more worried manufacturers

March 24, 2006
The National Association of Manufacturers (NAM) reports its annual survey of U.S. manufacturers shows 44% expect manufacturing to trail the overall economy in 2006, up from 34% a year earlier. A substantial majority expect the economy to grow more slowly, at less than 2.9%, in the coming year. The survey’s results were released March 21 at National Manufacturing Week 2006 at the Donald E. Stephens Convention Center in Rosemount, Ill., near Chicago.      SAW STOPPER IS A SHOW STOPPER

A table saw uses a National Instruments solution to brake withing milliseconds at National Manufacturing Week 2006. The saw's detector sets up a sine wave, so if anything soft touches the blade, a capacitance change is sensed, and the blade stops in a few milliseconds, barely nicking the hotdog used as a finger's stunt double in the demonstration.

“Most economists expect the overall economy to do better than that, including our own” said John Engler, NAM’s president and Michigan’s former governor. “It’s not that manufacturers are unduly pessimistic, but they’re contending with unprecedented challenges that affect their outlook.”

On the bright side, more than half of the survey’s 349 respondents expect to increase capital spending and employment in 2006. Also, almost 75% report that they’re exporting products to other countries. “These are all positive signs,” adds Engler.

However, the biggest challenge for U.S. manufacturing are rising external costs associated with health care, materials and energy, which manufacturers are unable to transfer to product pricing.  “External costs burdens are having the biggest impact on manufacturers, lowering their profitability and tying up more funds that would otherwise be spent on investment, research and development, and new product lines,” adds Engler. “These costs are a significant and long-term problem for our nation’s manufacturers and our economy.”

Tony Raimondo, chairman and CEO of Behlen Manufacturing Co. in Columbus, Neb., and a NAM board member, says energy is looming ever larger as a serious cost factor in his industry. “The government encourages us to rely more and more on natural gas for energy, and then makes it virtually impossible to access more supplies of natural gas. The result is that we have the highest natural gas prices in the world.

Raimondo adds the U.S. must also get a handle on its health care costs. “We’re looking at double-digit cost increases every year on what is already a major cost item. This survey shows that the cost of ‘non-wage compensation’ is having the greatest negative impact on manufacturers today, and by far the biggest item in that category is health care.”

Finding the Qualified
The survey also found that, as the manufacturing sector continues to expand, its players are relying more on a high-performance workforce, and that qualified workers are getting harder to find. “We began seeing this issue a few years ago, and it’s becoming more pronounced in subsequent surveys,” adds Engler. “Half of the survey’s respondents have unfilled positions because they can’t find qualified workers, and 70% of the new jobs that respondents anticipate creating will be for skilled production workers or highly educated professionals. The need for highly-educated professionals specifically has nearly doubled from 2005, and we anticipate it will continue to grow in the future.

“If the U.S. is to preserve its position as a major economic power in the 21st Century, it must stay out in front of the innovation curve, and it will need a much better-prepared workforce to do so. Like every modern nation, the U.S. is deeply involved in globalization. Technology and competition will only increase America’s need to have access to highly skilled professionals, but our schools and training programs just aren’t doing the job.”

Ronald Bullock, CEO of Bison Gear & Engineering Corp. in St. Charles, Ill., adds, “I recently filled an engineer’s position that had been open for 18 months. Right now, I have at least five empty slots, some of which have been empty for months. I need more people to keep up with demand, but I can’t just hire anyone off the street. This is complicated work. We need people with strong backgrounds in math, science and computers.”

One way that manufacturers are competing more effectively with the rest of the world is by increasing their exports. The survey found that 73% of respondents are selling abroad. The survey also showed that 54% respondents expect their exports to stay the same in 2006, while 41% expect them to increase. “We’re seeing a much stronger commitment to exporting than in previous years,” says Engler. “This is a positive trend because manufacturing accounts for most U.S. exports, and offers our best hope for chipping away at the trade deficit.”

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