According to Moody’s Investors Service, the 2018 outlook for the manufacturing sector, both in the U.S and globally, is positive. Moody’s analysts expect global economic expansion to continue, which should result in gains for most manufacturing companies. Companies are feeling optimistic, and the JPMorgan Global Manufacturing Purchasing Managers’ Index (PMI) hit 54 in November, the highest reading since March 2011. Any figure above 50 indicates an expansionary environment.
This is good news, as manufacturing is one of the linchpins of the U.S. economy. According to the Bureau of Labor Statistics, manufacturing accounts for 8.5% of the U.S. workforce, with around 12.5 million workers employed in the manufacturing sector. The most recent data available from the Bureau of Economic Analysis indicates that manufacturing contributed $2.18 trillion to the U.S. economy in 2016, while every $1 spent in manufacturing adds $1.89 to the economy. This is the highest multiplier effect of any industry. Notably, the majority of manufacturing firms in the U.S, are small. Of 251,774 American manufacturing companies, all but 3813 are considered small (with fewer than 500 employees), Of these, 75% have fewer than 20 employees.
Despite the positive outlook for the sector in the nearest future, the industry nonetheless faces a number of challenges that can threaten America’s position as a global leader in manufacturing. The pressure to cut costs is constant, given competition from manufacturers in countries where salaries are significantly lower. The era of Internet shopping has created an environment in which consumers can compare prices at a click, thus giving the advantage to the low-cost producer. A 2017 survey conducted by Industry Week cited not only pressure from foreign competitors as a serious concern, but also the difficulty in recruiting skilled workers. According to a study by Deloitte and the Manufacturing Institute, 80% of manufacturers report a moderate to severe shortage of qualified applicants for skilled and highly-skilled workers. Over the next ten years, more than 2 million of 3.5 million projected manufacturing jobs are expected to go unfilled due to the lack of qualified employees.
It behooves policymakers and manufacturers to address these issues now, while the industry is enjoying a strong economic climate. At both the federal and state government level, legislators must consider tax policies that favor the growth of the manufacturing base and enhance productivity. For example, tax advantages should be offered to companies that buy machinery and invest in production capacity. Taxation policy can encourage the investment that will allow companies to pursue innovation that will ultimately make their businesses more competitive with foreign manufacturers. The U.S. economy and American consumers will benefit from less expensive, higher quality and more innovative American-made products. Taxes can be levied on output and profit.
The lack of qualified employees will become increasingly problematic if industry and policymakers don’t work together to address the skills gap. As manufacturing companies incorporate the new technologies and processes that are necessary for innovation, the need for highly skilled employees will only increase. At the same time, the price for a college education is skyrocketing, and many students have graduated from college only to find that a six-figure degree has done little to make them employable. A program of apprenticeships could have significant mutual benefits for future employees and employers alike. To stimulate growth in apprenticeship programs, the federal government should offer income tax deductions for students enrolled in apprenticeship programs, while offering tax incentives to small and large companies alike. The creation of a cadre of skilled workers will ensure that American industry remains productive and competitive, while thousands of students will be able to pursue fulfilling careers and earn a respectable living without incurring crippling levels of student debt.
Finally, we as dealers in industrial equipment have a vested interest in strengthening the manufacturing sector. Each piece of equipment we sell contributes to our customers’ future productivity and financial success. We too play an essential role in the manufacturing value chain. Consequently, we must emphasize the critical role that ethics plays in our business. A congressional mandate created the Machinery Dealers National Association (MDNA) in 1941 to promote fair dealings in the industry. MDNA brings opportunity, education, and integrity to buyers and sellers of used machinery & equipment throughout the world, thus ensuring that only the most upstanding dealers constitute the membership. Tax incentives on equipment purchased through MDNA dealers would encourage businesses to buy from ethical dealers and have a beneficial impact on the manufacturing sector by incentivizing ethical business practices.
From manufacturers to equipment dealers to government policymakers and consumers, we all want to see the American manufacturing industry flourish. We have the opportunity before us now to make meaningful changes that will ensure that success. It is up to us to work together to make this happen.
Kevin Brewster, AEA has a long and diverse background in manufacturing, and was a precision machinist and tool maker for more than 20 years. He has been the owner and president of Brewster Machinery Sales (www.brewstermachinery.com) for the past ten years. Kevin is chairman of the New England chapter of the Machinery Dealer’s National Association (MDNA), an MDNA national board representative, and an active member of the Association of Machinery and Equipment Appraisers (AMEA).