Powerhouse

Posted on Jun 9, 2010 :: Cover Story
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Posted by , Insight on Manufacturing Staff Writer

In 2009, Wisconsin ascended to the absolute pinnacle of the manufacturing world – surpassing Indiana in one key economic indicator. With an estimated 15.6 percent of Wisconsin’s workforce engaged in manufacturing in May 2009, the state just edged out Indiana, which had 15.4 percent of its workforce in manufacturing.

The numbers in April 2010 were just as close, though Indiana inched back ahead by the same margin – 15.6 percent to 15.4 percent. Regardless, Wisconsin occupies a spot in the very top tier of manufacturing states.

Nationally, less than 10 percent of the labor force is employed in manufacturing. Regionally, Northeast Wisconsin is one of the strongest manufacturing centers in the state, with more than 20 percent of the workforce employed in manufacturing, according to data from the NEW Manufacturing Alliance, an association of Northeast Wisconsin companies.

Reports of manufacturing’s demise have been much exaggerated, and the evidence suggests that manufacturing is, in fact, leading the economy out of the doldrums.

The Chicago Fed’s Midwest Manufacturing Index was up in April, continuing a three-month trend, with regional output increasing by 7.5 percent over a year earlier.

In May, the U.S. Commerce Department reported that orders for big-ticket manufactured goods in April rose 2.9 percent over March.

The Institute for Supply Management’s benchmark indicators for May show that manufacturing in the U.S. has expanded for the 10th consecutive month. “The rate of growth is driven by continued strength in new orders and production. Employment continues to grow as manufacturers have added to payrolls for six consecutive months. The recovery continues to broaden as 16 of 18 industries report growth,” according to ISM Business Survey Chair Norbert Ore, who added that the rate of growth is the fastest since June 2004.

The U.S Bureau of Labor Statistics reported in April that manufacturing sector productivity grew 2.5 percent in the first quarter of 2010, as output rose 7.5 percent and hours worked increased 4.9 percent. That was the first increase in manufacturing hours since the second quarter of 2007. Unit labor costs in manufacturing declined 3.7 percent in the first quarter of 2010 and have fallen 6.1 percent over the last four quarters.

The May 24 Monday Economic Report from the National Association of Manufacturers  found that while there’s still considerable economic uncertainty, a survey of more than 200 NAM member companies found that manufacturers’ confidence in the first quarter of 2010 was at its highest in more than two years. The percent of survey respondents who reported a positive business outlook reached 70 percent – the highest since the fourth quarter of 2007, after plummeting to 28 percent in the first quarter of 2009. The NAM/Industry Week Manufacturing Index also found that sales expectations increased by 3 percent, employment expectations increased .4 percent and capital investment expectations increased .3 percent.

The Manufacturers Alliance/MAPI Quarterly Economic Forecast, published in May, projected manufacturing production growth of 6.1 percent in 2010 and 2011, after an 11.3 percent decline in 2009.

The National Association of Manufacturers’ most recent Economic Outlook  projects that production will increase by 2.9 percent in 2010 and 4.4 percent in 2011 – noting that “manufacturing output, after falling by 16 percent over the prior six quarters along with a loss of 2.2 million workers, grew at an annual rate of 7.2 percent in the second half of 2009.” Business investment “is expected to rise by a moderate pace of 3.7 percent in the second and third quarters of this year before businesses become more confident that a self-sustaining recovery has emerged.”

Employment growth has not been as strong as manufacturing output and productivity, but the Wisconsin Department of Workforce Development reported in May that the state added 16,400 jobs in April, including 3,300 manufacturing jobs. That followed the addition of 2,500 manufacturing jobs in March.

Manufacturers and other business leaders in Northeast Wisconsin seem to believe the economy is going to continue to improve. The Nicolet Bank Business Pulse survey for the first quarter of 2010 found a confidence rating of 115.5 – the highest rating since 2006.

Bob MacIntosh, president and CEO of Nicolet Plastics in Lakewood, says he’s seeing a slow uptick. “We are definitely more optimistic,” says MacIntosh. “No doubt about it, last year was difficult and the 40-plus manufacturers that we serve are seeing improvements, but to varying degrees. The changes we had to make last year were difficult, but we are now beginning to see bottom-line improvements from the rebound – much like a trampoline effect. The reduced costs are making small growth spurts seem more positive than they normally would have.”

MacIntosh says that while he’s optimistic that growth will continue in the manufacturing sector, he’s being cautious in his approach.

“We have moved some chairs internally and created one position so far this year,” says MacIntosh. “We will likely add a few employees initially and see how strong the rebound really is. We are on track with our business plan which calls for 15 to 18 percent top-line growth. Last year we ended down over 30 percent in sales, so we are on our way back.”

Dawn Sonnenberg, director of operations for Appleton-based Tegron Staffing, says MacIntosh’s outlook is typical of the manufacturing clients her company serves.

“People went through a lot of emotions in the past year with layoffs,” says Sonnenberg. “It’s not easy being the one to get a pink slip, of course, but it’s also not easy for the employer who has to say good-bye to some long-time employees. They don’t want to go back down that road again.”

For that reason, she says, manufacturers have been cautious in rebuilding their workforce – sometimes hiring temporary workers to fill the gaps, with the expectation that the positions might become permanent at some point if the economic recovery proves sustainable.

“I say they’re being positively cautious,” says Sonnenberg. “They’re being careful in the way they proceed, but we’ve definitely seen things picking up since March in hiring skilled trades like CNC operators, press brake operators and welders.”

Fred Monique, vice president for economic development at Advance, the economic development arm of the Green Bay Area Chamber of Commerce, says there’s ample room for optimism. For example, he notes, “Policom Corporation, an independent and respected research firm which specializes in analyzing state and local economies, released its 2010 economic strength rankings for all 366 metropolitan statistical areas in the United States. The Green Bay MSA moved up to 48 out of 366 from 78 of 366 in 2009. This high rank clearly indicates rapid, consistent growth in both size and quality for an extended period of time, and since manufacturing accounts for 20 to 24 percent of private sector jobs, this is clear evidence of the continuing strength in this important sector.”

Monique adds that several major Northeast Wisconsin manufacturers have begun recalling laid-off employees, including Marquis Yachts in Pulaski, which has added back some 200 employees, and Cruisers Yachts in Oconto. Other area manufacturers from Lindquist Machine Co. to MEGTEC systems have also called back significant numbers of workers, he says.

Mike Klonsinski, executive director of the Wisconsin Manufacturing Extension Partnership, says it’s not surprising the manufacturing activity is growing faster than manufacturing employment.

“Manufacturers are not bringing back people yet in large quantities for a number of reasons,” says Klonsinski. “One, they are having trouble seeing past the horizon. Orders are coming in, but it is not certain that the order uptick is sustaining. Second, some have become leaner, more efficient operations and are able to fill the orders with current staffing and equipment. Third, some are cautious about adding fixed cost and staffing. It’s a big load to bring on, and the emotional cost of having to let people go should not be underestimated. For all the talk of heartless companies and focus on the bottom line, there is still a family element for many manufacturers and few want to be in a position of having to lay off people again. And fourth, some employment efforts are being taken care of through temporary, contract workforce, or outsourced to other firms.”

Nonetheless, Klonsinski adds, “we do believe that a recovery is occurring and manufacturing jobs are coming back.  If the order trend sustains through the summer, I would expect manufacturing job growth to begin occurring in fall or spring 2011.”

Susan Stansbury, director of Converting Influence, says paper converters are doing well in the current recovery. Converting Influence represents more than 80 paper converting manufacturers in the “converting corridor” that runs from Green Bay to Chicago.

“There has been a steady improvement in the position of many converter-manufacturers in the last year,” says Stansbury. “It began with efforts to reduce inventories and work very lean. For a number of companies, sales have been fairly steady because the particular markets they serve are somewhat recession-proof when they make products that are always needed. Some of the stronger sales came from economy versions of things like tissue products and baby wipes where converters have great flexibility to move with the marketplace. Some companies are even growing this year. For example, Top Brass Inc. of Wittenberg is expanding and plans to incorporate geothermal technology for factory climate control.”

Stansbury adds that companies tell her they expect to gradually increase employment.

“Because they worked so lean last year, a number of them are now looking to add personnel,” says Stansbury. “Some of them use temporary or part-timers and then move them to full-time as a second step. Some converters are working hard to find engineers and sales managers who understand their industry.”

SUSTAINING THE RECOVERY
Monique says the strength and durability of the manufacturing recovery will depend on a variety of interlocking factors.

“The current rebound in our manufacturing sector is primarily demand driven, both capital goods and non-capital products, but over the longer term manufacturing is a highly capital-intensive industry,” says Monique. “How we deal with major issues facing us in Wisconsin – from energy costs, compliance with air and water quality standards, corporate taxation and investment credits to educating the next generation of workers – will either have a positive or negative impact on individuals and corporate decisions to invest in manufacturing in our area.”

Klonsinski believes the recovery is for real, but agrees that sustained recovery is not a foregone conclusion.

“What is key for ongoing, long-term Wisconsin manufacturing growth is first and foremost the competitive capability of the manufacturing firms,” says Klonsinski. “As long as those firms are led by capable people who see constant innovation, systemic continuous improvement, global engagement and other Next Generation Manufacturing strategies as important, we can retain and grow our manufacturing base. We can talk all we want about policies, but an advanced, high-performing manufacturer finds a way to win and that has always been a strength in the state.”

“That being said,” Klonsinski adds, “the second key for Wisconsin manufacturing growth is making the state climate for manufacturing success a priority – supporting reinvestment in, retention of and growth of new manufacturing firms. That means being aggressive about policies that give our manufacturers an advantage, promoting and using the bully pulpit to make sure that manufacturing is viewed as a priority.”

Stansbury says technological innovation will help keep Wisconsin manufacturers competitive.

“As consumer focus moves along a range from sustainable and niche product specialties to economy everyday items – converters must respond,” says Stansbury. “However, there is no group in a better position to meet these objectives. Converters are using high-tech conveying, robotics, software systems and ‘work smart’ approaches to be
efficient and fast-moving. Making the production line seamless, instead of moving from one station to another as products are manufactured, is being aided by sophisticated equipment technologies that transform, package and ship converted products very quickly. This adds to productivity per hour, cuts waste and reduces inventory. Today’s factory employee uses touch-screen controls and represents the more sophisticated world of today’s manufacturing climate. These  factories look very clean, computerized and have large real-time displays of production data located machine-side and simultaneously at management’s desktop for analysis.”

“Technology is a core component of manufacturing today,” MacIntosh says. “Today’s manufacturers hire employees more for their minds than their backs, hands or feet.  Manufactures are utilizing technology to level the playing field. Today’s modern manufacturer with computer-controlled machines and optical scanners can guarantee quality far beyond yesterday’s non-value added inspection process. We need to get the word out that manufacturing can be fun and intellectually challenging. Unfortunately we have lost close to a generation of workers who believed that manufacturing was dull, boring and not very challenging.”

Klonsinski says that while unemployment remains high, a shortage of skilled workers will soon be the biggest challenge facing manufacturers.

“We are beginning to hear more talk about not being able to hire the right people. In some situations, it appears that we are getting back to where we were in 2007 and 2008 – that there may be people available but not with the right skill sets or competencies for the jobs available,” says Klonsinski. “We need to make sure that we’re attracting talent at all levels to manufacturing in Wisconsin – not just the skilled workers that are necessary and will be in short supply, but the next generation manufacturing managers, engineers and designers who will make new products and make existing products more competitive, and the entrepreneurial leaders that will take chances in new markets and invest in new technologies. The hard part is executing, but if we do that we shouldn’t have to worry about manufacturing growth in Wisconsin.”