Uneven terrain

Pandemic has affected manufacturers both negatively and positively

Posted on Jan 13, 2021 :: Feature
Posted by , Insight on Manufacturing Staff Writer

It’s surreal to contemplate a year ago, when the economy, for the most part, was humming along healthily and the coronavirus was but a nebulous threat.

Looking back at the past 10 months, it’s clear COVID-19 has affected all businesses negatively, but some have borne a much greater burden than others. While many manufacturers moved quickly to take steps to counteract the economic fallout of the pandemic, smaller businesses and those that weren’t well diversified suffered disproportionately.

Even before the pandemic, 2020 was shaping up to be an uncertain year, with a presidential election on the horizon and some economists predicting a recession stemming from trade tensions. On top of the coronavirus, the year was rife with social unrest, says Ted Abernathy, managing partner of Economic Leadership LLC.

“Think about, just how much more business risk could you have dreamed up as you were sitting last Christmas thinking that 2020 was going to be a pretty good year,” says Abernathy, who presented to the NEW Manufacturing Alliance as part of its quarterly membership meeting in December.

Between March and April, the pandemic demolished years of job growth, with 22 million jobs lost nationwide. The country is fighting its way back but is still down about 10 million jobs, and the rate of adding jobs has slowed through worsening subsequent waves of the pandemic, Abernathy says. He anticipates some percentage of those jobs will be lost permanently, and the United States will have to grow its way back to recovering the remainder — between 5 million and 6 million jobs.

With a new year beginning, hope follows with vaccines getting rolled out, but an unsteady path still lies ahead. Industry experts and economists have been tracking the situation facing manufacturers since the beginning of the pandemic and share their insights on 2020 and what the future could hold.

2020 learnings

As the pandemic took hold, most manufacturers acted decisively to incorporate workplace safety measures and to adapt to what was happening in the marketplace, says George Bureau, vice president of consulting services for WMEP Manufacturing Solutions. They aggressively cut costs and adjusted to lower sales volumes while at the same time worked to avoid pursuing layoffs and furloughs, knowing they needed to retain talent.

“Some companies have fared very well — they’re a minority — and some companies were affected far greater than others. There’s quite a disparity in how companies were impacted,” Bureau says.

The smallest of the small businesses along with companies that weren’t well diversified or sold to too few customers have suffered the most. Smaller companies typically can weather a short storm but tend to struggle the longer a challenge wears on and taxes their financial and manpower resources, Bureau says.

In WMEP’s most recent Manufacturer Pulse Survey, taken in October, leaders from one-third of responding companies said their business had not yet seen the bottom of the fallout with another one-third saying their situation was beginning to improve. The number of companies still in the grips of the crisis and facing declining sales and backlogs is worrisome, Bureau says, adding that the longer that goes on, the greater the likelihood of companies going out of business.

As struggling manufacturers recover, WMEP can help them shift focus to where the revenue is as well as targeting ways to tighten operations, remove waste and gain productivity. “All these things help you become more profitable,” Bureau says.

NEWMA’s 2021 Manufacturing Vitality Index also showed uneven effects from the pandemic, with 41 percent of respondents reporting a decrease in sales and 40 percent experiencing a sales increase. Additionally, 24 percent of manufacturers said they made a new or modified product in response to the pandemic.

Overall, respondents to NEWMA’s survey shared optimism moving into 2021, with 73 percent expecting to increase sales and 92 percent describing their anticipated financial wellness as either healthy or quite healthy. Twenty-six percent plan plant expansions, and 59 percent plan to pursue modernization projects, continuing 11 years of strong overall growth on that front.

“Every year, we’ve had some modernization and expansion, which is a good thing for Northeast Wisconsin because we’re basically seeing the asset base continue to modernize, so we are left with better-running, more efficient assets as the years go on,” says Mike Kawleski, public affairs manager for Georgia-Pacific and chair of NEWMA’s communications task force.

Ongoing issues

Paul Wellener, a vice chairman with Deloitte LLP, and the leader of the U.S. Industrial Products and Construction practice with Deloitte Consulting, says manufacturers should prepare to adjust to continued disruption.

“These disruptions, or black swans as we like to call them, are events that are probably here to stay. If we think ahead to 2021 and then the decade to come after that, companies are going to be defined by their ability to contain or manage these black swans, how they make order out of disorder,” says Wellener, who presented in December as part of Deloitte’s 2021 U.S. Economy & Manufacturing Outlooks presentation.

While the service sector suffered greatly, strong growth and spending in durable goods and robust industrial production have helped manufacturers, says Ira Kalish, chief global economist for Deloitte Touche Tohmatsu, who also presented for Deloitte in December. Many people have chosen to buy larger homes outside of big cities, and this has brought positive impacts to manufacturing through increased purchases of items such as appliances and home improvement goods.

Moving into 2021, two major factors will affect the overall economy and manufacturing: the path of the virus and the degree to which we get further government stimulus, Kalish says.

The $900 billion in stimulus signed into law in December could help consumers and small businesses get through the worst of the pandemic, he continues. In addition, the Biden administration is likely to seek further stimulus.

“My expectation is for modest economic growth in the coming year until we get a vaccine in place. The modest nature of that growth will be largely driven by the weakness of the services sector,” Kalish says.

The vaccine could mean strong growth once people become comfortable the virus is behind them, and pent-up demand and the cash many people have saved could lead to strong spending. At the same time, stimulus is needed to protect consumers and businesses that are facing disruption, and failure to provide it could spill over into other parts of the economy and create an overall negative effect, Kalish says.

Post COVID-19, consumer behavior changes could endure, including less travel and seeking more entertainment and shopping from home. Consumers spending less on services and more on manufactured products could positively affect manufacturers, Kalish says.

As for the new administration, Kalish predicts President-elect Joe Biden will make it a goal to reverse some of the deglobalization of the Trump administration and will seek to reinvigorate multilateral trade negotiations and the World Trade Organization. In addition, Biden likely will try to ease economic tensions with China while also maintaining a hard line on geopolitics and human rights in conjunction with European allies.

A more consistent approach to trade and tariffs would bring more stability and benefit manufacturers, Wellener says. “The more predictability that policy can put in place to be able to have supply chains become predictable is better for manufacturers.”

Abernathy also sees a positive outlook for manufacturers in the next four years. “Both sides of the aisle seem committed to strengthening manufacturing in the U.S., seeing what it means to be dependent on companies that are outside our borders.”