The State of Manufacturing
Rob Autry, a national pollster for Public Opinion Strategies, finds that manufacturers are confident in the future financial success of their industry.
Call them confident, naïve or just plain optimistic, but most Minnesota manufacturing executives say they are not feeling the same economic pinch that seems to have the country in a bind. A full 79 percent of manufacturing executives—nearly eight out of 10 —are confident in their companies’ future financial security.
Over two weeks in December, we interviewed 400 manufacturing executives from a diverse cross-section of Minnesota companies and locations. Here’s what we learned.
Manufacturing Optimism
Although most executives believe Minnesota’s economy is in for a bumpy ride in 2009, a large majority continue to feel hopeful about the prospects of their own companies.
A solid 56 percent of manufacturing executives believe the country will be in a recession in 2009, with only 8 percent expecting to see overall continued economic expansion. Roughly a third of executives (34 percent) believe we’ll be in a flat economy.
Nonetheless, nearly three quarters (72 percent) of those who believe the recession will continue are confident about their own firm’s outlook. Overall, we found that four out of 10 manufacturing executives (40 percent) believe 2009 will see a recession but are also confident in their own businesses’ future financial well being.
Denny Dotson, president of Dotson Iron Castings in Mankato, believes manufacturing companies could help the economy to recover from a recession.
“Manufacturing in the United States has been hit hard in the past and has become much leaner and stronger in adjusting to competition in a flat world. Most manufacturers are confident that their companies will lead the other industries out of this recession,” Dotson says.
Eric Wagner, president of Minnesota Wire & Cable in St. Paul, says he believes a positive outlook is an integral part of a manufacturing leader’s job description. “People that run enterprises just have to be optimistic. It’s a trait,” he says.
The extent of executives’ optimism in our sample tends to depend on the size and revenue of individual companies, as well as the executives’ positions within their companies. In contrast to presidents, vice presidents and managers, company owners are more guarded in their optimism, perhaps to avoid eating their words should the already shaky economy take a turn for the worse. Companies with revenues more than $5 million tend to be more optimistic than those with lower revenues. Similarly, the larger companies—those with more than 50 employees—tend to be more optimistic about the future than those with fewer than 50 employees.
But might this optimism be overstated? Few executives are willing to go out on a limb and project increases in gross revenues, profitability and capital expenditures for 2009. In fact, only 23 percent of those polled believe their firm’s gross revenues will increase in 2009. Just 17 percent believe their profitability will increase, and a mere 19 percent believe their capital expenditures will increase.
Rather, executives tend to believe the new year will bring them more of the same. A plurality of executives believe their gross revenues (44 percent), profitability (48 percent) and capital expenditures (43 percent) for 2009 will stay about the same as they were in 2008.
What Credit Crisis?
Despite the dire media portrayal of a credit crisis ravaging the country, constriction of credit has not had a major impact on Minnesota’s manufacturers. A mere 13 percent of manufacturing executives polled say they have experienced a constriction of credit within the past few months, and only 9 percent of executives say it has had a significant or modest impact on their businesses. Executives are not worried about obtaining funds in the future, either. Just 13 percent say they are very concerned about the availability of capital.
For some, however, the consequences of the credit crunch are quite evident. Joann “Tink” Birchem, CEO of Valley Forest Wood Products in Mt. Iron, says her company has already seen a constriction of credit. “I’m one of the 13 percent, but I would expect that most people would have problems getting money right now. I’m very surprised by [the results].”
Some of the more cautious manufacturing executives say they believe it’s only a matter of time before a larger cross-section of the manufacturing industry begins to feel the effects of the credit crisis. Wagner says, “I bet if you ask the same question 12 months from now, [you will get a different response].”
Health Care is the Concern du Jour
Despite the swirl of bad economic news, manufacturers remain more concerned about the impact of health care than any other factor. Fully 64 percent of executives say they are concerned about health care costs; 36 percent say they are very concerned.
Wagner says the cost of health care has been a concern among manufacturing employees for some time now. “The value of health care has been eroding for years,” he says. “Now it’s so engrained in the employees [as a concern], it’s just not going to go away until we solve it.”
Health care woes are more pronounced among companies with less than $1 million in annual revenues and companies with fewer than 50 employees. The smaller companies are certainly carrying more of the burden from a percentage standpoint than other companies. Those with under $1 million in revenue attributed an average of 23 percent of compensation costs to health care, compared with 16 percent for those with $5 million or more in revenue.
Even those companies that have been harmed by a recent constriction in credit say they are more concerned about health care costs (45 percent very concerned) than they are the availability of capital (39 percent very concerned).
Dotson believes the cost of health care “is a problem beyond the ability to be solved by the manufacturing community and most likely needs some level of federal health care.”
But the federal government is not the only enterprise that should be making a bigger effort to address health care woes. For such widespread worry, most manufacturers could also be doing more to improve the health care situation. Overall, 64 percent of manufacturers surveyed provide some sort of health care plan to their employees. But only one-third (34 percent) say they are offering wellness programs and other employee health initiatives. Of those offering health care, roughly six in 10 (59 percent) do not offer any health and wellness programs for employees. These companies would be well served to become more proactive in promoting health care consumerism among their workforce. Though it will not solve the problem entirely, it could save them a significant amount by helping to prevent large insurance claims.
Happy Campers
Optimism returns among executives when they discuss their companies’ cultures and workforce, of which they paint a very rosy picture. A startling two out of three executives (65 percent) say that “most employees are highly engaged and committed to the organization” and “there is a high degree of trust between management and employees.” In fact, only 3 percent believe that their employees are simply at work “to collect a paycheck and are not very engaged or committed” and that “there is a low degree of trust between management and employees.”
Moreover, nine out of 10 executives (91 percent) agree that the workplace is a place where people seem to share a lot of themselves and have a great deal of camaraderie. A nearly identical percentage—92 percent—say that most employees in their firm believe their health, safety and well being are important priorities for management. So there is a strong belief among manufacturing executives that their employees are content and believe that they have a solid relationship with management.
Stability is the Name of the Game
To retain workers in today’s economy, stability is at the top of the list in importance, with 35 percent of manufacturing executives ranking stability as the most important factor in retaining workers. Stability was followed by pride in their company (20 percent) and in their work (19 percent). Remarkably, wages (15 percent) and benefits (6 percent) rank at the bottom of the list, according to the poll results.
Wagner is not surprised. “We have a little bit of a survival mode going on here, and [the importance of stability] is a response to survival. Stability says that if you broke even, you’re getting accolades for accomplishing that,” he says.
Birchem agrees. “Stability is a big thing because everything is so uncertain out there right now,” she says. “Stability is reassuring. It’s great to be successful, but in times like this, it’s also great to have some stability and know that you can hang in there for a little while, and then charge [ahead] once things stabilize.”
Recruiting new workers is also difficult for the industry and has its own ranking of importance factors. Fifty-five percent of executives say they have trouble attracting new workers to fill job vacancies.
Ron Kirscht, president of Donnelly Custom Manufacturing in Alexandria, attributes this difficulty to a skills gap that has become wider as technology has advanced. “We are now training more workers on the job, many of which have been with the company, because the new technology, materials and processes require new skill sets.”
Denny Siemer, president of V-Tek in Mankato, says that his business associates in Europe and Asia find technology education lagging as well. “Modern manufacturing is based on high technology and the labor pool for engineers and technicians has not grown to meet the need,” he says.
Dotson believes finding top-notch employees is difficult because these employees have many choices of manufacturing positions. “We are all minimum wage from the neck down,” he says. “Companies that can only compete on the basis of low wage costs need to rethink their strategies in order to take advantage of the intellectual capital that exists at the top of the employee pyramid.”
In fact, salary and wage expectations are deemed the most important factor when it comes to recruiting new employees (43 percent rate it as important), followed by affordable health care (39 percent) and a competitive benefits package (35 percent). Despite the volatile marketplace, four out of 10 executives (41 percent) expect wages to increase over the next two years, and a third of those who expect 2009 to be a recession believing that their firms’ wages will increase (34 percent).
Stability can also play a part in attracting workers. Dotson’s company, Dotson Iron Castings, recently hired a senior quality executive who had been concerned about the stability of his previous job working for a distant competitor.
While the future is uncertain, manufacturers’ collective outlook is sure. “We have to look forward with confidence,” Siemer says. “The alternative is to give up, and that’s not the nature of anybody I know that’s still in manufacturing.”
The State of Manufacturing Poll was sponsored by Minnesota State Colleges and Universities, LarsonAllen, RJF Agencies and Bremer Bank, and organized by Enterprise Minnesota. A book with the full results of the survey will be printed Jan. 30. Full results can be viewed at www.stateofmanufacturing.com.