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Manufacturing Adds 16,000 Jobs, Paced by Motor Vehicles: In July, manufacturing added 16,000 jobs with makers of motor vehicles and parts leading the way. According to information released by the Bureau of Labor Statistics on August 2, the vehicle sector accounted for 7,200 of the 9,500 jobs added in transportation equipment. The job surge comes despite a softening in U.S. deliveries of cars and light trucks. The industry has recorded four consecutive years with sales of 17 million or more. The vehicle market is also restructuring, with the demand for trucks, SUVs and crossovers remaining relatively high while sales of sedans are plunging.
July represented the second straight month of strong manufacturing job expansion following slow growth during the first part of 2019. Manufacturing added 12,000 jobs in June. In July, durable goods posted a gain of 12,000 jobs, while other industries with employment increases included computers and electronic products, up 2,600, and furniture, up 2,000. In the durable goods sector, the main loser was machinery, which lost 3,600 jobs. Even with the strong numbers for July, job growth in manufacturing lags the pace set in 2018. Manufacturing added 55,000 jobs for the first seven months of 2019, compared with 162,000 for the same period last year.
On a seasonally adjusted basis, manufacturing jobs totaled 12.864 million in July. That’s up from an adjusted 12,848 million in June and 12.707 million in July 2018. Manufacturing jobs peaked in June 1979 at 19.6 million, then sank to a low of 11.45 million in February 2010 following a severe recession caused by the 2008 financial crisis. Since that time, new manufacturing jobs have been created requiring increased skills as a result of increased automation and technology in factories.
U.S. Manufacturers Helped by Cheaper Materials as Trade War Rages On: For some American manufacturers, the declining cost of materials may be starting to help diminish the impact of tariffs as the U.S.-China trade war rages on. U.S. earnings calls during the most recent quarter revealed that cheaper materials are emerging as a silver lining for margins and operating costs as manufacturers remain under a dark cloud of sluggish global growth and turbulent trade policy. As worldwide demand began to stumble over the last 12 months, the price of steel plunged 34%, oil slumped 21%, aluminum dropped 15% and copper dove to a two-year low. While slowing export markets remain the primary concern for manufacturers such as General Motors Co. and Caterpillar Inc., declining input prices represent a potential, although modest, tailwind for margins and operating costs.
During the first half of 2019, U.S. manufacturing slipped into a recession with output falling in consecutive quarters, as companies affected by declining worldwide demand and the repercussions of tariffs ratcheted back capital expansion plans. However, some industry leaders aren’t discounting the impact of the subsequent drop in commodities prices. For example, according to James Loree, Chief Executive Officer at Stanley Black & Decker Inc., U.S. tariffs on China that have risen from 10% to 25% will cost the company $70 million in 2019 and again next year. However lower commodity prices will provide some offset. The cost of commodities used in industrial processes, including steel and copper scrap, zinc, cotton and rubber, is at a three-year low. Consumer-products maker Church & Dwight Co. raised its full-year gross margin forecast by 30 basis points from its previous projection, partly “attributable to a more favorable forecast on commodities,” said CFO Richard Dierker. Outside of manufacturing industries, homebuilders are also seeing some commodities-based relief as prices paid for lumber fell 18.2% in June from a year ago, the biggest decline since 1970.
Amazon Under Fire as China Factory Hires Teen Interns: For a second time, Amazon and Foxconn Technology, the world’s foremost assembler of iPhones and many of the world’s most popular gadgets, have come under scrutiny for the mistreatment of factory workers at a plant located in Hengyang, China. Foxconn recently fired two executives at that plant, which assembles both Echo speakers and Kindle e-readers for Amazon. The firings came in response to a labor group’s allegations that Foxconn slashed wages and disobeyed laws to deal with the adverse effects of rising U.S. tariffs. Last year, China Labor Watch (CLW) criticized the facility for relying on temporary workers, including high school interns, and overtime beyond legal limits. On August 9, Foxconn said it had dismissed the plant’s chief and the head of human resources, and punished managers responsible for overseeing the use of interns. Although Amazon and Foxconn previously said they would make improvements to the factory’s working conditions, a 2019 investigation by CLW found that Foxconn’s working conditions did not improve, and instead deteriorated. Wages, which the CLW deemed last year to be too low to support a decent standard of living, were slashed by another 16% in 2019. Because those wages haven’t been enough to draw sufficient full-time workers to the factory, Foxconn has relied heavily on interns as young as 16 from vocational schools, some of whom were forced to work overtime. Some were told by their teachers that turning down the overtime could jeopardize their graduation.
Foxconn recently admitted to not being in full compliance with all relevant laws and regulations and vowed to immediately bring the percentage of interns assigned to that facility into full compliance and to ensure that interns will no longer work overtime or nights. CLW also noted that interns from local vocational schools accounted for more than 20% of the plant’s current workforce, double the levels permitted by law. Foxconn has struggled for years with allegations about its mistreatment of more than one million workers drawn from China’s vast population of migrant laborers. In 2010, this culminated in a rash of suicides, after which Foxconn pledged to overhaul its systems. Last year’s report from CLW put the spotlight back on Foxconn, as well as on its customer, Amazon. Last year, Amazon said it asked Foxconn to make changes after a March 2018 audit of the Hengyang facility uncovered violations regarding overtime and use of dispatch workers. On August: 7, additional Amazon investigators arrived on the plant site and the company started what it says will be “weekly audits of this issue,” said Amazon spokesman Sam Kennedy. “We do not tolerate violations of our supplier code of conduct.”
Bridging the Manufacturing Skills Gap Through Simulation Training: The manufacturing industry has seen rapid advancement in recent years, as automation and technology continue to permeate the field. However, many existing and future employees lack the skills needed to support the rampant technical advancement facing the industry today. A recent Deloitte study estimates that 2.4 million manufacturing jobs will be left unfilled by 2028. Simulation training is one approach that has the potential to effectively recruit and onboard employees, and provide them with the skills they need to succeed in the manufacturing industry. A brief description of simulation training and some of the primary ways it can help is as follows:
What is Simulation Training. Simulation training involves the use of equipment or computer software to model a real-world scenario. In a virtual environment, students are taught basic tasks that can later be applied on the job. In addition to effectively teaching complex ideas, simulation training helps new employees better retain information. While traditional instructor-led training may succeed in initially relaying information, simulation training is more hands on and aids in the retention process. In addition, brief simulations detailing a newly-implemented technical process or technology can be especially beneficial in keeping more experienced employees knowledgeable of new industry trends and practices. In manufacturing, simulation training is especially effective in troubleshooting (solving problems in a mechanical or technical system).
Simulation Training in Recruitment and Skills Development. Simulation training also helps employers recruit employees by assessing skills and identifying gaps in various knowledge areas. It helps employers train new employees in areas that need sharpening, creating an individualized learning experience for new hires. In addition, simulation training offers manufacturing candidates a cutting-edge, technical work environment, which is one way of attracting them to the industry. It is also a means by which knowledge can be successfully transferred during this major workforce shift, bridging the skills gap across the industry.
Addressing Health and Safety Concerns. The potential for health and safety hazards on the manufacturing floor can be high, and training new employees using simulation offers a safe alternative to traditional hands-on methods. Allowing new employees to learn the ins and outs of a machine, new technology or a specific manufacturing role through simulation without putting them at risk is a big plus for the industry. Thus, a major benefit of simulation training is the fact that it provides a safe environment for employees to learn and experiment with more advanced skills and processes. It provides a virtual environment where one can practice, make mistakes, analyze what went wrong and avoid repeating the same mistake in a live environment.
Advancing Professional Development for Manufacturing Employees. Through advanced simulation training, manufacturing employees will be equipped with the skills needed to fill the many roles that are emerging across the industry and build a lasting, financially rewarding career in the field. It’s not just turning wrenches anymore; it’s knowing how to program and knowing how computer automation meshes with the mechanical and process systems.
Simulation training is an effective means to tailoring programs to new employees’ specific learning needs, encouraging employees to experiment throughout the training process and facilitating knowledge transfer as experienced employees face retirement. It not only bridges the manufacturing skills gap, but sets employees up for success in the manufacturing industry.
Auto Suppliers Scramble to Offset a Nearly Global Downturn in Auto Production: Things are tough all over in the world’s major auto markets. This year, auto production is heading for a decline in China, Europe and North America at the same time and that’s a relatively rare occurrence. Global automotive companies usually count on faster-selling regions to offset the slower-selling ones. That’s a primary motivation for becoming a global manufacturer in the first place. But that’s not helping as much as usual this year. “It’s a tough year, from a vehicle production standpoint,” said Joe Massaro, CFO of high-tech automotive supplier Aptiv PLC. Aptiv supplies automakers with electrical, electronic and active safety technology.
China, the world’s largest new-vehicle market, is a particular sore spot. Until recently, the biggest question about auto production in China was how high and how fast it would grow with so much pent-up demand. An outright contraction in auto production was unthinkable. But Aptiv expects auto production in China to decline by 15% in the third quarter, and 13% for the full year. Despite the market’s decline, for 2019 Aptiv still expects its revenues in China to be ahead of 2018 by about 2%. The supplier plans to reduce headcount in China in line with vehicle production declines and make changes in materials and manufacturing, to help offset the decline in market volume. In Europe, factors depressing consumer demand for new vehicles include uncertainty about Brexit, and an ongoing reaction to a scandal about diesel passenger-car emissions. The U.K. is actually the largest export market for vehicles manufactured in Europe. Aptiv said it expects auto production in Europe to decline by 4% for 2019.
Manufacturing Industry Outlook
According to key economic indicators, the outlook for the U.S, economy for 2019 and beyond is healthy. According to the most recent forecast released at the June meeting of the Federal Open Market Committee, U.S. GDP growth is predicted to slow to 2.1% in 2019 from 3% in 2018. It is projected to be 2% in 2020 and 1.8% in 2021. The anticipated slowdown in 2019 and beyond is a side effect of the trade war, a key component of President Trump’s economic policies. The unemployment rate will average 3.6% in 2019 and increase slightly to 3.7% in 2020 and 3.8% in 2021. Inflation will average 1.5% in 2019 and rise to 1.9% in 2020 and 2.0% in 2021. The core inflation rate, which excludes volatile gas and food prices, will average 1.8% in 2019, 1.9% in 2020, and 2.0% in 2021. Since the core rate is slightly below the Fed’s 2% target inflation rate, it may push the Fed to lower interest rates.
U.S. manufacturing is forecast to increase faster than the general economy. The Manufacturers Alliance for Productivity and Innovation (MAPI) Foundation conducts research on the economic impact of manufacturing, including the implications of government policies and the success drivers that keep the industry competitive. MAPI says increased capital growth and higher exports will boost manufacturing. It predicts production will grow by 3.9% in 2019, then slow slightly to 2.4% in 2020 and 1.9%in 2021.
From Irontrax perspective, manufacturers are still cautiously optimistic that the economy will continue to remain stable. Recent appraisals conducted have been primarily to support or establish financial positions for the expansion of current operations. Manufacturers are adding equipment to increase capacity and take advantage of newer technology. Some manufacturers are also pursuing additional space. For example, we recently visited a cardboard box converting facility that intends to double its footprint from 30,000 to 60,000 square feet due to an increase in the demand for corrugated boxes resulting from the continued proliferation of e-commerce.