Small Fabricators and Manufacturers Optimistic about Future in New Survey

Many small- to medium-size job shops surveyed for the latest Fabricators and Manufacturers Association’s Forming and Fabricating Job Shop Consumption Report have an optimistic outlook lately and believe some significant impediments to business progress may be removed and that some of the stimulating efforts will bear fruit.

A whopping 61.9% of those surveyed see improving conditions for the coming quarter and another 34.3% expect things to be about as they are now. Only 3.7% expect things to get worse. This is the most confident the sector has been in a while.

Still, the survey found capacity utilization is on the low side, just short of 70%, which indicates slack in the system, though when looking at the anticipated capacity, there is a general sense that companies will be adding to it. That may mean more slack in the short term, but should mean less in the way of shortages and bottlenecks later. But generally, the survey respondents are staying connected to their capital equipment strategies as 57.4% indicate that nothing has altered their plans and they intend to buy what they had intended to buy. About 18% have delayed their original plans by a quarter or two and 24.6% have set their plans on the back burner indefinitely. There is tremendous variability between sectors, however. Those feeding into the agricultural community are seeing very low demand while medical manufacturing thrives. Automotive and aerospace are not as vibrant as they have been.

In the manufacturing community, the level of real confidence is reflected in data such as new orders. The survey this month shows that 44.7% of the respondents are reporting more in the way of new orders and another 41% are reporting that this activity has been stable. Only a little over 14% of the responses indicated a decline in new orders. That suggests that there is more expansion in the manufacturing sector overall and that it is expected to expand further into the year.

Hiring has also seen progress and stability, but there are some factors to take into consideration that affect these numbers and have for some time. The survey reports that over 27% expect to do additional hiring while just over 68% are staying right where they are as far as hiring is concerned. That means that only 4.5% of the respondents plan to reduce their workforce. This is as low a level as has been seen in the last few years. The wrinkle in all this is that most of the manufacturers are struggling to find qualified people to hire. The pipeline as far as talent is empty. Companies really have no alternative but to poach one another’s employees, which generally means that labor costs will rise steadily as companies try to lure the people they want and need.

Beyond hiring, the next biggest expense is raw material costs. Here, the key factors are generally the price of steel and aluminum. The survey reports that the vast majority of respondents see prices for both metals coming up. In general, the commodities suppliers have been trying to adjust to reduced demand over the last few years—they have limited output as a means to hike prices. The tactic has worked pretty well and the hope is that more production can be spurred when and if there is a boost in overall demand.

The cost of transportation and logistics has also been a factor when it comes to overall expenses, but there hasn’t been all that much movement. The percentage of respondents that report more logistics costs is 29.3% and most have indicated that these costs have been stable—over 70%. Not one respondent reported that these costs are going down. Rail costs have been more stable than trucking costs and there has been some reduction in the costs of ocean cargo due to the overcapacity issue facing maritime shipping. There is also a great deal of regionalism in logistics, in part due to the fluctuating costs of fuel and overall operating expenses. Just as with manufacturing, there has been a shortage of manpower in transportation. It is estimated trucking companies are short some 80,000 drivers this year alone.

– Chris Kuehl, Ph.D., NACM economist

No comments:

Post a Comment