2019 business outlook: Industrial product industry
Tight labor market, rising wages top manufacturers issues
INSIGHT ARTICLE |
Forecasts call for manufacturing growth to increase faster than the general economy in coming years, with production estimated to rise 2.8 percent from 2018 to 2021, according to the Manufacturers Alliance for Productivity and Innovation Foundation (MAPI). This sustained growth will continue to put strains on manufacturers as they compete for an ever-shrinking pool of talent.
According to the Bureau of Labor Statistics, the United States has approximately 12.75 million manufacturing jobs and employs around 8.5 percent of the U.S. workforce. As of November, there were about 500,000 open U.S. manufacturing jobs, compared to roughly 465,000 unemployed persons, exemplifying an ongoing trend of more available jobs than people to fill them. We continue to see a divergence in the unemployment rate of manufacturers in durable goods (2.5 percent) versus nondurable goods (4.3 percent). Durable goods accounts for more than 80 percent of the 296,000 jobs added in manufacturing year-to-date. Historically, this has been an indicator of more job availability in the future.
Continued tightness in the labor market, due in large part to a significant shortage in skilled labor, has also led to increases in wage growth, with U.S. average hourly earnings reaching $27 in October. Production and nonsupervisory workers earned $21.68 an hour on average, at or near an all-time high.
We expect both the tight labor pool and rising wages to continue in 2019, boosting manufacturing overhead expense and squeezing profit margins. Every incremental cost increase can have a material impact on a manufacturer’s profitability, so we expect manufacturers to continue to evaluate the value of labor and to reposition their focus on creating the most positive output for each dollar spent. By deploying more robotic process automation, for instance, manufacturers can enhance processes to not only be more efficient, but to also to produce lower cost profiles and limit impacts of wage increases going forward.
Economic narratives for 2019 include continued trade tensions, more interest rate hikes and declining unemployment and wage growth.