Workforce issues remain top of mind for manufacturers

Mid-year Economic Forecast

A now hiring sign at the Brady Corp. headquarters in Milwaukee.

Wisconsin’s manufacturing sector has been trending in a positive direction through the first half of 2017. Hiring is up, wages are pushing higher and surveys of business optimism have been at their highest points in two years.

“It’s really hard to find something negative in this environment,” said Doug Fisher, director of the Marquette Center for Supply Chain Management.

A now hiring sign at the Brady Corp. headquarters in Milwaukee.

Many manufacturers entered 2017 optimistic about what a Trump administration and Republican control of Congress would mean for the industry. Fisher pointed out that regardless of how someone feels about plans for health care, tax or regulatory reform, or a massive infrastructure package, those policy changes would likely benefit manufacturers.

While significant changes to those areas have yet to become a reality, business has continued to be strong for manufacturers. The Milwaukee-area PMI produced by Fisher’s center each month jumped from the low 50s to nearly 60 at the start of the year and has averaged 59 over the past six months. The survey-based index is a measure of manufacturing activity in the region, and a reading of greater than 50 indicates growth in the sector.

“I’d say it’s optimistic,” Fisher said. “It’s in safe, positive territory.”

Buckley Brinkman, executive director and chief executive officer of the Wisconsin Center for Manufacturing & Productivity, said many who were expecting policy changes underestimated “the power of inertia in the federal government.” But he added there’s plenty of things manufacturers can do without policy changes becoming reality.

“When we talk about increased regulation, when we talk about the tax structure, when we talk about foreign competition, it really gives manufacturers and other businesses an excuse to not stay competitive,” Brinkman said.

Staying competitive means addressing a host of short- and long-term issues in the industry, he said, from workforce development to cybersecurity to additive manufacturing, robotics and the Internet of Things.

“You’re going to need to have an integrated approach to your talent, technology and techniques to really compete going forward,” Brinkman said.

Finding enough workers is the most pressing concern for manufacturers, he said. It is an issue Brinkman has been concerned with for a number of years and he said it has the potential to limit growth in the economy.

“There is an upper end limit on what we can do right now because of our workforce issues,” he said.

Fisher said it may not be a limiting factor in the next six months, but five years from now could be a different story.

“Seeing (workforce challenges) right now certainly hasn’t dampened the growth prospects I’m seeing,” he said.

The manufacturing sector statewide has increased employment an average of 0.9 percent over the first five months of the year, according to data from the U.S. Bureau of Labor Statistics. While that figure is slightly behind the private sector job growth pace as a whole, it is an improvement over the job losses seen last year.

The metropolitan Milwaukee area has seen slower growth in manufacturing jobs, averaging a 0.4 percent increase. Wages for production workers in the region are averaging an 11.6 percent increase compared to 2016, better than the 5.7 percent increase statewide.

Those figures are a substantial improvement over the full-year data for 2016, when wages averaged a 1.6 percent increase from the previous year and metro Milwaukee’s manufacturing sector was a major contributor to the worst 12-month period for job growth since mid-2010.

Some employers and organizations attributed the drop to challenges finding employees. Brinkman said he’s seen a small but growing group of businesses deciding they are content with their size and not seeking to grow any larger.

“That’s a terrifying prospect to me,” he said.

Even with unemployment rates approaching record low levels, Brinkman said there are opportunities for employers to add to their workforce if they are willing to make an investment.

“The people that we have left in the employment pool are not traditional employees; they’re going to come with some baggage,” he said, noting the goals of employers and those working on social problems seem to be more aligned than in the past. “I think we can have a huge impact.”

Fisher said he likes the work being done to attract students to trade and technical schools to prepare workers with a higher skill level.

“I think that’s a really big hole that needs to be filled,” he said.

Looming on the horizon for manufacturers are a host of technological changes, some of which could help businesses mitigate workforce challenges. Automation, robotics, additive manufacturing or 3-D printing, and the Internet of Things all threaten to disrupt the industry.

“For the large manufacturers, they’re working on it and they’re coming to grips with those issues, but they really don’t have it figured out,” Brinkman said.

He added that small and medium manufacturers could find themselves in a precarious position over the next 12 to 18 months if they aren’t preparing for technological changes.

“It is something where you should know what the major trends are and how they’re likely to affect your organization,” Brinkman said.

It will also require larger original equipment manufacturers to be more responsive and helpful to drive changes throughout the supply chain.

“It takes a lot more cooperation than it did in the past to make a technology pay off,” Brinkman said.

He said many employers are either not looking at those trends or they are focused only on getting orders out the door.

“The vast majority of manufacturers in the country I think are asleep at the switch,” he said.

Brinkman said one area businesses could address beyond their workforce is cybersecurity. Increasingly connected machinery creates new risks and vulnerabilities, but addressing them early can limit costs. Potential customers, especially in the defense and automotive markets, are going to require manufacturers to demonstrate they can meet higher cybersecurity standards in the coming years, he said.

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.

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