Manufacturing Optimism

Only problem: tackling skills gap becomes even tougher

Optimism among manufacturers hits a high again in the latest quarterly survey of the sector. Slightly more than 92% of U.S. manufacturers responding to a survey from the National Association of Manufacturers say they are either “somewhat or very positive” about their companies’ outlooks, a record high. The association says the “unprecedented levels of optimism” have been spurred by improvements in the global economy, in particular “by pro-growth policies such as tax reform and regulatory relief.”

Manufacturing activity remains robust—one of the brightest spots in the economy right now. In the latest Manufacturers’ Outlook Survey from the National Association of Manufacturers (NAM), it is clear that manufacturing leaders in the United States continue to have unprecedented levels of optimism, spurred by improvements in the global economy and, in particular, by pro-growth policies such as tax reform and regulatory relief. Overall, 92.5 percent of those completing the survey said that they were either somewhat or very positive about their own company’s outlook (Figure 1).

This continues the high-rate of optimism reported since the beginning of 2017, including the 95.1 percent result in June, which was the highest rate since the survey was introduced in the fourth quarter of 1997.

The four-quarter rolling average—which for this survey reaches back to around the time when Congress began considering tax reform in earnest—inched up to a record-high 93.9 percent. Similarly, manufacturers’ optimism for 2018 is on track to be the highest annual average in the survey’s 20-year history.

In general,those completing this survey have been upbeat since the end of 2016, averaging 92.6 percent positive over the past seven quarters. Additionally, the Manufacturing Outlook Index dipped slightly from an all-time high of 63.6 in June to 61.9 in this release (Figure 2).

Index readings above 50 indicate the outlook exceeds the historic average of the survey (74.7 percent positive), with values above 60 suggesting that the outlook is at least one standard deviation greater than that average. The underlying data continue to show strength in the sector, especially in terms of job growth—more than 58 percent of manufacturers anticipate more hiring over the next year and about a quarter (23.1 percent) are planning employment growth of 5 percent or more. Wage growth is once again expected to rise at its fastest pace since 2001.

The manufacturing sector’s robust jobs situation, however, is also exacerbating the industry’s pre-existing skills-gap challenge, which is rapidly evolving into a full-blown workforce crisis. The survey found that, at 73.2 percent, the inability to attract and retain workers remained the top concern of respondents for the fourth straight survey (Figure 4).

The survey also found nearly half of manufacturers (45.4 percent) citing this crisis as the number one threat facing their business. More than one in four (28.4 percent) said that it has forced them to turn down new business opportunities, and one-third (33.2 percent) note that they have had to hold off on plans to hire more workers due to these workforce constraints.

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