Manufacturers' optimism lower, fear of recession higher

The COVID-19 pandemic has cast a long shadow over Minnesota’s manufacturers, triggering the deepest plunge in manufacturers’ expectations for their companies since the Great Recession of 2009, according to the 2020 edition of Enterprise Minnesota’s State of Manufacturing survey.

The costs of health care, economic and global uncertainty, and attracting qualified workers are major concerns for manufacturing executives.

A record low number of companies expect increased revenues in 2020; the number of executives who fear recession has increased seven-fold, and confidence in the business climate has sunk to half of what it was in 2018.

Enterprise Minnesota, an organization that assists small- and medium-size companies, does the survey annually and conducted this year’s from Sept. 8 through Oct. 7.

Bob Kill, president and CEO of Enterprise Minnesota, said this year’s survey brought results like no other.

“What’s so different is past downturns were general economic downturns, and this is an industry specific downturn,” he said.

“It’s uneven. Some in the right industries are doing great, others are doing terrible and there’s a bunch in between.”

Tim Penny, president and CEO of Southern Minnesota Initiative Foundation and a former congressman, said he’s seen a big drop in optimism among manufacturers across south central and southeastern Minnesota.

“In terms of optimism going forward, about how many people they’re thinking of hiring, thinking of expanding, thinking about capital expenditures, it’s a dramatic shift. There’s not as much confidence as there has been in recent years.”

The foundations assists in Enterprise Minnesota’s survey by pulling together a group of manufacturers to take part in focus group conversations that are used to supplement the written survey questions.

Recession fears

Kill said the uncertainty of the pandemic and the overall economy also adds different wrinkles to manufacturers’ perception this year.

“We just don’t know how this is going to end. I think we maybe thought the recovery was going to be real fast, but I think now we realize it’s not going to be like that.”

The survey revealed a significant increase in the number of manufacturers who fear recession, 36%, up from just 5% in 2019.

Despite the mood, Kill said some good news exists from manufacturers.

“There is a lot more investment in growth initiatives than I would have anticipated.” He said manufacturers are investing in their people, with areas such as safety equipment during the pandemic and training them to increase skills.

“I think people are remembering the downturn of 10 years ago and saying, ‘I don’t want to lose my good people,’” Kill said.

He said one surprise in the survey was tied to the big increase in employees working remotely. “A surprise was how concerned people are about their cyber and information security. That came up like never before.”

Majority impacted

In south central and southeastern Minnesota, 65% of manufacturers say they have seen major or modest impact to their business because of the pandemic. That’s better than the metro area where 69% reported an impact and the 84% of manufacturers in northeastern Minnesota.

Manufacturers across western Minnesota were faring a bit better with about 60% reporting a major or modest impact on their business.

Workers still elusive

Health care costs remain a concern, but it’s fallen as a top concern while areas such as the future of the economy and ability to attract workers have increased as a concern this year.

In the south central and southeastern part of the state, costs of health care ranks as a worry with 56% of manufacturers ranking it as their top concern, followed by economic uncertainty (54%), attracting workers (33%), retaining workers (32%) and developing leaders (32%).

Kill said the worker shortage problem, which has been building for years, isn’t going away. “The workforce isn’t growing. That’s why manufacturers are trying so hard not to lay people off. They know how hard it was to get people back after the recession 10 years ago.”

He said the more rural the business, the more difficult it typically is to find employees. “The people aren’t there and they’re not moving there.”

Kill said that in the metro area manufacturers face the problem of the public simply not realizing how many good manufacturing jobs are available.

Penny said he continues to hear about workforce challenges and said the best thing the state can do is to foster programs with high school kids.

“The most important near-term and long-term thing the state can do is give support to high schools and technical colleges that are learning industry needs and giving high school students information about these good-paying jobs.”