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The State of Manufacturing in the United States

The manufacturing industry in the United States is facing a challenging time as global disruption, economic uncertainty, and tighter credit conditions are causing headwinds. In March of 2023, manufacturing production in the U.S. decreased by 1.1% year-on-year, following a slight increase in February. However, new orders improved slightly in April, and employment rebounded, providing a glimmer of hope for the industry.

Despite this, activity remains depressed, with manufacturing pulling off a three-year low in April. With higher borrowing costs and tighter credit conditions, the risk of a recession looms, making the state of manufacturing in the United States a critical issue. In this article, we will delve into the challenges and trends of the manufacturing industry and examine what the future may hold.

1. Skilled worker shortages

The manufacturing industry is currently facing a critical shortage of skilled workers. Even if every skilled worker in the U.S. were employed, there would still be a 35% shortage of skilled workers capable of filling the unfilled job openings in the durable goods manufacturing sector, according to a U.S. Chamber of Commerce report. With the changing workforce dynamics such as “the great resignation” it is increasingly difficult for the manufacturing industry keep up with the same level of output.

Furthermore, the nature of jobs is also transforming due to the rapid advancements in technology, changing the role of labor in the manufacturing industry. It means that there is a demand for skilled workers who can build, design, and deploy technology and manage the shifting needs of the organization. It is hoped that the manufacturing industry can fill the talent gap by investing in skills and retraining thousands of skilled workers in the technology industry who lost their jobs as a result of the tumultuous last few years.

2. Technology, technology, technology

“Any company that moves faster than its peers will have an edge, so they fear missing out on the opportunities if they don’t accelerate their technology investments,” says Vinod Ramachandran, Global Head of Industry 4.0, KPMG International.

In recent years, manufacturers have increased their digital investment and accelerated the adoption of emerging technologies. These technologies have increased the capacity for the manufacturing industry as machines are able to carry out more complex tasks without requiring supervision or human oversight. Companies with higher digital maturity have shown greater resilience, as did those that accelerated digitalization during the pandemic. Furthermore, it has been shown that partnering with specialized technology companies is a route that can help manufacturers have an edge over their competitors.

3. Regionalization and reshoring

The global Covid-19 pandemic and other ongoing geo-political turmoil have led to significant disruptions in the movement of goods and products across global supply chains that feed manufacturing and industrial activity. In response to these challenges, nearly 90% of senior supply chain executives surveyed by McKinsey in November 2022 expect to pursue some degree of regionalization in the next three years. The trend has already begun with 70% of U.S.-based manufacturing companies planning to invest in new production capacity closer to their home turf. The shift towards reshoring is driven by the need for increased supply chain resilience, as companies seek to mitigate the risks associated with an uncertain global economy. In this context, as one of the world’s largest demand markets for consumer and industrial products, the U.S. is well-positioned to benefit from this trend.

4. Looking to a sustainable future

The manufacturing industry is facing increasing pressure to address sustainability concerns, particularly related to reducing their environmental impact and ensuring ethical and responsible sourcing of materials. To achieve this, manufacturers are looking to switch to renewable energy sources and reduce their reliance on fossil fuels, while also striving to ensure that all components of their products are sustainably sourced and traceable. Beyond this, manufacturers are recognizing the importance of taking a holistic approach to ESG, that encompasses everything from labor rights to diversity. To achieve these goals, companies need to think beyond traditional business priorities and adopt a more sustainable and ethical approach across their entire operations.

Despite the uncertain economic outlook, technology and investment into labor have the potential to add a new lease of life in the manufacturing industry in the United States. As usual, here at ROI we will continue to have our finger on the pulse as the year goes on.

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