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WOLF & CO Insights COVID-19 Impacts on Manufacturing: NAM Q3 Survey

COVID-19 Impacts on Manufacturing: NAM Q3 Survey



In early September, the National Association of Manufacturers (NAM) released their Outlook Survey for the third quarter of the fiscal year, providing valuable insight into the current state of the manufacturing, distribution, and retail (MDR) industry amid the COVID-19 pandemic. The survey details the facts and figures showcasing how MDR companies are rebounding from the impacts of COVID-19, expected growth rates, and industry outlooks on progression over the next few months.

We’ll be diving into some of the most prominent statistics presented in this survey, outlining exactly how the pandemic has affected manufacturers, current circumstances that might be contributing to the recent upswing in the industry, and steps your business can take to enhance recovery and increase resilience.

Increasing Positive Outlook

66% of respondents reported that they have a positive outlook on their company’s status. This statistic rebounded from the results of the second quarter of 2020 (in the height of the pandemic), when just 34% of respondents reported a positive outlook for their company—the lowest reading since the Great Recession of 2007-2009.

So why is this number rising? Why are companies becoming more confident that they’ll become or remain successful during the pandemic?

The simple answer is that they’ve adapted. When lockdowns first began, companies struggled to alter procedures to ensure safety while maintaining production and sales. Now, more and more companies are adjusting to the restrictions and developing workarounds to comply. Many manufacturing floors are large, so managing the six-foot recommended distance is very doable while maintaining production levels close to amounts previously seen.

To gain more confidence in your ability to recover or succeed post-COVID-19, companies should:

  • Introduce safety measures so workers feel comfortable as they resume manufacturing.
  • Revisit the product range they manufacture. Consider focusing on products with higher gross margins and defer production of lower margin products until the business environment has returned to normal.
  • If delays in manufacturing are caused by an inability to obtain the raw materials needed for production, consider changing the supplier. Make your supply chain more robust by researching alternatives in case a supplier is unable to provide the raw materials you need.
  • Where possible, revise the pricing of product offerings to reflect your new costs. Consider revitalizing the marketing and product promotion strategies.

Relief Funds

Government allocated relief funds significantly helped businesses stay afloat during the pandemic. Of the 82.7% of respondents who said that COVID-19 had or will have a negative impact on their cash flow, 72.1% stated they obtained funds through the Paycheck Protection Program (PPP), Main Street Lending Program, or other liquidity programs. 91.6% of firms utilizing these funds reported that the aid helped keep their business afloat, retain their workforce, or meet other necessary expenses.

Let’s Talk Sales

The expected growth rate for MDR sales over the next 12 months is up 1.9%. In May, it was down 4.3%, which was the lowest rating seen since the first quarter of 2009.

This sales projection is rising because there’s been a change in mentality. What was originally dismantling the economy has become more manageable. The sharp declines in consumer demand first seen at the onset of the pandemic have leveled off, and this stabilization has given manufacturers the ability to make projections in a less panicked environment.

In addition, increased production is now leading to increased recovery among businesses. The first half of 2020 saw many manufacturers decrease or halt production altogether. Now as restrictions have relaxed and consumers have calmed, production has resumed and is either at or nearing pre-COVID-19 levels.

Revving Revenue

62% of respondents expect that their revenue won’t return to pre-COVID-19 levels until at least 2021. Only 17.6% noted that their revenues had already recovered, and 12.5% predicted that they’ll recover in the third or fourth quarter of 2020.

If you’re wondering how you could have prepared your business so you may have been part of the 17.6% who have already recovered their sales, you’re not alone. But preparation for a shift in revenue varied widely across the industry based on the industrial sector in which the manufacturer operates. For example, panic buying left many sectors (like Personal Protective Equipment [PPE], paper, and pharmaceutical manufacturers) struggling to keep up with demand, while other sectors saw a steep decline in demand and resulting sales, causing them to cut back or stop production entirely in an effort to cut operating costs and stay afloat.

Employment Concerns

Manufacturing production dropped 20.2% between February and April, with employment in the sector decreasing by 1,363,000 over that time frame. The expected growth rate for full-time employment is now up 0.7%, where in May, it was down 2.2% (which again, was the sharpest decrease seen since the Great Recession).

Furthermore, manufacturers reported that their top worries included the inability to attract and retain talent (55.1%), and rising health care and insurance costs (51.1%). Even before COVID-19, manufacturers consistently reported that workforce challenges were their main concern, and the current statistics reveal that it’s still a struggle despite a drastically changed labor market.

So, why are MDR companies struggling to maintain a solid workforce when the country’s unemployment rate is so high?

Many manufacturing companies have implemented robotic tools and digitization, which require a highly skilled worker to operate. Manufacturers are currently experiencing a skills gap in the market, and they must adapt by considering a candidate’s desire to learn, rather than focusing on the skills they already possess. In other words, invest in your employees’ education.

To better attract, hire, and retain talent, MDR companies should keep these strategies in mind:

  • Exposure is the key. Consider joining organizations (such as the National Institute of Manufacturing) that offer networking opportunities to give interested candidates a look at your company and the industry as a whole.
  • Consider offering a profit share bonus to employees to keep them invested in the company’s success.
  • Think outside the box. Consider looking at recruiting skilled workers nationwide. Casting a net that spans the country could yield better results than only looking locally.
  • Consider your retired workers; perhaps negotiate a return on an attractive contract basis.
  • Recruit at high schools by offering internships and apprenticeships which may attract some students hampered by the increasingly high costs of advanced education.

Exports

Trade uncertainties (40%) and weaker global growth and slowing export sales (36.4%) were among the top worries for manufacturers in this survey. Respondents expect exports to increase 0.4% over the next 12 months, which is up from a predicted decrease of 1.4% in the previous Q2 survey. More than 27% of manufacturers anticipate higher exports over the next year, and 55.3% don’t expect to see any changes. However, these predictions could be altered based on the outcome of the 2020 presidential election.

The primary business challenge reported in this area was weaker domestic demand, but the percentage of people citing this as a concern dropped from 83.1% in Q2 to 66.5%—which is extremely promising.

Conclusion

COVID-19 dramatically impacted the United States economy and hit the manufacturing industry hard. The second quarter of the year saw the lowest expected growth rate since the Great Recession for:

  • Capital investments
  • Employee wages
  • Full-time employment
  • Inventories
  • Positive outlook
  • Price of company products
  • Sales

 

The Q2 results showed the steep decline of the industry at the height of the pandemic, but now serve as an excellent benchmark showcasing the upswing occurring in the third quarter. Evolving with the uncertain times, the MDR industry has found ways to maneuver this new environment to maintain businesses and accelerate its recovery.