MT Magazine November/December 2024

THE INDUSTRY OUTLOOK ISSUE

MT MANUFACTURING TECHNOLOGY

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loss of just 810 jobs since January 2023, an incredibly steady rate of change for any economic data series. Some may point to this stagnation – along with the increased adoption of automation – as evidence that technology is continuing to replace people on production lines. This assumption ignores the fact that manufacturing job openings are up 73.5% in 2024 compared to the period between the end of the financial crisis in June 2009 and December 2019. The demand for labor remains strong, but the supply is hampered by demographic, skill, and perception issues rather than the “rise of the robots” as some pundits proclaim. The United States' population is aging, and this has serious consequences for the availability of labor for the manufacturing sector (as well as the wider economy), which should come as no surprise to readers who have attended AMT’s MFG Meeting or MTForecast conference. Combine this with a gap in the skills needed to fill current manufacturing job openings, and the pool of available workers that manufacturers are able to draw from becomes smaller. The final workforce challenge is the longstanding perception that manufacturing is not a desirable profession. The truth is, thanks to the addition of technologies like automation – not despite it – manufacturing positions are cleaner, safer, and more engaging than commonly perceived. Overcoming these obstacles to achieve a fully trained manufacturing workforce requires additional investments in two areas: in automation to improve the productivity of the current workforce; and in developing the necessary educational and training programs for the next generations of manufacturing workers to not only match the skillsets of those who are retiring but surpass them in using the emerging technologies needed to meet the increased demand for manufactured goods. Productivity After exploring the increased adoption of automation and the rebound in manufacturing employment, the next natural step is to investigate the effects these trends have had on productivity in the manufacturing space. From the late 1980s to the beginning of the 2008 financial crisis, labor productivity in manufacturing increased steadily. The end of the financial crisis saw a mild uptick in labor productivity, but by the first quarter of 2011, it entered a shallow but steady decline that lasted until the end of the COVID recession in 2020. After an initial upward move following the COVID recession, productivity again declined, mirroring its path following the previous recession. In a curious turn of events, productivity found a bottom in the first quarter of 2023 and began an upward trajectory that lasts through today. Writing in the summer of 2024, Danial Lashkari and Jeremy Pearce, two economists with the Federal Reserve Bank of New York, examined declining productivity in the manufacturing sector since the 2008 financial crisis. While stopping short of offering an explanation, they go into great detail to show that this trend is present across industries and company sizes. In order to project if the current upswing in productivity can

reasons for the observed decline in productivity following the last two recessions. Thinking back to the economic climate of the early 2010s, which was characterized by near-zero interest rates and persistently below-trend growth, two possible explanations emerge. First, low rates may have allowed companies to survive by operating less efficiently than they would be able to do profitably in times of tighter money. While this is not to argue that monetary policy should have been more restrictive in this environment of below-trend growth and below-target inflation, efforts should be made to understand the potential loss of productivity during periods of prolonged monetary accommodation should this theory prove correct. A second and possibly compounding explanation is that the below-trend growth, coupled with a downturn in manufacturing, meant manufacturers experienced a lot of idle capacity for quite some time. This long-term underutilization could have introduced systemic inefficiencies into the production process. While these theories need to be further examined and tested, they should be kept in mind as we analyze the current uptick in productivity. The current upward trend in productivity began in the first quarter of 2023. This coincides with both a massive uptick in the demand for automation, as measured by the average value of USMTO orders, and overall manufacturing employment reaching its post-COVID plateau. Although orders of manufacturing technology and estimated automation were elevated prior to this time, lags between orders and delivery, as well as other supply bottlenecks, may have prevented earlier productivity gains. Furthermore, heightened interest rates caused by the Federal Reserve’s tight monetary policy have forced manufacturers to find operational efficiencies after no longer being able to pass price increases onto customers, and historically elevated capacity utilization rates in the manufacturing sector have forced shops to improve processes, invest in additional technology, and expand the capabilities of their workforce. These conditions point to the likely continuation of productivity gains as well as a continued need for manufacturing technology through the remainder of 2024 and beyond. Setting the Stage for Tomorrow As the chocolates came down the conveyor faster and faster in that famous episode of “I Love Lucy,” Lucy and Ethel struggled to keep pace. While this factory configuration may have been more efficient at producing laughs than wrapped chocolates, the two characters’ frenetic pace is emblematic of the way manufacturers have had to face a barrage of events amid the rapid pace of technological change in recent years. Ensuring continued productivity gains requires manufacturers to embrace further advances in automation as well as to foster the workforce of tomorrow that will utilize that automation.

If you have any questions about this information, please contact Chris at cchidzik@AMTonline.org.

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