Minnesota manufacturers see short-term challenges, long-term growth
Health care, workforce and taxes contribute to a cautious outlook, survey finds
Minnesota’s manufacturers are confident in their firms’ futures, but still have significant concerns about the economy, according to the fifth annual The State of Manufacturing, a major survey research project sponsored by Enterprise Minnesota and partners. Hiring skilled and experienced workers remains an issue, and for the first time in the survey’s history, health care has tied with fiscal uncertainty in Washington as the top concerns among industry executives.
Overall, the mood among manufacturers remains positive about the future of their own companies, with 82% of executives reporting confidence. This held true among enterprises of all sizes, locations and revenues and is identical to the 2012 data.
Despite the general optimism, manufacturers appear to be less economically hopeful than they have been in the past, with 15% of respondents expecting a recession this year. That is the highest percentage in the last three years and a change from the notable optimism that emerged two years ago as the recession began to subside.
Executives are not overly optimistic about the revenue projections of their own companies, as only 41% believe they will see an increase in gross revenues this year, down from 47% in 2012. Likewise, the majority of respondents do not foresee increases in profitability (68%) or capital expenditures (72%). These results closely reflect last year’s numbers.
“We are seeing the effects that national issues, like health care and taxes, are having on Minnesota’s manufacturing industry,” said Enterprise Minnesota President & CEO Bob Kill. “The confidence of the last two years has been tempered, but the certainty among executives in their own companies’ ability to innovate, evolve and add jobs is what will help Minnesota grow as a strong manufacturing state.”
Among the areas of concern:
Health Care: For the fifth year in a row, health care remains a top concern among all manufacturing executives, with the 68% identifying the issue this year compared to 67% in 2012. Executives also noted the importance of health care for recruiting the best talent, with 54% listing it as “an important tool.” This is a four-point increase from 2012 and a whopping 15-point increase from the first State of Manufacturing survey in 2008.
Furthermore, in a new poll question introduced this year, 54% of executives said they expect their health care costs to increase “a lot” in the next two to three years and an additional 15% expect them to increase a little. But despite nearly seven in 10 executives predicting higher health care costs, fewer are offering wellness programs, down from 34% in 2011 to 31% in 2012 to 30% in 2013.
Taxes: For the first time, budget and tax uncertainty is tied with health care as the top concern among manufacturing executives. Fully 67% of executives reported that budget and tax uncertainty in Washington is a problem for their firms. The majority (78%) have little or no confidence that Congress and the president can reach an agreement or take action. This lack of certainty makes it very difficult for manufacturers to plan ahead, with 73% saying the uncertainty would have at least some impact. This response was 18 points higher among smaller firms in terms of employees and revenues than those that make more than $5 million in revenue.
Workforce challenges: In 2013, the survey found manufacturers’ concern over the number of qualified workers as well as the ability to attract and retain those workers continue to grow. This year, 60% said it was difficult to attract candidates, a marked increase from 40% in 2010. Perhaps surprisingly, larger firms were more apt to report this problem, with 71% noting it among companies with more than $5 million in revenue and 73% among firms with between $1 million and $5 million in revenue. This challenge may partly be attributable to the types of applicants these employers are seeking, with 49% looking for candidates with both technical training and experience.
Despite the difficulty, most employers do not plan to spend more on developing employees. Only about 18% plan to increase their employee development spending, with the large majority (68%) reporting that there will be no change in investment. These numbers have remained remarkably consistent since the survey began.
Overall, manufacturers do not appear to be hiring as many employees as they were a year ago. Only 22% of manufacturers grew their workforce in the last 12 months, compared to 27% in 2012. The forecast of adding jobs in the future is also declining, with 25% expecting their company’s workforce to grow in the next 12 months, a four point drop from 2012.
Growth markets: Fewer Minnesota manufacturers say they ship 11% or more of their product internationally, with about 14% reporting this in 2013 compared to 18% in 2012. The top potential markets for growth have shifted, with Canada being named top market for future business (22%) and China in the number two spot (19% of the votes).
This is a reverse from last year, when China was voted the top market (22%) and Canada came in second (20%).
Statewide sponsors for The State of Manufacturing include: Baker Tilly Virchow Krause, LLP; Granite Equity Partners; Gray Plant Mooty; BMO Harris Bank; RJF, a Marsh & McLennan Agency LLC Company; Trusight; and Doherty.
Source: Enterprise Minnesota