Growth in Manufacturing Jobs – Why Not?

Unless the issue involves exporting jobs overseas, manufacturing isn’t exactly something that is on the minds of most economists. It should be, and here is why.

When you think of manufacturing jobs, don’t think of the 1950’s auto assembly lines. Set your sights on engineering, research and development, software, and other high value added jobs. Most of the auto assembly lines of the past are now robotic. The needed skills are maintaining and programming the robotic equipment.

Albeit slow and steady, manufacturing activity in our country had grown for 10 consecutive months through May, according to a report from The Institute for Supply Management (ISM). To put the numbers in context, the index of U.S. manufacturing was 59.7 in May. An index level higher than 50 signals manufacturing growth while readings below 50 indicate contraction. According to the ISM, the activity in May was brought about largely by an increase in employment and strong levels in production and new orders. Among the segments showing promise for employment is fabricated metal products sectors.

Manufacturing – in spite of everything we hear to the contrary – is “…the engine that drives American prosperity and is central to our economic and national security”. That is a passage from a recent policy update by the National Electrical Manufacturers Association (NEMA). In order for that to happen, NEMA suggests our policymakers form tough stances on many fronts.

Some of NEMA suggestions include:
• Greater adherence to international trade rules.
• Allowing the markets to set exchange rates.
• Help employers reduce the ‘cost’ of production by containing health care costs, enacting legal reforms, helping to ensure more affordable energy supplies and reforming the regulatory process as an avenue for better assessing costs and benefits, and its long term impact on the industry.
• Promotion of innovation, investment and productivity that encourages more research and development and tax rules that allow for a more level playing field in terms of the competition.
• Ensure an adequate supply of skilled workers by placing a greater emphasis on education in a way that encourages people to pursue manufacturing careers.

All of these suggestions would benefit all industries including the steel industry. We need to be realistic. These are strategic platitudes that take years to implement with the “help” of the Federal government.  What all industries need are tactical, short-term steps to help our economic position.

As a steel service center, the pain of 2009 is seared in our frontal lobe. Shipments were down as much as 50% versus 2008 (depending on what month you measure). Now, we are finally seeing signs of life.  The latest data from the Metals Service Center Institute (MSCI) shows shipments up 18% year-to-date.  That news is better than a kick in the head. Here comes the kick in the head:  2010 year-to-date shipments are still down 33% versus 2007, down 40% versus 2006, down 35% versus 2005, etc.

Back to the positive part, as this trend continues, it points to the kind of recovery that could bring about more jobs. The question we have been asking of our political leaders is how do we put more people back to work, and in the high-value jobs?  Instead of waiting for the actions of politicians, let us all take initiative and direct the following:

• Remove any interference from the Federal government. All reports to date show that the “stimulus” package did not create any new jobs. If we were to be honest with ourselves, and try not to be cynical, we would admit that the stimulus package was a giant “thank you” payback for the election. The stimulus was also filled with every possible piece of pork that the politicians could get in – both Democrats and Republicans. The Department of Labor (DOL) estimates that the US economy lost 131,000 jobs in July and 125,000 in June. The DOL reports that the unemployment rate is still at 10% (rounded up from 9.5%) because 181,000 workers exited the job force. If you were to exclude all of the new US Census jobs, the picture looks even worse. It is unfortunate that the fastest growing employment category is the Federal government, which is up over 10% from the start of the recession.
• Neuter the Federal government so that it cannot pick winners and losers. A US mining equipment company, Bucyrus International, was about to sell $600MM worth of equipment as part of a large power plant construction project in India. They were planning on a loan from the US Export-Import Bank, which is a vehicle to help US companies export goods and services abroad. In early June, the Ex-Im Bank denied the loan, because the project had too large of a “carbon footprint”. There was a tremendous and loud outcry from business leaders, union leaders, and Wisconsin voters. Everyone was concerned that the project would still go forward, but with non-US companies with non-US employees.  After a two-week period of reflection, the Ex-Im Bank is “reconsidering”. This interference is another example of the Administration picking the winners and losers. Anyone remember GM?  The 100,000 individual bond holders (which are made up of you and me in every mutual or bond fund out there…) are still waiting to get back their $5.4 billion?
• Loosen the reins to jumpstart private capital spending. There is still uncertainty about the US and global economy. Uncertainty keeps investors on the sidelines. That means the money to develop a new market, buy equipment, or hire people does not get spent. If investors see some stability in the near future, they will take more risk. The largest contributing factors to this uncertainty are taxes and spending. A massive tax increase will automatically occur in January – unless both the Congress and the President enact legislation.  The existing federal income tax brackets, capital gains tax rate, dividend tax rate, AMT threshold, and child tax credit were passed with bipartisan support in 2001 and 2003. These rates are set to expire automatically (politicians like to use the word “sunset”) and go back to the higher rates for all groups.  Spending is at such a level today that it is hard to comprehend. Current Federal spending is at 25%of GDP (above the average 20% from 1960-2009) and expected to rise with all current policies in place. Current Federal revenues are only at 15% of GDP (below the average 18% from 1960-2009). This mismatch does not count the expected taxes and penalties associated with the healthcare legislation. When the recession hit, we reduced our workforce, tightened our belts, and became more efficient. The State of Indiana acted in the same manner. Shouldn’t we hold the Federal government accountable for the same?

Looking Up

There are many signs that our economy is getting stronger. For one, exports by the main manufacturing countries are up sharply over the past three months. U.S. consumer spending is also on the rise. That said, there are two large risks that could affect a mild recovery or even cause a second recession.

 
The first risk, the U.S. Federal government’s recent spending spree has caused our national debt – when adjusted for inflation – to become higher than it was following World War I or World War II. This means that when our economy does get stronger and we export products, the wealth that we create goes to those who hold our debt (China, among others) rather than going to increase our standard of living. The other side of the China coin is that they need the U.S. consumer market for their products.  They hold a lot of our debt, but the U.S. consumer helps drive their economy.
 
The second risk is the slow bank system failures of the weak European countries known as the PIIGS (Portugal, Ireland, Iceland, Greece and Spain).  This would cause stronger European countries, such as Germany and France, to save them, hurting their economic recovery. Worse yet, would be a bailout from the IMF (International Monetary Fund), which gets most of its funds from the U.S. government. That means it comes from our federal income taxes.
 
In regards to steel, we will be one of the last industries to come out of the recession. The commercial and residential real estate sector is still declining nationally.  There is too much supply everywhere. U.S. vacancy rates for office, retail and warehouse space are at their highest in two decades (even higher than the 1991 peak after the California real estate crash). The U.S. Department of Commerce has said that they may see the bottom in June. For manufacturing, the sectors to rebound first are high-tech, bio-tech, power, and telecom. Heavy equipment, auto, and building materials will be the last ones out.
 
A sign of encouragement
Our steel shipments have increased, along with our industry average, for five months in a row. Imports have declined almost 50 percent versus last year for all steel types. Rebar imports are at their lowest since 1995 and China is ramping up energy production and infrastructure projects. That is actually good for us, as they consume more steel internally. What would really help the steel industry in the short term would be to magically change the stimulus expenditures that went to unions and public employee pension funds into expenditures that build large power and transportation infrastructure projects. Does anyone have a magic wand?
 
What does all of this mean for our company and yours? My thought is to focus on what you can control. The need is there to focus on finding new customers in emerging markets, controlling costs, improving quality, and taking care of your customers.

Every Day Can Be Training Day

Whether its equipment, technology, or workforce issues, change is a constant in a modern business.  Change is a natural part of the evolution of business and industry.  Keeping employees aware and on top of the latest trends, procedures and methods is necessary to keeping the workplace safe and highly effective.

Continuous learning is the key.  While there are many ways to prepare employees for the future, delegating the tasks of training, workshops and seminars is one method to consider.

At Westfield Steel, each supervisor or manager is responsible for training the specifics of a department. They train periodically on topics ranging from equipment operation, crane safety, cash collections and truck loading to welding, Excel usage, quality, and first aid.

Each supervisor rates employees according to how proficient they are at a certain skill and tracks them in a matrix like the one shown below.

If you are considering training at your place of business, consider the following:    

• Make the training relevant to the success of your business.

• Make sure that the trainer can effectively teach the skill and convey the information.

• Hold training sessions while employees are on the clock. Getting paid to learn is a great incentive.

• Training makes employees more productive and more experienced, thus more flexible to handle a greater degree of responsibility.

• Through training, the skill sets of the employees improve and they are more valuable. The employees have the potential to earn a higher salary or wage.

• Added training can also broaden the capabilities of your company, which could lead to a new business segment or customer.

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Fritz Prine is the Chief Financial Officer at Westfield Steel. The company blog, The Melting Point, touches on various topics affecting the steel industry and those whose career is in steel.

Headquartered in Westfield, Ind., Westfield Steel Inc. is a full-line steel service center committed to providing its customers with a competitive choice for all their steel needs.  An independent, family-owned business, Westfield Steel was started in 1977 and has grown to accommodate its customers’ needs. For more information, visit www.westfieldsteel.com or call (800) 622-4984.

Safety First

Perhaps one of the most important issues in any workplace is that of employee safety. No matter where you work, you want to feel safe and feel as though everyone is doing their part to keep the system working like a well-oiled machine.

Implementing sensible rules and a strong incentives program are good ways to keep the machine working – without any breakdowns. It’s also important to stress safety training and come up with easy ways for employees to remember what they have learned.

Workplace accidents have two main consequences: employee health and financial costs. Employees need to be safe, feel safe and work safe to avoid injury. Without healthy employees, we cannot meet our customers’ needs. In regards to cost, there may be a direct financial impact with your workman’s compensation and casualty insurance costs. The safer you are, the lower your insurance premiums.

Safety Incentives

Safety incentives offer employees and/or their departments motivation for staying accident-free for a certain amount of time. Consider dividing the program by “employees” and “departments” and rewarding employees individually over various increments of time. Rewarding employees separately allows particularly careful workers to earn accolades, even if there is an accident in their department. Consider rewarding multiple departments at various increments (3 months, 6 months, 1 year) for first, second and third place. Rewarding whole departments encourages cooperation and a desire for each individual to work for the benefit of all – and the safety of all.

Be sure to post rules and logistics where all employees can see and understand the way the incentive program works.

Safety F.I.R.S.T

In an effort to make safety procedures easier to memorize and follow, Westfield Steel created a slogan for the campaign: Safety F.I.R.S.T. The acronym serves as a way for employees to remember corporate beliefs and acts as a reminder that everyone needs to look out for one another.

F – Focus – Be aware of how safely you work at all times

I – Initiative – You should take the first steps to improve safety. Supervisors are not the only ones who can spot unsafe work practices or issues.

R – Responsibility – Be accountable for your work practices at all times.

S – Spread the word – Communicate safety concerns or new ideas with fellow employees and supervisors.

T – Training – Everyone will learn the proper safety procedures for an overall safe work environment.

The keys to any effective safety program are to stay consistent with the program, involve all employees in the responsibility and benefits, and to communicate often. There are no shortcuts to a safe and efficient industrial workplace.

Staying Afloat

If you’re anxiously waiting for any sign of economic recovery, chances are you’ve heard the news.  The Federal government said the Gross Domestic Product (GDP) grew 2.8 percent for the third quarter. That means the painful four-quarter-long chain of decline has officially ended.

It is good news, but don’t break out the champagne and celebrate just yet. There is a mixed message in the steel market.  Most service centers continue to de-stock to get the inventory cost in line with mill costs.  U.S. mill capacity increased to a reported 62%, which is higher than a few months ago.  Imports are up 28% in October.  The MSCI reports that steel shipments are up for the fifth month nationwide.  Are manufactures re-stocking or is there real demand?  The residential construction market is near the bottom.  The commercial and industrial construction has not yet hit bottom.  Mixed signals.  Real demand for steel remains low and there are no positive indications out there that it will pick up anytime soon.  

Most consumers are not buying until they really need something – and that goes for our customers as well. We spent last winter getting lean and mean.  We spent last spring getting smart and mean. Now, we have to focus on staying lean, being efficient, and reversing the “mean”.  

What does all of this mean for the steel industry?

Because the recovery will be slow, managers will need to get creative when it comes to keeping their businesses afloat.

Consider these options if you haven’t already:

• Marketing

At Westfield Steel, we have continued our marketing efforts despite the poor economic climate. Why? Because just as it is important to spend money on advertising when the economy is good, it is equally important to spend when the economy is down. You are making an investment to reach the next customer.

• Carrying Outside Sales Reps

Many companies have cut of their outside sales team, dropping one employee after the other to shed the cost. Sometimes hard decisions are necessary, but carrying your sales reps is a good way to invest in the future of your company. Whatever may be happening with the economy, the sales reps are still heading out into the harsh world, still meeting with potential customers and still obtaining new names. Many of these customers are not buying today, but when they do, we will be ready.

• New ideas

This is where your creativity comes into play. What is the strength of your business? What extra services can you offer to generate additional revenue? At Westfield Steel, we created Westfield Steel Express, an authorized-for-hire common carrier that provides a lower cost alternative compared to traditional players in this market.

In addition to our own steel, we haul fabricated steel parts, lumber, equipment, building materials, steel coils, agriculture seeds, and salt. The main goal of Westfield Steel Express was to fix the inefficiency of Westfield’s trucks returning empty every day from deliveries throughout the region. Converting these empty miles into revenue-generating miles is the primary goal of Westfield Steel Express. The service fixed a problem and is generating revenue at the same time.

No business is recession proof. Every recession hits the steel industry – the key is to act fast and be proactive.

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Fritz Prine is CFO at Westfield Steel. The company blog, The Melting Point, will touch on various topics affecting the steel industry and those whose career is in steel.

Headquartered in Westfield, Ind., Westfield Steel Inc. is a full-line steel service center committed to providing its customers with a competitive choice for all their steel needs.  An independent, family-owned business, Westfield Steel was started in 1977 and has grown to accommodate its customers’ needs. For more information, visit www.westfieldsteel.com or call  (800) 622-4984.