Reshored Jobs, But Few Skilled to Fill Them: Manufacturing’s 2014 Forecast

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An Outlook on the Manufacturing Industry in 2014 from Habif, Arogeti & Wynne, LLP

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If U.S. manufacturing were its own country, it would represent the 10th largest economy in the world. Manufacturing is big business in the U.S., contributing $1.87 trillion to the economy in 2012, or 11.9 percent of the country’s GDP. Due to its sheer size, the trends that impact this industry in 2014 will have a ripple effect on the rest of the U.S. economy.

So what can U.S. manufacturers expect looking into 2014? Leading the list is the implementation of the Affordable Care Act’s Individual Mandate in 2014 and preparation for the Employer Mandate in 2015, followed by continued reshoring and a lack of skilled workers for the jobs coming home to the U.S.

The Affordable Care Act: According to an ABC News-Washington Post poll from September 2013, 62 percent of people say that they lack the information needed to fully understand the changes that will come with the implementation of the Affordable Care Act… 62 percent. That means the majority of Americans don’t understand the impacts of the biggest U.S. health care shakeup in history. In addition, the 2013 Empire State Manufacturing Survey uncovered that 56 percent of manufacturing respondents feel that they’re unprepared for the ACA implementation.

According to NAM, employer-sponsored health care premiums have increased by 120 percent since 1999 and many manufacturers consider these increases “unsustainable.” The introduction of the ACA will limit manufacturer’s ability to create new jobs. In fact, existing jobs could be eliminated or hour may be reduced.

While I have not yet heard from any of my manufacturing clients that they plan to lay employees off to reduce full-time employee headcount under the ACA, I do anticipate that in 2014 manufacturers will reduce employee hours below the 30 hour per week threshold to keep employees classified as part-time, rather than full-time employees under the mandate.

Manufacturers should carefully consider all health care options, and their financial impact, before making a decision on whether or not to “pay or play” in 2015.

Reshoring: Reshoring isn’t new news to manufacturers, but it’s definitely an important trend that will continue into 2014. Jobs will continue to be brought back to the U.S. that have been outsourced to countries with cheaper labor since the 1970s.

According to a recent article in the Financial Times, 21 percent of executives of large manufacturers are already reshoring production to the U.S. or plan to do so within the next two years, an improvement over 2012 results that showed that only 10 percent of respondents were reshoring or had plans to. Reshoring is picking up speed. Why? Manufacturers are beginning to take a hard look beyond labor costs to energy cost savings, productivity, proximity to customers and supply chain management. It is important to note, however, that China’s labor cost benefit over the U.S. is shrinking as the country continues to experience wage inflation. One HA&W client, a manufacturer of storage systems, is looking to bring back 25 percent of a service line back to the U.S. over the next few years to save shipping costs.

Skills Gap: When manufacturing jobs left the U.S. in the 1970s individuals who may have once considered a career in manufacturing took their skills elsewhere. Today, there is a growing skills gap, and manufacturers are struggling to find workers to fill the skilled trade positions, like machining, casting, welding, and even programming, that allow manufacturers to innovate and succeed.

According to research from the Society of Human Resources Management (SHRM), most manufacturers are hiring, but 67 percent of those companies looking for full-time employees can’t find individuals with the skills they need. Research conducted by the National Association of Manufacturers seconds this reality. NAM’s research found that 600,000 jobs go unfilled in the industry because of a lack of necessary skills, despite the country’s current unemployment rate.

As the baby boomers retire, we must look to the younger generations to fill the gap. The problem is that the younger generation has shifted its focus away from the skilled trades, and today an apprenticeship is almost unheard of. In Georgia, for every four skilled workers retiring, Georgia is producing only one replacement, according to Atlanta Business Chronicle.

A Habif, Arogeti & Wynne, LLP client and metal fabricator recently told me that the company can’t find skilled welders to work in their plant, despite the number of people currently looking for jobs.

The skills gap isn’t expected to change any time soon. NAM’s research indicated that 56 percent of respondents expect the shortage to grow even worse in the next three to five years. To turn this trend around, states and communities need to rally behind vocational schools and encourage students to look into trade skills. In January, NAM will launch the NAM Task Force on Competitiveness & the Workforce alongside 15 of the nation’s largest manufacturers to dig into the problems that impede American manufacturing’s competitiveness; this includes the growing skills gap in the industry.

A resurgence of American manufacturing is imminent and we’re right on the brink. The industry saw its fifth straight month of expansion in October and 2014 outlooks are positive, with the Manufacturers Alliance for Productivity and Innovation (MAPI) forecasting a “percentage point improvement in growth rate each year” for 2014 and 2015. Though the industry may face a few obstacles in 2014 with the ACA and a lacked of skilled workers to fill all available jobs, the industry will survive and continue to thrive in the U.S.

How will these trends impact your manufacturing business in 2014? We want to hear from you. Reach out to us at adam (dot) beckerman (at) hawcpa (dot) com.

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Jean Creech Avent
Habif, Arogeti & Wynne, LLP
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