In a previous article, we examined four manufacturing industries (motor vehicles, food, furniture, and breweries and wineries) that were particularly attractive client industries for staffing companies. In this article, we focus on hiring trends and hiring outlook for the US manufacturing sector as a whole, including some insights by geographic region, by looking at survey data from the Federal Reserve.
Understanding the health of the US manufacturing sector is useful for several reasons. First, US manufacturing spends roughly $20 billion each year on agency temporary staffing, a disproportionately large sum that makes it the largest industry vertical for staffing agencies. Second, trends in manufacturing are considered a leading indicator on the direction of the overall US economy.
So to what data can we turn? One timely source of insight on trends in manufacturing hiring are the monthly business outlook surveys conducted by the Federal Reserve (“the Fed”). Five of the 12 Federal Reserve districts publish monthly findings from a survey of manufacturing firms in their local region. For each region, the number of firms surveyed typically is in the range of 100 to 200. The surveys are conducted with rigor – for example, the Philadelphia district survey has been conducted each month for the last 48 years – and relied upon by the Federal Reserve Governors to aid in their decision making on interest rates.
More manufacturers have reduced headcount so far this year
The Fed surveys indicate that on average slightly more manufacturers on net have decreased their number of employees each month from January to May in the five districts, as shown in the table. (Surveyed companies were asked whether their number of employees increased, decreased or stayed the same compared to the prior month. The numbers shown in the table are the percent of firms reporting an increase minus the percent of firms noting a decrease).
This bearish finding is in line with manufacturing employment data from the US Bureau of Labor Statistics. Through May of this year, the monthly change in manufacturing employment has averaged a decline of 7,000 jobs.
Possible explanations for the job losses include weak GDP growth of 0.8% in 1Q16, a drop in orders due to high levels of inventory, a stronger dollar that has made US exports more expensive, as well as a resumption of the long-term trends of globalization and automation that have eroded manufacturing job levels over the past two decades.
While the Fed surveys overall paint a picture of modest job declines, survey results in two districts indicate modest job growth. The Richmond Fed District — which includes Virginia, West Virginia, Maryland, North Carolina and South Carolina — has shown the most positive data among the five districts, with an average of a net 8% of firms increasing employment so far this year. The New York Fed District reported a net 2% of firms increasing employment in April and May.
Manufacturers signal hopes for slight job gains ahead
The Fed surveys also track manufacturer’s plans for increasing or decreasing their workforce six months ahead (see accompanying table below). Survey results suggest that across most districts a net percent of firms expect to increase employment in six months. The New York and Pennsylvania Fed Districts appear the most optimistic about growth with a double-digit net percent of firms expecting to add workers. However, we note that May survey results indicate a softening of growth expectations across all five districts, with the Kansas City District falling into negative territory (firms in this district cited weakness in the oil & gas and agricultural verticals).
In conclusion, manufacturing hiring as a whole remains under pressure, with weak 2015 job gains followed by declines this year. Survey results show that manufacturers continue to hold out some hope for job expansion ahead, with possible growth drivers including an uptick in US GDP growth along with passing the anniversary of the spike in the US dollar that occurred in 1Q15. And while the current weak hiring trends likely present a headwind for staffing demand, the substantial amount of uncertainty among manufacturers could provide an opportunity for staffing companies to sell their value proposition of providing a more flexible workforce.
