Optimism for World Economic Outlook Improves among U.S. Industrial Manufacturers

Optimism for World Economic Outlook Improves among U.S. Industrial Manufacturers

The Manufacturing ConnectionI’ve had a bunch of things to report and analyze, just very little time. Travel and meetings are thought killers. Also, I try out so many tools that I sometimes sit and wonder whether to use my outliner (currently fargo.io from Dave Winer), or a text editor (recently I like Quip—quip.com–which is also a great collaboration tool) Quip or Write Pad or Write Room (never Word, by the way, too busy). Where do I store thoughts—outliner, Nozbe my GTD app or Evernote. I’m starting to settle into Nozbe just for GTD and lists, Quip for text, Fargo for longer things that need to be outlined.

Recently I talked with Bobby Bono, US Industrial Manufacturing Leader for PwC, about its latest Manufacturing Outlook survey and report. Notable are the comments about a skills gap.

I heard Rodney Brooks, founder of iRobot, talk about how we are asking the wrong question about whether automation (robots) are replacing jobs. That is very short-term thinking. In the longer term, we need to think about the skills shortage and people shortage as the later generations which are smaller in number than the boomer generation which is about to retire (although I figure I have a few years left).

This report, among other things, highlights that skills gap. Below is an edited version of the press release that went out regarding the report.

Optimism among U.S. industrial manufacturers regarding the global economic outlook reached the highest level since the first quarter of 2012, according to the Q3 2013 Manufacturing Barometer, released today by PwC US. In the third quarter of 2013, 40 percent of respondents expressed optimism regarding the world economy for the next 12 months, up from 31 percent in the prior quarter and 29 percent from the third quarter of 2012.

The primary growth driver remains the U.S. economy, with 60 percent expressing optimism about the domestic outlook. In addition, 78 percent believe the U.S. economy grew in the third quarter, up six points from the prior quarter and representing the highest level since 2006. The outlook for the U.S. continues to contrast with the international picture, where optimism regarding actual revenue contributions in the next 12 months remained low at 30 percent, down two points from the second quarter and off eight points from last year’s third quarter.

“The divergence in viewpoints regarding the U.S. and world economic outlooks narrowed somewhat in the third quarter. Optimism regarding the global economy improved, but uncertainty remained prevalent, marked by persistently low expectations regarding the level of international revenue contributions going forward,” said Bono. “Despite the uptick in global economic sentiment, the U.S. remains the growth driver in the industrial manufacturing sector, with continued signs of healthy demand, pricing strength, new product investment and hiring. Overall top line growth expectations remain moderate and management teams are continuing to take a careful approach to capital allocation and cost management, while preserving liquidity.”

Reflecting the healthy level of optimism pertaining to the domestic economy, 82 percent of U.S. industrial manufacturers surveyed expect positive revenue growth for their own companies in the next 12 months, with only two percent forecasting negative growth. The projected average revenue growth rate over the next 12 months remained moderate at 4.2 percent, down from 4.6 percent in the second quarter and last year’s third quarter. Only seven percent forecast double-digit growth, while 75 percent expect single digit growth.

With regard to capital spending, 48 percent of industrial products manufacturers surveyed plan major new investments of capital during the next 12 months, up eight points from the prior quarter’s 40 percent, and on par with a year ago (49 percent). The mean investment as a percentage of total sales was 6.5 percent, higher than the prior quarter’s four percent, and representing the highest level in the past nine quarters.

Plans for operational spending also rose. Looking at the next 12 months, 78 percent of respondents plan to increase operational spending, up five points from the second quarter. Leading increased expenditures were new product or service introductions at 55 percent, up 10 points from the second quarter and representing the highest level in the past seven quarters. This was followed by research and development (R&D) (38 percent) and information technology (35 percent). Plans for new joint ventures and strategic alliances also rose, while spending forecasts for M&A and overseas expansion remained low. In fact, the number of respondents indicating the potential to acquire another business was 17 percent, less than half the level of last year’s third quarter.

“Management teams are continuing to focus on boosting organic growth, with an emphasis on new product launches and investment in R&D and technology,” Bono continued. “This is indicative of the mixed global outlook and overall moderate revenue growth expectations. In an uncertain environment, industrial manufacturers are managing risk and concentrating on strengthening their products and services. They are doubling down on what they do best in a quest to expand market share.”

The latest Barometer also showed that hiring plans are on the rise, with expectations reaching the highest level in five years and the second highest quarterly percentage in the past 10 years. The majority, 58 percent of U.S. industrial manufacturers surveyed, plan to add employees to their workforce over the next 12 months, up 16 points from second quarter 2013 estimates. Only three percent plan to reduce the number of full-time equivalent employees, and 39 percent will stay about the same. The most sought-after employees will be skilled labor (35 percent), professionals/technicians (35 percent), and production workers (30 percent).

Despite healthy hiring expectations, the survey identified headwinds in securing qualified workers. Three-fourths (77 percent) of respondents cited a need to fill certain skill gaps over the next 12-24 months, with only 23 percent claiming to have all the right skills needed at present. The biggest skill gaps were in middle management (70 percent) and skilled labor (67 percent). At the same time, half of U.S. industrial product organizations admitted to having open positions that they were unable to fill with skilled employees.

“In a limited job market, it is troublesome that three-fourths of panelists have reported a skill gap, with half of those companies acknowledging difficulty in filling these key positions,” Bono commented.

Regarding potential growth barriers over the next 12 months, legislative/regulatory pressures were the most cited at 58 percent. Lack of demand was the second most cited barrier at 45 percent, but it was down from 67 percent a year ago when it was the chief barrier to growth. Competition from foreign markets was also high at 32 percent. Other potential barriers on the rise in the third quarter included lack of qualified workers (22 percent), capital constraints (20 percent) and oil/energy prices (28 percent).

Scholarships Awarded to Manufacturing Engineering Students

Scholarships Awarded to Manufacturing Engineering Students

SME Logo

SME Logo

Many of you know that I’m a member both of SME and ISA. It has been interesting to watch the two membership organizations adapt to changing times differently. One great initiative of SME is The SME Education Foundation. It has just awarded more than $600,000 in scholarships to 232 aspiring manufacturing engineers.

In June, the Foundation awarded $120,000 in Family and Director Scholarships to eight students pursuing engineering careers. In addition, the 2013 SME-EF scholarship winner’s circle includes 224 students who were awarded $521,500 in scholarships ranging from $1,000 to $7,000, with some receiving multiple awards.

The press release offers details on recipients of Family Awards. I wasn’t positive about publishing the names of students. But then I figured that just when we are deluged with bad news of deviant people, here is a list of accomplished young people. It’s a reminder that there is hope for the world–and for manufacturing.

Award winners

Morgan K. Montalvo, Woodland Hills, Calif., recipient of the $70,000, four-year scholarship, will pursue a degree in Mechanical Engineering at California Polytechnic State University, San Luis Obispo, Calif. A graduate of Chaminade College Preparatory High School, West Hills, CA, her academic achievements include AP and honors classes which she successfully completed with a 4.2 GPA. She was a member of the Eagle Engineering Robotics team which qualified for VEX World Championships from 2008-2012. Morgan is the daughter of SME member Susan McConnell, SME Chapter 173, Los Angeles & Ventura County.

Kelsey A. Scheppers, Holts Summit, Mo., recipient of a $10,000, one-year scholarship, will pursue a degree in Mechanical Engineering at the University of Missouri, Columbia, Mo. A graduate of Helias High School, Jefferson City, Mo., she was at the top of her class with a 4.0 GPA and was a member of the National Honor Society, the Academic Team, the Library Squad and Club International. Kelsey is the daughter of SME member Tom Scheppers, SME Chapter 287, Mid-Missouri.

Selin Frances Sirinterlikci, Moon Township, Pa., recipient of a $10,000, one-year scholarship, will pursue a degree in Mechanical Engineering at Carnegie Mellon University, Pittsburgh, Pa. A graduate of Moon SHS, Moon Township, Pa., her 4.49 GPA reflects an exceptional academic record which includes AP and honors classes as well as membership in VEX Robotics, Bots-IQ and the speech & debate club. She is the daughter of Arif Sirinterlikci, SME Chapter 8, Pittsburgh.

Rebecca Ann Kurfess, Clemson, S.C., recipient of a $10,000, one-year scholarship, will pursue a degree in Mechanical Engineering at Massachusetts Institute of Technology, Cambridge, Mass. A graduate of D. W. Daniel High School, Central, S.C., she led her class with a 4.0 GPA and has already successfully completed two college-level math and economics courses. Rebecca is the daughter of SME member Thomas Kurfess, SME Chapter 61, Atlanta.

In 2013, the Directors Scholarship acknowledged the contributions of Phillip Marsilius, FSME, LSME and awarded scholarships in his name. The Phillip Marsilius Directors Scholarshipwas presented to four students, each of whom received a one-year, $5,000 award. The recipients were:

Josiah H. Johnson, Duluth, Minn., is pursuing a degree in Manufacturing Engineering and Technology at the University of Wisconsin-Stout, Menomonie, Wis., where he holds a cumulative 3.53 GPA. His ultimate career goal is to establish his own consulting firm which will provide financial advice as well as engineering solutions to manufacturing companies. Josiah is a member of SME Student Chapter S088, University of Wisconsin-Stout.

Timothy W. Biederman, Osage, Iowa, is in the process of completing a Bachelor of Science degree in both Manufacturing Engineering and Automated Manufacturing at the University of Northern Iowa, Cedar Falls, Iowa and maintains a 4.0 GPA. He currently holds a CNC Technology Associate Degree from Hawkeye Community College, Waterloo, Iowa, and hopes to one day become a manufacturing engineer involved with the CNC machining process. Timothy is a member of SME Student Chapter S126, University of Northern Iowa.

Cheyenne McAnlis, Scottsdale, Ariz., is pursuing a Bachelor of Science degree in Industrial & Operations Engineering at Arizona State University – Polytechnic Campus, Mesa, Ariz., and maintains a 4.0 GPA. He hopes to become a manufacturing engineer working with CNC multi-axis operations or designing flexible manufacturing systems. Cheyenne is a member of SME Student Chapter S043, Arizona State University.

Olivia J. Girod, Eugene, OR., is pursuing a Bachelor of Science degree in Industrial & Manufacturing Engineering at Oregon State University, Corvallis, OR., and recently completed the MECOP (Multiple Engineering Cooperative Program) internship. She is an honors student looking for a career that will allow her to combine her Industrial Engineering and Project Management skills. Olivia is a member of SME Student Chapter S019, Oregon State University.

“In today’s economic climate, scholarships are crucial to students and their chances for viable careers,” says Bart A. Aslin, CEO, SME Education Foundation. “As the emerging technologies sector continues to accelerate, companies increasingly dependent on advanced manufacturing technologies want to hire engineers capable of designing and improving products.”

The SME Education Foundation Family Scholarship Awards seek to support the children and grandchildren of SME members and to encourage their pursuit of careers in manufacturing engineering and technology.

Since 1998, the SME Education Foundation has provided more than $8.1 million in scholarships and $1.2 million in awards through its various scholarship programs to graduating high school seniors, current undergraduates and masters or doctoral degree students pursuing degrees in manufacturing and related fields at two and four-year colleges.

Two other Websites that SME maintains are CareerMe for information on advanced manufacturing careers and ManufacturingisCool, our award-winning website for young people.