Even With Slower Growth, the 2019 Outlook for Manufacturing Remains Bright
Editor's Note: The following blog post was contributed by Chad Moutray, chief economist for the National Association of Manufacturers (NAM).
I recently participated in an Infor webinar in partnership with IndustryWeek entitled “Trends and Strategies Driving Manufacturing Success.” During the webinar—which also featured Nick Castellina, Infor’s Director of Industry and Solution Strategy examining the role of technology in the changing manufacturing landscape—I discussed the current state of play in the manufacturing sector and weighed in on how we can reasonably expect the industry to trend in the coming years.
If you want to glean a topline takeaway from my analysis, it’s this: while business leaders have grappled with a number of uncertainties of late, manufacturing is still poised to continue growing into 2019—and, if policymakers put their focus on ensuring the right conditions for growth, that will make this outcome even more likely.
Manufacturers—and our economy—have been booming in recent years. That is due in no small part to smart policies out of Washington, like tax reform, that helped set the stage for businesses to drive stronger growth and opportunity. Manufacturer optimism, as measured by the National Association of Manufacturers (NAM) Manufacturers’ Outlook Survey, soared last year to the highest average in the survey’s history.
The U.S. economy overall will likely have expanded by 2.9 percent in 2018, its fastest pace since 2005, according to my estimates, with a fourth quarter reading of 2.6 percent. While we might prefer a brisker pace of activity in the economy, to provide some context, last year’s GDP growth rate was a definite improvement from the 2.2 percent pace seen from 2010 to 2017.
And just as importantly, average weekly earnings for nonsupervisory and production workers in manufacturing have increased 3.1 percent year-over-year, continuing an upward appreciation in wages due to strength in the labor market. To illustrate the point, the year-over-year rate averaged 3.4 percent in 2018, up from the average of 2.4 percent in 2017.
Recognizing these strengths in our economy, we are not without headwinds. Financial markets have been highly volatile, and there are daily headlines stressing slower global growth. Other uncertainties in the economy, including trade tensions, rising interest rates and—of course—the partial government shutdown have some economists sensing hesitation in business investments until there is more clarity on the long-term state of affairs.
Moreover, manufacturers have cited the inability to find enough workers with the right skills as their top concern in the NAM’s survey for the fifth consecutive quarter. The sector has added 24,000 workers per month over the past year, which is great news, but manufacturers simply need more workers to continue their progress (thankfully there are leaders in this space like the NAM’s social impact and workforce arm, the Manufacturing Institute, that are working hard every day to help ensure they can).
To sum up, there are concerns that do pose legitimate challenges to the U.S. economy, but it would be wise to keep it all in perspective, which is why I remain less perturbed than some signaling rough seas on the horizon. The forecasts for this year call for slowing, not declining, growth in real GDP, and this is in line with my analysis as well.
Of course, it is also important to note that future growth will hinge on smart federal policies moving forward. Additional reforms to the tax code and a sound trade policy—not to mention an open and dependable government—can help keep this momentum going and build on the strong job and wage growth seen over the past two years.
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