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THE SKILLS GAP

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Manufacturing Outlook / January 2020


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TABLE OF CONTENTS

Publisher LEWIS A WEISS Editor in Chief TIM GRADY Creative Director CRAIG ROVERE Contributing Writers ROYCE LOWE TIM GRADY NORBERT ORE ANDREA OLSON CHRIS KUEHL NIMIT PATEL MIKE FRANZ THOMAS R. CUTLER Production Manager LINDA HOPLER Current Circulation 45,200 Advertising ADVERTISE@MFGTALKRADIO.COM Editorial Office JACKET MEDIA CO. 75 LANE ROAD FAIRFIELD, NJ 07004 (973) 808-8300

Text “RADIO” to 66866 for comments, suggestions and ideas and guest requests for MFGTALKRADIO.COM podcast. Open call for Contributing Writers for new and existing content. Let’s start a conversation – Contact us at editorialdept@mmoezine.com or visit mfgtalkradio.com/writer for more information. © 2020 Jacket Media Co. No part of this publication may be reproduced or used in any form without the prior written permission of the publisher. Metals & Manufacturing Outlook is a registered trademark of Jacket Media Co.

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5 PUBLISHER’S STATEMENT

AEROSPACE OUTLOOK

A word from our publisher

The aerospace industry

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30

UNRESOLVED: THE SKILLS GAP

AUTOMOTIVE OUTLOOK

Cover Story by Tim Grady

Auto industry news

MANUFACTURING TIDBITS

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Insights from inside manufacturing in action

9 WANT TO HIRE A ROBOT? from Industryweek.com

10 CRITICAL HYDRAULIC MANIFOLDS

by Nimit Patel

12 VETERANS AND THE

MANUFACTURING SKILLS GAP by Thomas R. Cutler

14 AFFORDABLE PRICE

OPTIMIZATION TECHNOLOGY by Mike Franz

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ISSUES OUTLOOK Issues around the globe

34 ENERGY OUTLOOK Energy and the environment

36 GLOBAL PMI OUTLOOK by Norbert Ore

38 EUROZONE OUTLOOK

MANUFACTURING OUTLOOK

A look at Europe

A look at manufacturing around the globe

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ASIA OUTLOOK

THE CREDIT MANAGER’S OUTLOOK

China still in trouble

by Dr. Chris Kuehl

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20 NORTH AMERICAN OUTLOOK Manufacturing in the US, Canada & Mexico

22 ISM MANUFACTURING REPORT ON BUSINESS

26 METALS OUTLOOK The cost, making and treating of metals

SOUTH AMERICA OUTLOOK Brazil in the spotlight

41 SKILLS GAP SOLUTION by Andrea (Belk) Olson, MSC


PUBLISHERS STATEMENT

PUBLISHER’S STATEMENT The jury is back and the verdict is in – 2020 looks like a good year for manufacturing; not a great year but not a train wreck year, either. The manufacturing sector can move ahead with a good degree of confidence in the completion and utilization of their CapEx projects, and revenues are expected to improve in 2020, as well. The biggest issue is probably the lack of qualified labor with insufficient training in the skills needed in manufacturing, whether the candidates come from high schools, trade schools, colleges, universities, non-profit, state or federal training programs. One underlying cause may be the perception of the industry, not necessarily as dark, dirty and dangerous but maybe as ho-hum. Another issue is 9-5 or shift work. Millennials and some Gen X are not attracted to the regimen of fix hours inside the manufacturing operation, whether that is in a cubicle or at a production station. It interferes with their work-life balance cocooning concept and running complex machinery remotely from the basement in their pajamas. Manufacturers are faced with a choice: spend significant time and money to train humans who might then quit for ‘a better job’ elsewhere or not perform up to the need, or invest in automation and robotics that can be programmed in less time, and run 24/7 for less money annually. However, robots currently do not have the dexterity or creative thinking skills for some assembly work. Nonetheless, automation and robotics in manufacturing will expand in 2020 and the following years to close the skills gap. Perhaps the robots can be programmed and maintained from someone’s basement, but they will be designed and built in manufacturing plants, and maintained on the factory or warehouse floors. In addition to the 60,000+ disengaged, able-bodied people in the labor pool who simply are not working, there are other labor resources going largely untapped, such as some veterans, the homeless, already-here illegal immigrants, underrepresented and underpaid women in the workforce, and low-level incarcerated offenders. Despite billions of dollars being spend every year at the federal, state, county, city and non-profit levels, the homelessness problem has gotten worse, some veterans still live on the street or in abandoned vehicles, nothing has been done to fix an immigration system broken for 30+ years, the gender pay gap remains, and effective training of low-level offenders to re-enter the workforce and life is either non-existent or ineffective. How is it that government at all levels can spend billions of taxpayer dollars every year and still not solve these problems?

Homelessness in the Nation‘s Capital - L.A. Weiss

What is a manufacturer to do? If government, educational, and non-profit efforts don’t, can’t, or won’t solve the labor issues for the country, manufacturers have to train and/or automate, and the future of this country is in very serious trouble. Oh – and the USA isn’t the only country with these problems. The skills gap exists in virtually every developed nation. Some of the other issues that could trip up the economy in 2020 are inflation, which isn’t a threat at the moment, or an unforeseen act of war or government policy. There are no tech or housing or banking or Wall Street bubbles, and strong consumer spending because of low unemployment isn’t showing any early signs of weakness. That is the way it looks for 2020. Let us know if you see it differently as you read this issue of Manufacturing Outlook.

Lewis A. Weiss Publisher Contact laweiss@mfgtalkradio.com or text “RADIO” to 66866 for comments, suggestions and ideas and guest requests for MFGTALKRADIO.COM podcast. Lewis A Weiss, Publisher Manufacturing Outlook / January 2020

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COVER STORY

UNRESOLVED: THE SKILLS GAP by TIM GRADY

The Scope of the Problem It’s a global problem – an aging population in developed countries, insufficiently skilled millennials not drawn to manufacturing, and limited solutions from either state or federal governments. After years of talk and various actions to close the gap, it continues to widen into an expanding chasm of millions of unfilled jobs by 2025 – just in the United States. We often hear that manufacturing employs some 12-13 million people. That number just couldn’t be

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Manufacturing Outlook / January 2020

more misleading. It is a measure of workers on the production floor, but it does not include any employees from the C-suite across all departments and divisions until you reach the manufacturing floor. It also does not include companies upstream that supply raw materials like plastics, chemicals, wood, metal, paper, glass, fabric, machine tools, subassemblies, nuts, bolts, parts, office supplies, office machines, as well as maintenance, repair and operations pieces, equipment and people. Downstream from manufacturing plants are


COVER STORY

transportation, wholesale, distribution, and businesses that rely on manufactured goods to sell to industry, businesses and consumers. When you add in all the people who rely on manufacturing for some or all of their livelihoods, then the number of employees in or aligned with manufacturing is closer to 40% of the 131+ million full-time American workers – not counting part-time employees, gig workers or independent contractors. However, the Skills Gap focuses on just the employee shortage anticipated on the factory floor. But all sectors of industry have the same issue – they cannot find employees with sufficient skills to work in manufacturing plants specifically, and in business, generally. Manufacturers have looked to many sources for the ‘skills’ solutions: departments and agencies of the federal, state, county, city, and municipal governments; non-profit organizations that offer credential or training programs, academic institutions to provide more industry-specific education, and trade schools. Some large manufacturers have even implanted machines at colleges, universities and trade schools so students can learn on the same equipment they will encounter on the factory floor. Yet, the gap continues to widen.

An Industry in Metamorphosis For more than 100 years, manufacturing has been in a cocoon of mechanical devices operated by people – until IoT. Now, a butterfly is emerging from that chrysalis into an Industry 4.0 world, where mechanical devices are operated by software technology fashioned specifically for manufacturing and the production floor, including automation software, robots, cobots, WiFi-controlled and drive-by-wire forklifts and carts, machine-to-machine material handling, and data collected from hundreds of process points to tweak efficiency and drive down cost. The myopic news media often presents hollow stories of automation creating unemployment. It is profoundly inaccurate. Were it true, the moving assembly line introduced by Ford in the 1920’s would have resulted in the automobile industry operating without people on the factory floor by the 1950’s. Instead, thousands of new, more technical jobs were created and better, longer lasting vehicles were produced. This has been true in every industry that automated – better, longer lasting products. It is also true that business that did not automate to drive down cost and produce a better product eventually went out of business. Technology changes how work is performed and how people perform it – and that is the conundrum. The ability to automate a process and operate machines by software instead of mechanical levers, switches, and handles managed by people has accelerated over the last 20 years as programmers and engineers have determined how to convert a human-mechanical process to an automated process. That development shows no signs of slowing down. Human operators for 20th Century machines will need to become software operators for 21st Century automation – but who will train them? Manufacturing Outlook / January 2020

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COVER STORY It Falls to the Manufacturers Read a job description for a manufacturing job, particularly for people operating machines on the production floor, and you quickly realize that it eliminates most of the applicants. Every manufacturer has machines and processes specific to their products. While government agencies, academia, and industry non-profits can provide a level of funding or training for general skills, it falls to the manufacturers to provide training for the specific skills for each manufacturer. Thus, finding employees who walk in the door will specific skills or industry related skills has become an exercise in futility. The training programs that companies squeezed out over several decades as they settled into their 20th Century manufacturing cocoon will need to be reinvented and implemented to train people for the production jobs of the 21st Century. Every manufacturer, to get the specific end results they need, will need their own training programs in-house. The good news is that this is an excellent place to use the baby boomers who are retiring for a transfer of knowledge, as well as trainers who can create and execute results-focused programs. Training programs can be fashioned as apprenticeship programs, and more people will be attracted to them when they see a specific career path than will jump ship for a dollar more at a company down the road. And there is no doubt that labor will cost more in the future, although part of that cost can be ameliorated in the early stages of training by an apprenticeship wage that increases as their skill and output improves, and they morph into competent technicians. Where to Find the People? The next piece of the puzzle is the people part. In February, the human resources issue will be discussed in this series in Manufacturing Outlook. Tim Grady is a host on Manufacturing Talk Radio, the Editor-in-Chief of Manufacturing Outlook, and an industry consultant with more than 30 years of business experience working with hundreds of companies on their strategic issues from the executive offices to the loading dock doors.

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Manufacturing Outlook / January 2020


MANUFACTURING TIDBITS

WANT TO HIRE A ROBOT?

THERE’S AN AGENCY FOR THAT. MUSASHIAI LAUNCHES WORLD’S FIRST ROBOT EMPLOYMENT AGENCY. Originally published on industryweek.com

Most manufacturing companies are having trouble finding labor. Often they turn to robots to do the jobs. But even finding robots might be hard. This is where MusahiAI comes in. MusahiAI is a joint venture between SixAI Ltd. of Israel and Musashi Seimitsu of Japan (a Honda Motor Corp. company). On Dec. 23 this joint venture introduced a unique business model by providing industrial employers an option to source needed labor through a robotic employment agency, instead of investing significant capital in purchasing robots. The model allows companies to hire robot labor by the hour or pay a task-completed-based salary rate. The company has available fully-autonomous robots to integrate seamlessly with human workers in an industry 4.0 factory environment. Its robots will undertake the often strenuous and repetitive work endured by humans in industrial workplaces. “Our goal is to find ways to integrate smart robots in real-world workplaces.,” said Ran Poliakine, founder of SixAI. “We want people and companies to be able to allocate repetitive, but essential work to robot workers, while humans focus on the more complex and engaging tasks, where they have a competitive advantage over machines. ”

The company’s forklift and visual inspection AIcontrolled robots are being tested by Musashi Seimitsu, a provider of a ​ utomotive transmission parts with 35 manufacturing plants worldwide. These developments represent a major leap forward in the deployment of robots. The robots are genuinely autonomous, as opposed to automated – they are given tasks and define their own optimal way to perform them, just as humans do. An experienced human quality control inspector checks manufactured parts for defects in approximately 2 seconds per part with 97% accuracy. Traditionally, better robots took over 20 seconds per component at 70% accuracy. MusashiAI’s robots work at similar effectiveness to humans at 2 seconds with 98% accuracy. Self-taught machine learning is central to this achievement. “Our new partnership with SixAI allows us to step into the future.,” said Hiroshi Otsuka, CEO, Musashi Seimitsu Industry Co., Ltd. “Our challenge is to change the world by combining AI tech with our Japanese manufacturing technology. Bringing the best new AI tech, together with our 80 years of manufacturing experience, will make this happen. “ Manufacturing Outlook / January 2020

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MANUFACTURING TIDBITS

MISSION CRITICAL HYDRAULIC MANIFOLDS: NOT THE PLACE TO BE PENNY WISE POUND FOOLISH

by NIMIT PATEL There are challenges with hydraulic manifolds which illustrate the importance of experience and core engineer competencies. It is common for purchasing to select the least expensive quote, just like shopping various machine shops for other machined products. Hydraulic manifolds require that engineering work closely with the manufacturing team for design optimization. Purchasing is often looking at shortterm cost savings rather than efficiencies achieved during assembly, operations, and maintenance. Mission critical hydraulic manifolds are not the place to be penny wise pound foolish. From small mobile machines to heavy industrial plants, manifolds are mission critical to fluid power systems. Fluid power engineers and OEMs understand the benefits of properly engineered hydraulic manifolds. Nearly all hydraulic manifolds are engineered-to-order (ETO) to ensure improved overall layout with less cumbersome hoses and fluid connections. Depending on the application, a small and compact sized manifold with cartridge

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Manufacturing Outlook / January 2020

valve design to suit confined spaces may remove the possibility for an “off the shelf� solution. With increased energy efficiency shorter flow paths minimize pressure drops reducing installation costs. Equally important in the ETO design process is the reduction of fluid leaks and upkeep. Often times this comes from fewer connections that can wear and loosen. The best custom hydraulic manifolds require circuit integrity, design expertise, and manufacturing quality. The performance of any fluid power system is only as good as the level of expertise that produced it. The fluid power system relies on the quality of the manifold. OEMs in automotive, aviation, aerospace, and agricultural equipment mandate ISO certification and demand design and production teams to navigate the most difficult projects from design through production. These highly engineered solutions require experience to recommend design changes for both function and price optimization.


MANUFACTURING TIDBITS During operations pressure drop, loss of energy, and overheating are signs of design improvement opportunities for hydraulic manifolds. Pressure spikes often lead to component failure, manifold metal fatigue, and shorter seal lifespans which cause major system failures. It is necessary to choose a manifold manufacturer who understands design and has a strong team of manufacturing and hydraulic design engineers. Only ISO9001:2015 certified suppliers can provide assured internal processes with a higher degree of quality product reliance.

Defining hydraulic manifolds A hydraulic manifold is a component which regulates fluid flow between pumps and actuators and other components in a hydraulic system. It is also known as “hydraulic integrated circuit� (HIC). With a hydraulic system, the same fluid is circulated repeatedly from a fixed reservoir. Hydraulic oils are relatively incompressible liquids. The actuators are easily controllable and accurate positions, speeds, or forces. The fluid used for most hydraulic systems are mainly mineral oil types, but other fluids such as ethylene, glycol, or synthetic types are also common. Hydraulic systems have one central power unit which has hoses running to and from the outlets to perform various high energy functions. Hydraulic systems as opposed to pneumatic systems operate at higher pressures, generating a higher force from smaller actuators occupying less space consumption in a work environment. Poorly designed manifolds often lead to complex and time-consuming processes during assembly and integration. Valve spacing, wiring for solenoid valves, and clumsy hosing are some of the obvious things that should be considered during design.

Reviewing seal materials, material and finish, environmental conditions and temperatures, pressure (maximum and working), duty cycle, and flow conditions (pump, accumulator, and return) are some of the considerations in the design of a custom hydraulic manifold. Engineers must look at port sizes, types, and locations, number of and type of valves, electrical voltage and connection, as well as mounting. Choosing the right partner for manifold design leads to greater success and generates more revenue than creating a few dollars in cost savings.

Author Profile: Nimit Patel, CEO of Hydraulic Manifolds USA, brings innovation to the manufacture of custom and standard hydraulic manifolds or HIC, Hydraulic Integrated Circuits. Companies with difficult custom design challenges rely on engineering teams who bring almost 50 years of experience. Established 1971, as Selling Precision, the company grew steadily until relocating to its current state-ofthe-art facility. In 2017, the company was rebranded as Hydraulic Manifolds USA, which more accurately reflects the global market presence as the leader in manufacturing custom and standard HIC units. ISO9001:2015-certified, the company has invested in the latest technology. Manufacturing Outlook / January 2020

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MANUFACTURING TIDBITS

VETERANS PERFECTLY SUITED TO ADDRESS MANUFACTURING SKILLS GAP by Thomas R. Cutler

According to the U.S. Bureau of Labor Statistics the unemployment rate among veterans is modest at 3.3%, yet among the 326,000 unemployed veterans who have served on active duty, nearly 60% were age 45 and over; 35% were ages 25-44, and 6% were ages 18-24. The average U.S. veteran will take more than a year to find sustainable employment after leaving the

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Manufacturing Outlook / January 2020

military. In the interim, these heroic citizens and their families sink into poverty. This employment gap between transitioning from the U.S. military to gainful employment must be filled. Many of these men and women face barriers to employment, including service-connected disabilities. Obtaining the qualifications and training necessary to compete in high-demand industrial


MANUFACTURING TIDBITS positions will increase the self-sufficiency and quality of life of veterans while filling a national employment gap. Military veterans face a significant communication gap with hiring managers when searching for jobs in the civilian workforce. Veterans’ efforts to secure employment is often a greater challenge because of the complexities associated with the transition from military to civilian life.

success. In the “crisis management” modality of manufacturing, veterans have already demonstrated the capacity to perform well under pressure. Manufacturers are learning to leverage veterans’ skills and reduce high turnover rates among veteran populations. Manufacturers committed to the veteran workforce include mentoring, which focuses on acclimation into the workforce, then shifting to professional development opportunities. Industrial skills assessments get veterans ready to work A validated, scientific-based, data-driven process that accurately predicts candidate success also aligns with the hiring process using lean initiatives.

The skills gap only in the manufacturing sectors is growing with 75% of human resource professionals reporting difficulty in recruiting due to significant skills gaps in job candidates, according to a 2019 survey by SHRM (Society for Human Resource Management). Unsurprisingly, the skills gap is especially noticeable in trades, middle-and highly skilled STEM positions. SHRM suggested that to address the skills gap, manufacturers should hire nontraditional sources such as military veterans and start training programs to help improve skills of new hires.

Performance-based assessments identify, measure skills, competencies, and trainability far better than traditional written assessment tests. Mechanical skills assessments, electrical skills assessments, PLC skills assessments, and CNC skills assessments are frequently needed for returning veterans. Demonstrations and ‘hands-on’ assessments are the most effective way to transfer theory and knowledge into skills that can be used with fidelity and automaticity. Returning veterans have individualized skills, challenges, and opportunities. The ability to accurately assess skillsets among returning veterans seeking employment in the manufacturing sector requires effective and proven testing methodologies. Heroes can be honored; they can also be gainfully employed… the greatest honor. Author Profile

Veterans have the skills and abilities needed in manufacturing as well as the creativity and critical thinking needed to adapt to new technology. Veterans know the value of teamwork and focus on maximizing individual contribution for the group’s

Thomas R. Cutler is the President and CEO of Fort Lauderdale, Florida-based, TR Cutler, Inc., celebrating its 20th year. Cutler is the founder of the Manufacturing Media Consortium including more than 7000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement. Cutler authors more than 1000 feature articles annually regarding the manufacturing sector. Cutler can be contacted at trcutler@trcutlerinc.com and followed on Twitter @ThomasRCutler.

Manufacturing Outlook / January 2020

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MANUFACTURING TIDBITS

Affordable Price Optimization Technology Allows Small and Mid-Sized Manufacturers to Survive Price-cutting Mandates and Squeezed Margins by MIKE FRANZ The manufacturing industry drives innovation in America. It is the birthplace of products and processes that make the world a better place. ManufacturingPower uses lean manufacturing principles by eliminating waste around industrial supply spend with market comparison and analysis. Base in lean principles there is a on-demand implementation process driving an immediate ROI and elimination of waste. Unsurprisingly, there has been a shift in manufacturing business process in practically every American industrial setting. The lean thinking paradigm now includes purchasing and supply chain functions. Price optimization technology for large manufacturing operations costs from $120K - $1.5M per year. For multi-location, global, and publicly traded companies this is an expense easily cost-

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Manufacturing Outlook / January 2020

justified. A small 1% in margin preservation is worth thousands of times the expense of price optimization technology. That said, this price tag is too expensive for most of the 89% of small to mid-sized U.S. manufacturers with fewer than 50 employees). 2020 introduces a new affordable solution which provides access to pricing optimization with the ability to evaluate systematically. This new technology solution is priced at less than $5,000 per year. With access to unlimited “Part Number Matches� per year, even the smallest manufacturers realize significant savings, capture lost margin, and view costs versus peer market pricing. Insight to suppliers with the lowest costs, viewing potential savings, and tracking year-to-date savings, prove the efficacy of these new technologies.


MANUFACTURING TIDBITS PowerPotential Report: Step One ManufacturingPower suggests that small manufacturers start with a free PowerPotential Report which includes easy data uploads, CSV and XLS file formatting, and insight into top six savings opportunities. Within 24 hours, this powerful data demonstrates where even the smallest manufacturers can start realizing significant savings with access and transparency to data.

Lower cost materials available Instead of simply ordering from Grainger or other distributors out of habit, it would be nice to know if the price offered is the best price or even at market price by geo-location! The data are collected and shared by ManufacturingPower daily. Products can be manufactured utilizing a variety of different materials, depending on marketplace requirements and the practices of the manufacturers.

Currently, manufacturers are spending far more than needed on tooling, fasteners, clean room supplies, packaging, and any line item in the supply chain. Originally, this cloud-based low-cost solution started as a software tool allowing manufacturers to anonymously share data and compare pricing. Through a network of data, this proprietary method saves manufacturing enterprises across their total industrial supply spend.

When considering a change in the materials used, the manufacturing method may be impacted by increasing cycle times or labor costs. Changing the composition of a product may be worthwhile, even when the material costs are higher due to a simplified production process. To continually order from the same vendors and suppliers without a price comparison is simply not effective. Larger manufacturers may be able to absorb a 2% margin loss; this kind of loss could shut the doors of a smaller manufacturer. Technology is constantly improving; prices move up and down due to market fluctuation as well as supply and demand constraints.

Watch this brief informative video.

2020 still has tariff ambiguity in the market. Manufacturers, relying on forward-looking predictive models to set prices, are able to identify and reduce wasteful pricing processes while reducing overdiscounting. Poor pricing methods effectively transfer the incremental profits from lean activities away from the company and into the pockets of customers. Now that there is an affordable pricing optimization solution for small and midsized manufacturers applying lean principles to pricing process is immediately accessible.

Surviving the margin squeeze Small and midsize manufacturers report the biggest 2020 challenges are price-cut mandates and online reverse auctions which compromise quality and endanger the business. Supporters of the practices say the strongest suppliers will survive, making supply chains more efficient. When operating margins are already thin, a rigorous and continuous process improvement mandates on-going SKU pricing evaluations for every element in the manufacturing operation. Author Profile: Mike Franz is the founder and creator of the WorkCenter from ManufacturingPower, a cloud-based market intelligence solution designed to help small to mid-sized companies streamline and achieve real-time visibility into Industrial Supply spend, collaborate better with suppliers, mitigate risk, and realize significant cost savings. Manufacturing Outlook / January 2020

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MANUFACTURING OUTLOOK

JANUARY 2020

MANUFACTURING OUTLOOK GLOBAL by ROYCE LOWEMANUFACTURING CLINGS ONTO

EXPANSION. THE ISM PMI ROLLS BACK AGAIN. GLOBAL CAR SALES END A DISAPPOINTING YEAR. NO LIGHT YET AT THE END OF EUROPE’S TUNNEL. by ROYCE LOWE

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Manufacturing Outlook / January 2020


MANUFACTURING OUTLOOK This has not been the best year for global manufacturing. From time to time throughout the year, all major economies have known setbacks, not least of which is the Eurozone. China went through rough times but is recovering slowly. Japan has known better days. The ISM PMI ended the year on a ten-year low. Tariffs are still a major factor in world trade. They may or may not be quickly resolved. The revised USMCA trade agreement awaits Senate approval. There is, in spite of all this, an air of optimism that could be blown away by countries going beyond the sabre-rattling stage. Total nonfarm payroll employment rose by 145,000 in December, and the unemployment rate was unchanged at 3.5 percent. The retail trade added 41,000 jobs, health care increased by 28,000, leisure and hospitality added 40,000, construction increased more than 20,000, professional and business services up 10,000, mining employment declined by 8,000, transportation and warehousing decreased by 10,000 and manufacturing fell by 12,000 although overall employment was up across all industries. The labor force participation rate was unchanged at 63.2 percent in December. This means 36.8 percent of able workers 16-65 were underemployed or unemployed. The employment/population ratio was 61.0 percent for the fourth consecutive month but was up by 0.4 percentage point over the year. The number of persons employed part time for economic reasons, at 4.1 million, changed little in December but was down by 507,000 over the year. These individuals, who would have preferred fulltime employment, were working part time because their hours had been reduced or they were unable to find full-time jobs. In December, 1.2 million persons were marginally attached to the labor force, down by 310,000 from a year earlier. These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks immediately preceding the survey. The outlook for employment, given the impact of the skills gap, is steady for 2020.

IHS Markit’s remarks on the U.S. were again quite optimistic, referring to a December PMI, at 52.4, slightly down from November’s 52.6, and a further recovery in operating conditions across U.S. manufacturing. There was a solid rise in new orders and a further improvement in production. There was an ongoing tariff impact, although goods producers reported a third consecutive rise in new export orders. Employment growth was the quickest since May. THE ECONOMIST magazine, in its latest weekly report on world economies highlights changes in Gross Domestic Product (GDP), Consumer Prices and Unemployment Rates for what it considers the world’s major economies. These data are not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month. The figures for GDP represent the % change on the previous quarter, annual rate. The consumer price increases represent year-over-year changes. The unemployment figures, %, are for the month as noted.

The Bureau of Economic Analysis recently released its ‘third’ estimate for the annual rate of Real GDP growth in the third quarter of 2019, putting it at 2.1 percent, or 0.2 percent above the ‘advance’ estimate. The figure for the second quarter of 2019 was 2.0 percent. The ISM PMI figure for U.S. manufacturing eased back further from 48.1 percent in November to 47.2 percent in December, representing its fifth consecutive month in contraction. The overall economy grew for the 128th consecutive month. Manufacturing Outlook / January 2020

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CREDIT MANAGER’S OUTLOOK

CREDIT MANAGERS’ OUTLOOK by DR. CHRISTOPHER KUEHL MANAGING DIRECTOR OF ARMADA CORPORATE INTELLIGENCE THIS REPORT REPRINTED COURTESY OF THE NATIONAL ASSOCIATION OF CREDIT MANAGERS (NACM.ORG) WHERE MORE IN-DEPTH INFORMATION CAN BE FOUND.

Combined Sectors The latest score from the Credit Managers’ Index (CMI) is not likely to cause any dancing in the street, but it isn’t exactly all doom and gloom either. “The reading this month was a little down from the month before, but compared to the big declines the Purchasing Managers’ Index has been experiencing, the data remains very solid,” said NACM Economist, Chris Kuehl, Ph.D. December’s composite score of 54.6 is exactly the same as it was in October. The November reading was a bit better with a 55.5 reading. “The really good news for an end-of-the-year report is the numbers have stayed quite consistent and in reasonably positive territory,” he added. The lowest point all year was 53.4, reached in January and again in July. The highest readings were in May (55.7) and November (55.5). There was a similar story in terms of the favorable and unfavorable categories. Generally speaking, the favorable numbers have been very solid with numbers in the high 50s and low 60s. The current favorable numbers dipped a little to 59.3 from a reading of 61.6 in November, but overall, the scores have been consistent all year. The low point was July when the reading hit 58.6 and the high point was May’s 63.8. The majority of the concern expressed by the CMI shows up in the unfavorable numbers. The current reading is exactly the same as it was last month at 51.5, on par with the data presented all year. The high point has been the last two months with that 51.5 reading, while the low

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Manufacturing Outlook / January 2020

point was 49.4 in January. The numbers have been in expansion territory for 10 of the 12 months with only January and March in contraction (a score below 50). The details tell a fairly compelling story as far as next year is concerned. The sales numbers have been high all year. The latest reading of 58.8 was a little down from November (61.6), but higher than in either September or October. The new credit application category also fell out of the 60s with a reading of 59.4 compared to 61.2 in November. The dollar collections reading slipped quite a bit though from 59.2 to 57.9. This is the lowest it has been since July. Kuehl noted that there had been some good numbers here for a while as it seemed

many companies were working to get their credit obligations under better control. The amount of credit extended also slowed a little—down from 64.3 to 61.1.


CREDIT MANAGERS’ OUTLOOK The data in the unfavorable categories were a little more vexing. The rejections of credit applications improved a little from 51.3 to 52, good news given that applications have been down a little. The accounts placed for collection escaped the contraction zone with a reading of 50.3. This marks the first time these numbers have been in the 50s since June. Kuehl said that this is one of those indications that companies are trying to get their credit affairs in order for the coming year. The disputes numbers stayed about where they were the prior month, but this is good news as both months have been in the 50s. Last month it was at 50.3 and this month at 50.8. The dollar amount beyond terms data slipped a little (52.6 to 51), but still stayed out of the contraction zone. The dollar amount of customer deductions was almost the same as it had been last month with a reading of 51.3 compared to November’s 51.4. The filings for bankruptcies also maintained an even reading of 53.4 compared to 53.5 last month. “The most encouraging aspect of the unfavorable data this month is all the readings are in expansion territory for the first time in several years,” he said. “The turnaround is not spectacular and it will not take much to see these numbers deteriorate again, but for now the data shows companies are in generally better shape as far as their trade credit is concerned. We will see what the data looks like after the first of the year when the retailers determine what those sales did to their profit expectations.” Manufacturing Sector The manufacturing sector has been experiencing its share of ups and downs this year; it has been harder than usual to get an accurate read, according to Kuehl. For example, the data from the Purchasing Managers’ Index (PMI) has been in contraction territory for four straight months. In contrast, the latest industrial production numbers show a recovery in the manufacturing sector despite the inhibitions in place due to the trade wars. There has been some question about how important manufacturing really is for the overall U.S. economy, but it is important to remember that the manufacturing share of the U.S. GDP is over $2.7 trillion, larger than the entire GDP of India.

The overall numbers for the manufacturing sector remained very close to what they had been the month before— 54.8 as compared to 54.5. The favorable factors slipped just slightly from 59.7 to 58.9, while the unfavorable factors improved from 51.1 to 52. The trend is certainly better than has been with the PMI of late. The details are, as always, interesting.

Sales slipped out of the 60s, but remained comfortable at 57.9—higher than in October and on a par with the data in September. The readings for new credit applications improved from 59.8 to 61.2, as high as it has been since June. The dollar collections numbers also improved from 56.8 to 57.5. Kuehl noted this seems to be related to companies getting their credit positions set for the new year. The amount of credit extended slipped some from 61.6 to 59.1. The rejections of credit applications data improved quite a bit from the reading in November as it moved from 51.6 to 53, the highest level reached since August. The category of accounts placed for collection jumped out of the contraction zone with a reading of 51.1 compared to 49.4 the month prior. This is the highest level reached since June. The disputes reading also left contraction territory with a reading of 51, the highest point since July. The dollar amount beyond terms stayed very close to what it was in November (52.4 compared to 52.1). The dollar amount of customer deductions improved quite a lot with a solid 52.6 reading compared to 50.8 in November. The filings for bankruptcies shifted down a little but stayed in expansion territory with a reading of 51.8 after 53 last month. “The most important aspect of the unfavorable readings this month,” Kuehl said, “is that all of them have left the contraction zone behind for the first time in nearly three years.”

Manufacturing Outlook / January 2020

19


NORTH AMERICAN OUTLOOK

JANUARY 2020

NORTH AMERICAN OUTLOOK by ROYCE LOWE

The Institute of Supply Management PMI figure eased back from 48.1 percent in November to 47.2 percent in December. New orders, production and employment are contracting faster, production is contracting slower; supplier deliveries are slowing faster and backlogs are contracting slower. Raw material inventories are contracting slower, customer inventories are too low. Exports are contracting faster, imports contracting slower. Comments from the industry vary from slow to cautiously optimistic. To date there is no disaster on the horizon.

20

Manufacturing Outlook / January 2020

Of the 18 manufacturing industries, three reported growth in December: Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Computer & Electronic Products. The 15 industries reporting contraction in December — listed in order — are: Apparel, Leather & Allied Products; Wood Products; Printing & Related Support Activities; Furniture & Related Products; Transportation Equipment; Nonmetallic Mineral Products; Paper Products; Fabricated Metal Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Textile Mills; Primary Metals; Chemical Products; Plastics & Rubber Products; and Machinery.


NORTH AMERICAN OUTLOOK

CANADIAN manufacturing’s PMI fell to a fourmonth low of 50.4 in December, down from November’s 51.4. Production was slower and there was a fall in new orders along with a slower rate of job creation. Business optimism was at its lowest since February 2016. There was subdued demand in the automotive and energy sectors. Light vehicle sales in Canada in December were off for the 22nd consecutive month. Sales were 109,594 units, down 4.1percent year-over-year. For the year 2019, sales in Canada were down 3.6 percent at 1,914,357 units. MEXICO is having bad times in manufacturing. December saw rapid declines in production, new orders, exports and input buying, to the fastest rate in the almost-nine-year survey history. Business confidence slipped to the lowest on record and there were further reductions in employment. December’s PMI fell to 47.1 from November’s 48.0.

ISO9100:2015 and AS9100D - Since 1994

Manufacturing Outlook / January 2020

21


ISM REPORT OUTLOOK

THE INSTITUTE FOR SUPPLY MANAGEMENT’S MANUFACTURING REPORT ON ® BUSINESS  

BREAKING NEWS        

ISM PMI at 47.2% for December ISM PMI for the past 5 years

22

Manufacturing Outlook / January 2020


ISM REPORT OUTLOOK

reportonbusiness

Analysis by

Timothy R. Fiore, CPSM, C.P.M.,

Chair of the Institute for Supply Management® Manufacturing Business Survey Committee

ISM® Report On Business®: Manufacturing

Economic activity in the manufacturing sector contracted in December, and the overall economy grew for the 128th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®. The December PMI® registered 47.2 percent. This is the PMI®’s lowest reading since June 2009, when it registered 46.3 percent. The New Orders Index registered 46.8 percent, a decrease of 0.4 percentage point from the November reading of 47.2 percent. The Backlog of Orders Index registered 43.3 percent, up 0.3 percentage point compared to the November reading of 43 percent. The Employment Index registered 45.1 percent, a 1.5-percentage point decrease from the November reading of 46.6 percent. The Supplier Deliveries Index registered 54.6 percent, a 2.6-percentage point increase from the November reading of 52 percent. The Inventories Index registered 46.5 percent, an increase of 1 percentage point from the November reading of 45.5 percent. The Prices Index registered 51.7 percent, a 5-percentage point increase from the November reading of 46.7 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. Of the 18 manufacturing industries, three reported growth in December: Food, Beverage & Tobacco Products; Miscellaneous Manufacturing‡; and Computer & Electronic Products. ISM

‡Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

14

ISMMAGAZINE.ORG

PMI 47.2% ®

PMI

Manufacturing contracted in December, as 2018 2019 2020 the PMI® registered 47.2 percent, a decrease of 0.9 percentage point from the November reading of 48.1 percent. The PMI® contracted for the fifth straight month, at faster levels compared to November. This marks nine 50% = Manufacturing Economy straight months of softening or contraction in Breakeven Line 47.2% manufacturing. The sector’s rate of contraction 42.9% = Overall Economy Breakeven Line ® is the fastest since June 2009, when the PMI registered 46.3 percent. All but two (Supplier Deliveries and Prices) of the manufacturing subindexes registered at levels associated with contraction. For the fourth straight month, two of the six big industries expanded, and four contracted.

Manufacturing at a Glance INDEX

Dec Index

Nov Index

% Point Change

Direction

Rate of Change

Trend* (months)

PMI®

47.2

48.1

-0.9

Contracting

Faster

5

New Orders

46.8

47.2

-0.4

Contracting

Faster

5

Production

43.2

49.1

-5.9

Contracting

Faster

5

Employment

45.1

46.6

-1.5

Contracting

Faster

5

Supplier Deliveries

54.6

52.0

+2.6

Slowing

Faster

2

Inventories

46.5

45.5

+1.0

Contracting

Slower

7

Customers’ Inventories

41.1

45.0

-3.9

Too Low

Faster

39

Prices

51.7

46.7

+5.0

Increasing

From Decreasing

1

Backlog of Orders

43.3

43.0

+0.3

Contracting

Slower

8

New Export Orders

47.3

47.9

-0.6

Contracting

Faster

2

Imports

48.8

48.3

+0.5

Contracting

Slower

6

Growing

Slower

128

Contracting

Faster

5

Overall Economy Manufacturing Sector

*Number of months moving in current direction. Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Supplier Deliveries Indexes.

Commodities Reported Commodities Up in Price: Aluminum Products; Copper Products; Scrap Metals; Steel — Hot Rolled (2); Steel — Stainless (3); Steel Products; and Valves. Commodities Down in Price: Caustic Soda (3); Corrugate; High-Density Polyethylene; Freight (3); Natural Gas; Nickel; Polypropylene (2); and Steel (6). Commodities in Short Supply: Aluminum Products; Machined Parts; and Titanium. Note: The number of consecutive months the commodity is listed is indicated after each item.*Reported as both up and down in price.

Manufacturing Outlook / January 2020

23


ISM REPORT OUTLOOK

ISM Report On Business ®

®

manufacturing

December 2019 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

New Orders (Manufacturing) 2018

2019

52.5% = Census Bureau Mfg. Breakeven Line

2020

New Orders ISM’s New Orders Index registered 46.8 percent in December, a decrease of 0.4 percentage point when compared to the 47.2 percent reported for November. This indicates that new orders contracted for the fifth straight month, and at a faster rate. Of the 18 manufacturing industries, three reported growth in new orders in December: Textile Mills; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing‡.

46.8%

Production (Manufacturing) 2018

2019

51.7% = Federal Reserve Board Industrial Production Breakeven Line

2020

Production ISM’s Production Index registered 43.2 percent in December, which is 5.9 percentage points lower than the 49.1 percent reported for November, indicating a fifth consecutive month of contraction. The three industries reporting growth in production during the month of December are: Miscellaneous Manufacturing‡; Food, Beverage & Tobacco Products; and Machinery.

43.2%

Employment (Manufacturing) 2018

2019

50.8% = B.L.S. Mfg. Employment Breakeven Line

2020

Employment ISM’s Employment Index registered 45.1 percent in December, a decrease of 1.5 percentage points compared to the November reading of 46.6 percent. Of the 18 manufacturing industries, two reported employment growth in December: Plastics & Rubber Products; and Computer & Electronic Products.

45.1%

Supplier Deliveries (Manufacturing) 53.1% 2018

2019

2020

Supplier Deliveries The delivery performance of suppliers to manufacturing organizations was slower in December, as the Supplier Deliveries Index registered 54.6 percent. The six industries reporting slower supplier deliveries in December — listed in order — are: Fabricated Metal Products; Textile Mills; Computer & Electronic Products; Machinery; Miscellaneous Manufacturing‡; and Chemical Products.

54.6%

Inventories (Manufacturing) 2018

2019

2020

Inventories The Inventories Index registered 46.5 percent. The four industries reporting higher inventories in December are: Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; and Computer & Electronic Products.

44.3% = B.E.A. Overall Mfg. Inventories Breakeven Line

‡Miscellaneous

46.5%

Manufacturing (products such as medical equipment and

supplies, jewelry, sporting goods, toys and office supplies).

24

Manufacturing Outlook / January 2020


ISM REPORT OUTLOOK

ISM Report On Business ®

®

manufacturing

December 2019 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

Customer Inventories (Manufacturing) 2018

2019

2020

Customers’ Inventories ISM’s Customers’ Inventories Index registered 41.1 percent. The only industry that reported customers’ inventories as too high during the month of December was Apparel, Leather & Allied Products. The 11 industries reporting customers’ inventories as too low during December — listed in order — are: Wood Products; Fabricated Metal Products; Plastics & Rubber Products; Chemical Products; Electrical Equipment, Appliances & Components; Primary Metals; Food, Beverage & Tobacco Products; Computer & Electronic Products; Transportation Equipment; Machinery; and Miscellaneous Manufacturing‡.

41.1%

Prices (Manufacturing) 2018

2019

2020

Prices The ISM Prices Index registered 51.7 percent. The four industries reporting paying increased prices for raw materials in December are: Fabricated Metal Products; Food, Beverage & Tobacco Products; Primary Metals; and Computer & Electronic Products.

51.7% 52.5% = B.L.S. Producer Prices Index for Intermediate Materials Breakeven Line

Backlog of Orders (Manufacturing) 2018

2019

2020

Backlog of Orders ISM’s Backlog of Orders Index registered 43.3 percent. Three of the 18 industries reported growth in order backlogs in December: Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; and Computer & Electronic Products.

43.3%

New Export Orders (Manufacturing) 2018

2019

2020

New Export Orders ISM’s New Export Orders Index registered 47.3 percent. The two industries reporting growth in new export orders in December are: Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing‡.

47.3%

Imports (Manufacturing) 2018

2019

2020

Imports ISM’s Imports Index registered 48.8 percent. The six industries reporting growth in imports in December — listed in order — are: Wood Products; Printing & Related Support Activities; Computer & Electronic Products; Miscellaneous Manufacturing‡; Food, Beverage & Tobacco Products; and Machinery.

48.8% ‡Miscellaneous

Manufacturing (products such as medical equipment and

supplies, jewelry, sporting goods, toys and office supplies).

Manufacturing Outlook / January 2020

25


METALS OUTLOOK

JANUARY 2020

METALS OUTLOOK by ROYCE LOWE

The overall picture for metals in the year 2020 is still one of uncertainty, and is inexorably tied to Trump’s ongoing tariffs on steel and aluminum. China will continue to make over half the world’s steel and almost 60 percent of its aluminum. It hasn’t really kept its promise to cut back on production.

The coming year will see continuing advances in 3D printing, with the manufacture of larger items and a concentration on metallic materials. Ongoing supply and demand situations and technical advances will be a part of the metals scenario. There may also be a couple of major mergers and/or acquisitions.

Base metal prices are predicted to advance by 4 percent in 2020 as producers rid themselves of inventory. Aluminum prices are forecast to rise by 9 percent, and copper by 7 percent, due to its high demand for electric-vehicle batteries.

Hot-rolled steel coil prices were up in early January from around $537 per ton - early December to around $575; cold-rolled from around $723 per ton to around $775.

26

Manufacturing Outlook / January 2020


METALS OUTLOOK The UK produced 0.550 MT of crude steel in November, off 3.0 percent year-over-year. Crude steel production in Germany in November was at 3.215 MT, down 12.9 percent year-over-year; in Italy 1.971 MT, down 9.8 percent year-over-year; in France 1.105 MT, down 18.2 percent year-over-year and in Spain 1.070 MT, down 10.9 percent year-over-year.

Copper was up from $2.66 per lb in early December to $2.77 in early January; Aluminum was unchanged at $0.81 per lb in early January; Nickel was up, from $6.01 in early December, to $6.20 in early January; Zinc was slightly up from $1.02 early December to $1.05 in early January. STEEL PRODUCTION DECREASED BY 1 PERCENT YEAR-OVER-YEAR IN THE MONTH OF NOVEMBER for the 64 reporting countries – which represent 99 percent of world crude steel production – to 147,791 MT. But China’s production was up 4.0 percent yearover-year. Primary Global Aluminum Production in November 2019 was reported at 5.193 million tons, with production in China, at 2.880 million tons, representing 55 percent of world total. Production was 481,000 tons in GCC; 359,000 tons in the rest of Asia; 282,000 tons in Western Europe; 311,000 tons in North America and 345,000 tons in Eastern and Central Europe. U.S. crude steel production for November 2019 was 7.233 MT, down 2.2 percent year-over-year. Canada produced 0.985 MT of crude steel in November, off 6.9 percent year-over-year. Mexico produced 1.420 MT of crude steel in November, down 7.7 percent year-over-year. Brazil’s crude steel production for the month of November was 2.604 MT, a decrease year-over-year of 10.5 percent.

Russia’s crude steel production for November was at 5.620 MT, down 2.9 percent year-over-year; Ukraine’s was 1.325 MT, down 20.1 percent year-over-year. CHINA produced 80.287 MT of crude steel in November, up 4.0 percent year-over-year; Japan 7.743 MT, down 10.6 percent year-over-year; India 8.934 MT, down 2.8 percent year-over-year and South Korea 5.895 MT, down 0.5 percent year-over-year. Taiwan produced 1.670 MT in November, down 14.8 percent. U.S. Steel Corp sprang a holiday surprise on employees and investors alike in announcing a shutdown of most of its Great Lakes Works, near Detroit, and warning of a fourth-quarter loss. It will lay off over 1,500 workers and slash its dividend. The company will “indefinitely idle” its iron and steelmaking facilities in April and its hot strip mill facilities by year end. Capital expenditures will be pruned. Some analysts are lauding closure of the hot strip mill in light of the numerous expansions planned by the company’s peers. U.S. Steel Corp’s future may be described as uncertain. The world economy is not at its strongest, and global steel demand is not set to boom anytime soon. Plus, U.S. Steel has Nucor and Steel Dynamics to contend with on its own turf. If only there were money in the U.S. for infrastructure instead of for wars and skirmishes in the Middle East, or used to prop up governments around the globe. Manufacturing Outlook / January 2020

27


AEROSPACE OUTLOOK

JANUARY 2020

AEROSPACE OUTLOOK

by ROYCE LOWE

Dennis Muilenburg was fired from his position as CEO of the Boeing Company, following the two fatal crashes of its 737 MAX aircraft and the ineffectiveness of leadership to find a solution. The saga continues. The Boeing story won’t go away until the 737 MAX flies again, and when it will is not up to Boeing. The aircraft manufacturer has reassigned some 3,000 workers to its 767, 777 and 787 programs for the immediate future. Demand for commercial jets is forecast to take off in 2020, with deliveries of large aircraft up by some 60 percent compared with 2019. Both Boeing

28

Manufacturing Outlook / January 2020

and Airbus will increase production, and fuelefficient, narrow-body jets will be at the forefront of demand. Boeing, once it restarts production, will make an average 57 narrow-body 737 planes a month in 2020. Airbus will win more orders for the A220 jet, acquired from Canada’s Bombardier. China’s booming tourist industry will increase in importance to plane makers, despite any ongoing


AEROSPACE OUTLOOK A joint effort between Harbour Air, a Vancouver seaplane operator and magniX, an Australian propulsion-system manufacturer, saw an allelectric powered six-seater seaplane make a short test flight towards what the companies were calling the world’s first all-electric commercial fleet.

trade tensions between the U.S. and China. India will follow suite amid its own tourist boom. Brazil’s aircraft industry will profit from Boeing’s takeover of Embraer’s commercial jet business. Defense contractors outside the U.S. will see a 3 to 5 percent rise in spending, led by France, Germany, Japan and Britain. America’s defense bill will jump to $738 billion, with hypersonic weapons and Lockheed Martin’s stealth fighters a priority.

The plane was powered by a 750-horsepower (560kW) mango 500 propulsion system that was launched at the Paris AirShow earlier in 2019. Harbour Air hopes to electrify its entire fleet by 2022, providing it secures safety and regulatory approval. Of course, there are big challenges. Rapid advances are seen in motors, generators, power distribution and controls, but not in batteries. The range to date is 160 kms (100 miles). Big challenges for sure are ahead. We will be following both technical and commercial aspects of aerospace throughout the year. It promises to be an eventful one.

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Manufacturing Outlook / January 2020

29


AUTOMOTIVE OUTLOOK

JANUARY 2020

AUTOMOTIVE OUTLOOK by ROYCE LOWE

30

Manufacturing Outlook / January 2020


AUTOMOTIVE OUTLOOK

The year 2020 may well be the year when some people might think twice about buying a car that runs on gasoline. Those who own a car that runs on diesel might just be forced, by their country’s legislation, to dump it and buy something else. Diesel is not popular and will never likely be so again. Car sales were good for many years, but of late have slowed to a rate that is worrying for certain automotive companies, including Nissan and Ford. Along with the decline of diesel, we can count Brexit and America’s trade war with China and its threats to hit European and Japanese companies with higher tariffs. Automotive companies have also to deal with stricter emissions regulations. America, as it is wont, will freeze emissions targets at 2020 levels until 2026, pending a challenge by California and other states; but in January the EU will start imposing stricter caps on carmakers’ average carbon dioxide emissions. China will take the lead in the market for green vehicles, but will phase out subsidies for electric vehicles. It will instead legislate the manufacture of 12 percent of cars as electric. Chinese carmakers will set their sights on international markets. Global sales of electric cars will approach 2.8 million in 2020, a mere 3 percent of total sales. There is a lot of catching up to do. Autonomous vehicles will progress, with taxis and commercial fleets up front. Germany’s Continental

will experiment with driving digitally - connected trucks in convoy on highways, while Japan’s Honda and Toyota will aim to get automated cars on the streets of Tokyo before the Olympics. Fully selfdriving cars are still a ways off. The production of these new-age vehicles will require expensive retooling of old plants, and in some cases partners willing to share costs. As part of its UAW contract talks, Ford recently announced a $1.45 billion investment in two southeast Michigan plants for hybrid and EV production that will create 3,000 jobs. Fiat-Chrysler has recently merged with Peugeot, to create the world’s fourthlargest automobile company. Electrification, a relatively recent term in the automobile industry, now preoccupies it. Where once Tesla was the name at the pricier end of the market, we now find Audi, Jaguar, Mercedes and Porsche. Volkswagen is in there with cheaper models, and in 2019 launched the ID.3 hatchback, the first of a range soon to sell in millions of units. Buyers in the rich and super-rich categories will be able to buy Ferraris starting at around $500,000, moving up to around $2 million. Other names are appearing from the past, and will offer models starting at just below $2 million. Speaking of rich and super-rich, the ex headhoncho of Nissan etc, Ghosn, escaped from Tokyo to Lebanon by methods that would provide fodder for a gripping screenplay. Never a dull moment in the automotive business. Manufacturing Outlook / January 2020

31


ISSUES OUTLOOK

JANUARY 2020

ISSUES OUTLOOK

by ROYCE LOWE

When Donald Trump came to power some years ago, there was lots of talk of infrastructure repair and development, particularly repair to bridges, roads, ports, waterways, and electrical grids; all necessities to allow a country such as the U.S. to function the way it is meant to. This is a topic that has been on many tables for a long time. There are approximately, depending on your source of information, 50,000 bridges in the U.S. that need repair. About 10 percent of them are in Iowa, though the significance of that figure evades. Iowa has about 1 percent of the population of the U.S. The question is of course, as usual, money; whence it comes, whither it goes. How much can or will the

32

Manufacturing Outlook / January 2020

Federal Government come up with, how much the states? Does a border wall with Mexico count as infrastructure? The cost of repair of the offending utilities will be in the trillions of dollars. It’s forecast that in 2020, with continuing political discord, America’s infrastructure spending will shrink by 0.5 percent. There will be a boom in infrastructure in 2020 in South Asia, where investment will jump by 14 percent in Nepal, by 11 percent in Bangladesh. In India it will grow by 8 percent to surpass $1 trillion; investment that is sorely needed if India is to catch up to the major world economies. There is an urgent need for new roads and power lines.


ISSUES OUTLOOK China will contribute $6 trillion of the world’s $22.4 trillion of investment in 2020. While the U.S. goes through its political process deciding what or what not to do about the problem, China’s impact on infrastructure may be mostly felt abroad, via what is known as its Belt and Road Initiative. Unhindered by democracy, China is taking its infrastructure project all the way through Asia and Africa to Europe. This is an ambitious program to connect Asia with Africa and Europe via land and maritime networks along six corridors with the aim of improving regional integration, increasing trade, and stimulating economic growth. The BRI comprises a Silk Road Economic Belt – a trans-continental passage that links China with Southeast Asia, south Asia, Central Asia, Russia and Europe by land, and a 21st century Maritime Silk Road, a sea route connecting China’s coastal regions with Southeast and south Asia, the South Pacific, the Middle East and Eastern Africa, all the way to Europe. The name was coined by (China’s President) Xi Jinping, who drew inspiration from the concept of the Silk Road established during the Han Dynasty some 2,000 years ago.

It is, in fact, a state-backed campaign for global dominance, a massive marketing campaign for something clearly happening. It is Chinese investment around the world. It includes 71 countries that represent half the world’s population and over a quarter of its GDP. Countries from Panama to Madagascar, South Africa to New Zealand, have officially pledged support. The BRI will cost over $1trillion, and so far over $200 billion has been spent. The Chinese are picking up construction contracts along the way, in many cases at the expense of local contractors in partner countries. Loans are being offered to pay for construction, at times very difficult to repay. At least one military base has been set up. This has been called economic imperialism. While emerging-world infrastructure investment expands by 5 percent, rich countries will manage only 1 percent, with post-Brexit Britain striving to finish a much-delayed Crossrail train-line linking London with its commuter belt. China has a global outlook. Most other countries are focused internally.

Manufacturing Outlook / January 2020

33


ISSUES OUTLOOK

JANUARY 2020

ENERGY OUTLOOK by ROYCE LOWE

GE Renewable Energy is the preferred wind turbine Geopolitical issues - a possible confrontation between the U.S. and Iran - might well contribute to a spike in the price of oil in the coming months. If disruptions are kept to a minimum, oil prices will slip to something in the order of an annual average of $63 per barrel. Oil demand in the U.S. will be almost stagnant, where sales of new light vehicles are falling. China’s energy requirements are forecast to grow by about 1 percent. Smaller emerging markets will help boost demand, particularly in India, where the country’s booming car market will boost oil consumption by 4 percent. Shaky demand will keep shale drillers in the U.S. from upping output. Following a record

34

Manufacturing Outlook / January 2020

performance in 2019, production in the U.S. will drop by 1 percent, perhaps triggering OPEC competition to revive some idled capacity. On the other hand, supply and demand for natural gas will surge. There will be no increase in demand for dirty old coal, much less green than natural gas. The need for liquefied natural gas (LNG) will climb by 7 percent, sped up by the shipping sector, which must comply with strict sulfur-emissions rules by 2020. The biggest market for LNG is Japan, whose nuclear authorities are a forecaster’s bane. Japan’s imports of LNG will depend on the counterterrorism defenses regulators require of nuclear plants. Many of the facilities that were restarted after the Fukushima nuclear accident could close


ISSUES OUTLOOK

This new year could be the year when solar-panel makers in China, which claim some 70 percent of the global market, must finally survive without subsidies. Artificial intelligence will play a bigger role, as AI systems from China’s Huawei will reposition panels to search for more sun.

LG Chem, which has already supplied batteries to GM for its Bolt model, will team up with the automotive giant to make batteries at a plant to be built in the Lordstown, Ohio area, with the creation of 1,100 jobs, albeit jobs not nearly as highly paid as were those in the automotive factory. Funding for this $2.3 billion plant was included in GM’s October 28 deal with the UAW”

The year 2020 will see advances in the design and durability of storage batteries, both for electric vehicles and for the storage of solar and wind energy. Battery materials may change, with the usual lithium-ion composition being replaced by other, rarer compositions.

GM says the JV includes an agreement with LG Chem to develop “advanced battery technologies” in order to reduce battery costs and remain flexible with regards to “ongoing advances in technology and materials.”

again, spurring demand for LNG for power in its place.

Manufacturing Outlook / January 2020

35


GLOBAL PMI OUTLOOK

GLOBAL PMI OUTLOOK

by NORBERT ORE, DIRECTOR, HEAD OF INDUSTRIAL SURVEYS, STRATEGAS RESEARCH PARTNERS After slowing somewhat in Q2, global manufacturing fell sharply during 2H 2019. The global economy is fraught with an ever-expanding number of challenges. Of the eighteen indexes that we monitor closely, nine indicated contraction and nine were expansionary in December. In December, bright spots were found again in the Taiwan CIER Manufacturing (56.2, +1.3) and the U.S. ISM NonManufacturing (55.0, +1.1) PMIs. The non-manufacturing data exhibited strength in Business Activity, New Orders, and Employment – the most important components. Taiwan data is an early indicator on China activity. However, much of this demand could be in anticipation of the Chinese New Year. “Seasonals” for the Chinese New Year period are at best a guess since the holiday does not occur at the same time each year.

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Manufacturing Outlook / January 2020

Durable goods producers are not seeing a recovery as several surveys indicate continued weakness in investment. A global recovery requires improved demand and output from the largest economies – U.S., China, Japan, Germany, U.K., France, and India. The scatterplot below illustrates overall weakness as nine of eighteen indexes are under 50. Eurozone: The Eurozone PMI (46.3,-0.7) failed to grow for the eleventh consecutive month. Germany (43.7, -0.3) led the decline as it has failed to post a PMI reading greater than 45 for ten consecutive months. Austria (46.0, Unch), Italy (46.2, -1.4), Spain (47.4, -0.1), Netherlands (48.3, -1.3), and Ireland (49.5, -0.2) were also below the neutral mark. On the positive side, expansion was found in Greece (53.9, -0.2) and France (50.4, -1.3). United Kingdom: Given the degree of political and economic uncertainty, the UK/CIPS PMI (47.5, -1.4) indicated a modest loss of upward momentum in December following a six-month high in October. The PMI averaged 50.0 for the year with growth primarily in Q1 and contraction dominant in the second half.


GLOBAL PMI OUTLOOK China: China’s Official Report, the CFLP PMI (50.2, Unch), climbed above the 50-mark for a second month following six months of contraction. The Caixin Manufacturing PMI (51.5, -0.3) continued to gather momentum and posted a fifth consecutive month of expansion. Growth in both PMIs are considered indications of growth in China. India: India’s PMI (52.7, +1.6) was expansionary for the 29th consecutive month. India’s Manufacturing PMI averaged 52.3 for 2019. South Korea: The PMI (50.1, +0.7) grew marginally during the month. December marked the first reading above the 50 mark since April 2019. The PMI averaged 48.6 for 2019. Japan: December’s reading (48.4) was slightly below 2019 average (49.2). Deceleration began in January 2018 from a high of 54.8. Production declined at the fastest rate in nearly four years. North America: Canada’s PMI (50.4, -1.0) averaged 50.6 in 2019. Mexico’s PMI (47.1, -0.9) averaged 49.7 for the year. Both indexes indicated little change in the overall manufacturing sector for North American trading partners. USMCA ratification will result in greater movement of goods across North America’s borders. In December, the U.S. Manufacturing ISM PMI® (47.2, -0.9) contracted for the fifth consecutive month. The 2019 average for the PMI was 51.2. The past relationship between the PMI® and the overall economy indicates that the PMI® for December (47.2) corresponds to a 1.3% increase in real GDP on an annualized basis according to the ISM press release.

industries reported customers’ inventories as too low: Wood Products; Fabricated Metal Products; Plastics & Rubber Products; Chemical Products; Electrical Equipment, Appliances & Components; Primary Metals; Food, Beverage & Tobacco Products; Computer & Electronic Products; Transportation Equipment; Machinery; and Miscellaneous Manufacturing. Six industries reported no change in customer inventories. Prices: The Prices Index (51.7, +3.5) signaled stability as 70.5% of companies report prices as unchanged. Commodities Up in Price: Aluminum Products; Copper Products; Scrap Metals; Steel — Hot Rolled (2); Steel — Stainless (3); Steel Products; and Valves. Commodities Down in Price: Caustic Soda (3); Corrugate; High-Density Polyethylene; Freight (3); Natural Gas; Nickel; Polypropylene (2); and Steel (6). Commodities in Short Supply: Aluminum Products; Machined Parts; and Titanium. *Indicates both up and down in price. (Note: The number of consecutive months the commodity is listed is indicated after each item.) Sectoral Breakdown: Of the 18 manufacturing industries, three reported growth in December: Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Computer & Electronic Products. Fifteen industries reported contraction: Apparel, Leather & Allied Products; Wood Products; Printing & Related Support Activities; Furniture & Related Products; Transportation Equipment; Nonmetallic Mineral Products; Paper Products; Fabricated Metal Products; Petroleum & Coal Products; Electrical Equipment, Appliances & Components; Textile Mills; Primary Metals; Chemical Products; Plastics & Rubber Products; and Machinery.

Drivers: Four of five inputs were below the mid-point during December. Supplier Deliveries (54.6, +2.6), often a sign of future expansion, were additive while New Orders (46.8, -0.4), Employment (45.1, -1.4), Production (43.2, -5.9), and Inventories (46.5, +1.0) were contractionary. The PMI sub-indexes are consistent with a manufacturing sector that is seeing backlogs decline and inventories balance. New Orders Minus Inventories: This key manufacturing measure (0.3, -1.4) showed New Orders are declining at a slightly faster rate than Inventories. Compared to the average gap (+7.8 pp beginning in 2011), a significant inventory correction continues to take place. Customers’ Inventories: Only the Apparel, Leather & Allied Products industry reported customers’ inventories as too high during December. Eleven

Manufacturing Outlook / January 2020

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EUROZONE OUTLOOK

GLOBAL OUTLOOK

EUROZONE by ROYCE LOWE

IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) continued in contraction, and slipped back from November’s 46.9 to 46.3 in December. There were fast falls in production and new orders at the year end, and hence lots of spare capacity, leading to more job losses. Intermediate and investment goods were a problem, but there was marginal growth in consumer goods for the first time since August. IHS Markit’s PMI for the UK fell back from 48.9 in November to 47.5 in December. Production, new orders, and new exports all fell sharply, and there were job losses for the ninth straight month. There were contractions in intermediate and investment goods, and slight expansion in consumer goods. Business sentiment remained positive, with over 43 percent of companies looking for higher production one year from now versus 10 percent looking to contraction.

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Manufacturing Outlook / January 2020


ASIA OUTLOOK

GLOBAL OUTLOOK

ASIA OUTLOOK by ROYCE LOWE

CHINA saw production continue to improve strongly in December, but there was a softening in growth of new orders and stagnation in employment. The PMI for December was at 51.5 versus 51.8 in November. 51.7. China’s sales of passenger cars and commercial vehicles were down in total by 3.6 percent in November, at 2.457 million units. JAPAN again saw weak demand and deterioration with production and new orders down and weak export performance.

Manufacturing employment continues to increase and there is strong optimism regarding future production. The PMI for Japan in December fell back to 48.4 from November’s 48.9. INDIA saw production up at the joint-fastest rate in 10 months and a faster expansion in new orders together with a renewed increase in employment. Consumer goods led, and there was a strong contribution from intermediate goods, but investment goods are still in contraction. The PMI for India rose from November’s 51.2 to 52.7 in December.

Manufacturing Outlook / January 2020

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SOUTH AMERICAN OUTLOOK

GLOBAL OUTLOOK

SOUTH AMERICA by ROYCE LOWE

BRAZIL saw a year-end slowdown, with the PMI at a five-month low. Production and new orders increased at slower rates and employment was back in contraction. December’s PMI fell back to 50.2 from November’s 52.9. The JP MORGAN GLOBAL MANUFACTURING PMI – a composite index produced by JPMorgan and IHS Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – stayed in expansion but slipped to a two-month low in December. Weak international trade flows continue to adversely affect overall performance. The PMI is kept afloat by the consumer goods sector.

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Manufacturing Outlook / January 2020

December’s PMI slipped back from November’s 50.3 to 50.1 in December. Business confidence was at a seven-month high in December.


A SKILLS GAP SOLUTION

A SKILLS GAP SOLUTION: FORGET THE RESUME AND PEDIGREE. FOCUS ON CHALLENGING AND GROWING PEOPLE BY ANDREA BELK OLSON We frequently assume that if we hire someone with a great resume and a strong background of industry and competitor experience, we’ve found a gem. That this person will bring to the organization a breadth of knowledge that will help provide new insights on industry best practices and secret sauces. If we can get them at a reasonable cost, even better. But is this really a great hire? I’d argue, it’s quite wrong. Many companies are of this mindset bring in people with the pedigree and experience that will elevate the organization to a new level. However, we’re looking at it through too shallow of a lens. Diversity of experience, ability to problem-solve and attitude can best a traditional pedigree almost any day. Take diversity of experience. A candidate that has experience in a variety of industries and roles, brings to the table a broader perspective of knowledge. They have a better understanding of how an organization operates and can draw from knowledge and processes from other industries from which your company can create strategic advantage. If they have the ability to problemsolve, they can see unique solutions to chronic organizational challenges. If they have a positive and forward-thinking attitude, they will help shape and influence organizational culture to behave the same way. Another oversight that many organizations make is that they believe hiring someone who is ‘already trained’ means they don’t have to do any more training. This is also quite wrong. Training shouldn’t be perceived as a hassle and

expense of getting a new employee ‘up to speed’. Training should be seen as an opportunity to create a strategic advantage. Just as an educated customer is a better customer, so is an educated employee. Employees that aren’t just on-boarded, but learn the processes and challenges of other departments, have hands-on time with customers, are continually encouraged to problem-solve, and provided opportunities to advance their skillsets, are better employees. People are also generally underestimated. As leaders, we need to change our perspectives on how we hire and build teams. We need to focus on not simply hiring someone who’s ‘out of the box ready’, but on candidates both internally and externally, who bring diversity, unique perspectives, problem-solving experience, and a culture-building attitude to the table. This can become a competitive advantage. Because even the greatest of companies started with (and frequently still have) a team that didn’t bring the pedigree to the table - just an array of experiences, a passion for problem-solving, and a challenge to rise to. About the Author: This introspective essay was previously published on LinkedIn.com by Andrea Olson. In addition to writing and consulting, Andrea Olson speaks to leaders and industry organizations around the world on how to craft effective customer-centric organizations. More information is available on pragmadik.com or thecustomermission.com. Manufacturing Outlook / January 2020

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Manufacturing Outlook for January 2020  

In This Issue: Unresolved: The Skills Gap, Want To Hire A Robot? There's An Agency For That, Veterans Perfectly Suited To Address The Skills...

Manufacturing Outlook for January 2020  

In This Issue: Unresolved: The Skills Gap, Want To Hire A Robot? There's An Agency For That, Veterans Perfectly Suited To Address The Skills...