Manufacturing Outlook June 2021 by Manufacturing Outlook

Brought to you by

The Manufacturing & Business Podcast Network

O U R

P O D C A S T S :

MFGTALKRADIO.COM

L I S T E N TO O U R P O D C A S T S AT:

www.jacketmediaco.com

YOUR INDUSTRY 4.0 JOURNEY PAGE 8

MANUFACTURING OUTLOOK PAGE 6

MANUFACTURING TIDBITS PAGE 12

WEARABLES + AR = POWERFUL NEW TOOLS FOR FRONTLINE WORKERS PAGE 12 PAGE 16

THE CASS TRANSPORTATION INDEX PAGE 20

MAY ISM PMI: 61.2%

[

GEN ZERS: THE FUTURE OF MANUFACTURING

Released June 1st -The Full Executive Summary Report On Business - Page 22

ISO9001:2015 SINCE 1994 AND AS9100D SINCE 1998 NIST SP 800-171

(COMPLIANCE UNDER DEVELOPMENT)

Manufacturing Outlook / June 2021

*Toll free within the U.S.

TABLE OF CONTENTS Publisher LEWIS A WEISS Editor in Chief TIM GRADY Creative Director CRAIG ROVERE Contributing Writers ROYCE LOWE NORBERT ORE CHRIS KUEHL THOMAS R. CUTLER AMELIA ROY JEANNE-MARIE LOWRIE JOCELYN BRIGHT CHRIS ANDERSON LAWRENCE MAKAGON

PUBLISHER’S STATEMENT

NORTH AMERICA OUTLOOK

Inflation and Shortages May Cool The Economy

MANUFACTURING OUTLOOK

Current Circulation 45,200 Advertising ADVERTISE@MFGTALKRADIO.COM Editorial Office JACKET MEDIA CO. 75 LANE ROAD FAIRFIELD, NJ 07004 (973) 808-8300

Brazil Doing Better But COVID Looms

COVER STORY: YOUR INDUSTRY 4.0 JOURNEY by Jason Spera

MANUFACTURING TIDBITS

Insights from inside manufacturing in action

12 WEARABLES + AR = POWERFUL NEW TOOLS FOR FRONTLINE WORKERS

16 GEN ZERS: THE FUTURE OF MANUFACTURING by Rachel Snyder

ASIA OUTLOOK PMI Stays Over 50 In Major Countries

30 EUROZONE OUTLOOK New PMI High In Europe

31 GLOBAL PMI OUTLOOK by Norbert Ore

38 THE CREDIT MANAGER’S OUTLOOK by Dr. Chris Kuehl

METALS OUTLOOK

THE SMART FACTORY JOURNEY - NOT JUST TECH

by James Crean

20 CASS INDEX

Cass Transportation Systems

22 Text “RADIO” to 66866 for comments, suggestions and ideas and guest requests for MFGTALKRADIO.COM podcast.

SOUTH AMERICA OUTLOOK

Global Manufacturing Hitting New Record Highs

by Dirck Schou

Production Manager LINDA HOPLER

U.S. Booming, Canada OK, Mexico Struggling

ISM MANUFACTURING REPORT ON BUSINESS

PMI Hits 61.2% - Strongest In Decades!

Algoma Steel Gets Another Go

AEROSPACE OUTLOOK Another Space Race And..

DOES COMMERCIAL SUPERSONIC FLIGHT HAVE A FUTURE?

by Craig Rovere

48 ENERGY OUTLOOK An Energenic Lady

50 AUTOMOTIVE OUTLOOK The Truck, According To Ford

© 2021 Jacket Media Co. No part of this publication may be reproduced or used in any form without the prior written permission of the publisher. Manufacturing Outlook is a registered trademark of Jacket Media Co.

52 Open call for...

Contributing Writers for new and existing content. Let’s start a conversation – Contact us at info@jacketmediaco.com or visit mfgtalkradio.com/writer for more information.

ISSUES OUTLOOK International Trade Puckers Up

PUBLISHERS STATEMENT Publisher’s Statement

Inflation and Shortages May Cool the Economy While the manufacturing economy is booming in most sectors, there are factors beginning to weight on progress. First is an aggressive upward movement of suppliers passing on raw material increases to manufactures. Price increases in the Services sector is also significant, particularly in lumber for new home construction; in fact, for any construction that relies on lumber, the base cost has nearly doubled. Back in Manufacturing, the cost of shipping containers has jumped from $155 a metric ton to $440 a metric ton. Cold and hot rolled steel coil prices have jumped 200% since last summer, and nearly 400% since late 2019. Then there are shortages, which begins with container ships that were pulled out of service due to crew shortages. That backed up containers, as there were fewer ships to move them from port to port. At the ports, a shortage of dock workers slowed offloading of containers. Now, nearly every port has ships waiting to be offloaded, then loaded, and sent on the return voyage. This creates a container shortage and a longer cycle time for each container. Once unloaded, after significant delay, containers are then moved by truck to distribution centers, warehouses, or customer loading docks – if you can find drivers – and trucks! Most industries are having difficulties hiring drivers, and have had that challenge for several years. Now, they are having difficulties hiring workers at the lower end of the wage scale. While many think this will result in hiring at higher wages, overall, the more likely outcome will be more robotics and automation for repetitive task jobs to balance the cost of hiring at higher wages. So, how does greater input supply costs impact the price equation? Prices must rise, especially since manufacturing experienced prices increases in 2019 and 2020 that were, for the most part, not passed on. This is price inflation, which is already in motion in the economy. What does higher prices (inflation) translate to in the price-demand equation? As prices rise, demand falls. A more difficult scenario is where prices accelerate past the increase in wages and stagflation occurs. In either case, consumers pull back in spending, either because they cannot afford it or are unwilling to pay it, and the accelerating economy begins to cool off. The cycle is that the boom is always followed by a bust. While 2021, the Covid recovery year, appears strong, and while the backlog of containers and its ripple effects are expected to continue through year-end, along with continuous price increases, the outlook that 2022 will continue in the boom category may be overly optimistic. You may find out first by reading Manufacturing Outlook. If you haven’t subscribed, you might want to take advantage of the free subscription.

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.

Manufacturing Outlook / June 2021

MANUFACTURING OUTLOOK

JUNE 2021

MANUFACTURING OUTLOOK GLOBAL MANUFACTURING HITTING NEW RECORDS. SUPPLY CHAINS GETTING EVEN SLOWER, RAW MATERIALS EVEN SCARCER AND MORE EXPENSIVE. STEEL PRICES RELENTLESS. INFLATIONARY PRESSURES WORSENING. U.S. SEEING A SERIOUS MANUFACTURING LABOR SHORTAGE. by ROYCE LOWE The ISM PMI figure for U.S. manufacturing rose from 60.7 in April to 61.2 in May. The overall economy returned to a twelfth month of expansion. The Bureau of Economic Analysis says the Real Gross Domestic Product increased at an annual rate of 6.4 percent in the first quarter of 2021, according to the Bureau’s “advance” estimate. The real GDP increase in the fourth quarter of 2020 was 4.3 percent. The IMF recently published its World Economic Outlook for GDP growth for 2021 and 2022. It forecasts global growth of 6.0 percent for 2021 and 4.4 percent for 2022, following 2020’s contraction of 3.3 percent. Forecasts for the U.S. for 2021 and 2022 are 6.4 and 3.5; the Euro area 4.4 and 3.8; Japan 3.3 and 2.5; China 8.4 and 5.6; UK 5.3 and 5.1; Canada 5.0 and 4.7. IHS Markit’s remarks on U.S. manufacturing for May show their PMI figure at 62.1, up from April’s 60.5. This was a month for records, with new orders growing at the fastest pace on record, and backlogs of work rising at the quickest pace on record. There were stronger expansions in new orders and production, and one of the fastest increases in input prices on record. The increase in business activity seen among

Manufacturing Outlook / June 2021

U.S. manufacturers was among the strongest in the 14-year survey history. Component shortages and supplier delays reportedly continued to limit operating capacity. There was an overall difficulty finding suitable candidates for many manufacturing jobs. GLOBAL CRUDE STEEL PRODUCTION WAS UP BY 23.3 PERCENT YEAR-OVER-YEAR IN THE MONTH OF APRIL for the 64 reporting countries – which represent 99 percent of world crude steel production – to 169.5 million tons (MT). U.S. crude steel production for April was 6.9 MT, up 43.0 percent year-over-year. For January through April the

MANUFACTURING OUTLOOK U.S. produced 27.3 MT, up 2.8 percent year-over-year. In the January through April period, China produced 374.6 MT, up 15.8 percent year-over-year; India 38.2 MT, up 26.9 percent; Japan 31.5 MT, up 2.7 percent; Russia 25.5 MT, up 7.7 percent; South Korea 23.4 MT, up 6.5 percent; Germany 13.5 MT, up 9.0 percent, and Brazil 11.8 MT, up 15.9 percent. The EU (27) produced 51.0 MT, up 11.6 percent.

For the first three months of 2021, the U.S. imported 6.613 million total tons of steel offshore (excluding Canada), up 3.1 percent, of which finished steel was 4.447 million tons, down 1.4 percent. Annualized, in 2021, this would be 26.5 and 17.8 million tons, up 20.1 and 10.2 percent respectively. Canada will send some 90 percent of its steel exports to the U.S. or some 5-6 million tons per annum. Primary Global Aluminum Production in April was reported at 5.560 million tons, with production in China at 3.223 million tons, representing 58 percent of world total. Production was 476,000 tons in GCC; 366,000 tons in the rest of Asia; 281,000 tons in Western Europe; 327,000 tons in North America and 341,000 tons in Eastern and Central Europe. U.S. car sales, not surprisingly, took a great leap from May 2020, but in the absence of actual figures for the month of May, for U.S. companies, it is difficult to be more precise. An interesting sales report comes from Norway, where the recently available Ford Mustang Mach-E EV model was the best-selling EV model in the country for the month of May, with 1,384 units sold, versus VW’s ID4 at 774 units, and Tesla Model 3 at 504 units. 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) – was up from 55.9 in April to 56.0 in May.

Production increased at its fastest rate in over a decade, as new order growth went to an eleven-year high. Employment was up for the seventh consecutive month in May. Job creation was led by the Euro area, where staffing levels were up at a near-record pace. The average vendor lead times lengthened to the greatest extent in survey history, and backlogs of work at manufacturers rose at a near survey record. Buying activity expanded for the tenth consecutive month. There was solid growth across the consumer, intermediate and investment goods sectors, with investment goods again the strongest. 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. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. Manufacturing Outlook / June 2021

COVER STORY

Your

Industry 4.0 Journey by JASON SPERA As momentum around the Connected Factory continues to build, manufacturers are intently focused on reaching Industry 4.0. To reap the full benefits of the Connected Factory, it is critical that today’s manufacturers approach Industry 4.0 as a journey. Valuable tools, next-generation optimization systems, sensor devices, or manufacturing applications alone will not instantaneously allow manufacturers to achieve Industry 4.0 benefits. Industry 4.0 must be embraced as a long-term, strategic mindset of digital transformation that dynamically alters manufacturers’ entire operational perspective. The capabilities which empower unparalleled advancements in smart, connected manufacturing requires an enterprise-wide effort and leadership from CEOs and COOs as well as IT/OT practitioners on the factory floor.

Manufacturing Outlook / June 2021

For manufacturers to overcome the obstacles of achieving digital transformation, appropriate routes to full IIoT (Industrial Internet of Things) optimization are necessary; combined with fast track success using MES (Manufacturing Execution Systems) the Industry 4.0 journey begins. Revolutionizing the manufacturing process Revolutionizing the manufacturing process is accomplished by bridging the gap between highlevel Information Technology (IT) and floor-level Operational Technology (OT). It requires leveraging intelligent data insights to power factory-wide innovative adaptability. With digitized, cyber-physical systems for automated data collection and autonomous intelligent decision making, Industry 4.0 enables mass customization at high volume production rates with minimal levels of human intervention.

COVER STORY Automatically controlling material flow to eliminate downtime and operate at the lowest level of inventory possible is the promise of Industry 4.0. The ultimate goal is to transform manufacturing into an environment that is adaptive and customer-centric, capable of generating new business models and revenue sources. Holistic lean material management Capabilities can shift operations on a dime, flexibly adapting to meet changing customer demands, enhance productivity, reduce waste, and accelerate production. This is achieved primarily through a decentralized production system, in which production plants can maintain closer contact with customers and supply chain partners and achieve an agile, flexible model for mass customization. Successful decentralization requires advanced data-sharing between locations which not only consolidates and provides intelligent insights into day-to-day operations across sites, but also enhances communications between people, machines, and customers. Only when a factory can support a ‘single piece flow,’ will it automatically adapt to a new product configuration or an entirely new product as each unit comes down the line. Manufacturers should be able to automatically adapt to line conditions, down conditions, material supply, and other variables without customization. When companies have reached a stage that supports a level of innovative adaptability, they become disruptive.

Intelligent insights Manufacturers often collect descriptive data (“What happened?”) and diagnostic data (“Why did it happen?”) about machines and devices, but with Industry 4.0’s end-to-end digitization, they can also gain predictive (“What will happen?”) and prescriptive (“What action should I take?”) insights into the status of operations. With multidirectional data synthesized from ever-changing sources, analytics can be communicated in real-time via operational dashboards. These data insights drive progress, quality, compliance, and innovation enterprise-wide, while also radically simplifying decision-making processes on a daily basis. Industry 4.0, which connects Big Data and Machine Learning analytics, delivers this intelligent data 24/7 for constant insight into current and future operational performance. The Additive Evolution of Manufacturing Data

DESCRIPTIVE DATA What Happened?

DIAGNOSTIC DATA Why Did It Happen?

PREDICTIVE DATA What Will Happen?

PRESCRIPTIVE DATA What Action Should I Take?

Digital Transformation Process: Develop Strategic Objectives C-Level executives need to understand the vision for Industry 4.0 and how the approach will shift the company’s business processes. Strategic objectives must be developed to guide and monitor the implementation process. Without an agreed-upon strategy and C-Level sponsorship of the plan, enterprise-wide transformation cannot occur. Select a solution: business IT/OT practitioners key decision-makers Relevant solutions are selected for the projects outlined in the operational architecture. Each provider should be properly vetted and able to offer ongoing support and resources for your Industry 4.0 solutions and tools. Top digital transformation challenges Even for industry-leading manufacturers, the digital transformation process is not without challenges. All manufacturing companies must overcome obstacles in their Industry 4.0 journey as they make the significant transition to converged technologies. Cont’d on Page 10 Manufacturing Outlook / June 2021

COVER STORY User adoption/change management A component that is often overlooked is the challenge of change and the “people piece.” Change management in conjunction with hiring talent and upskilling are enablers for Industry 4.0 adoption. By deploying a solution that has a positive user experience, is easy to configure, yet offers robust capabilities, companies can transform employees’ experience as well as retention rates, satisfaction levels, and productivity.

Choosing an Industry 4.0 starting point Every successful Industry 4.0 journey needs a strong starting point. Choosing a pilot project requires that leaders consider the following: • What does the company want to achieve? • What’s coming up next? • Is this project too ambitious? Too simple? Ultimately, there is no one-size-fits-all method for embarking on the Industry 4.0 journey, but there are common in-roads that promote sustained success.

MES empowerment MES empowers operators to leverage specialized manufacturing insight without taking excessive time for cross-training, quickly establishing a high level of team-wide flexibility. When surveyed, more than 90% of leading manufacturers said that cross-trained operators were instrumental in achieving flexibility. Regardless of the area in which a manufacturer chooses to begin the Industry 4.0 journey, each key element of digital innovation—IIoT connectivity, smart applications, and advanced analytics—will eventually have a critical role to play. Fast track Industry 4.0 journey with MES A key to success on the Industry 4.0 journey is a holistic MES. When deployed, MES shares critical data between operational factory floor processes and higher-level business systems such as ERP, effectively converging IT/OT and becoming synonymous with the IIoT platform powering Industry 4.0 capabilities. The benefits of MES are often apparent from the start. Eight-two percent of manufacturers who adopted MES saw reduced cycle times and lead times within 12 months. While MES capabilities differ from provider to provider, modern MES platforms include the ability to:

Manufacturing Outlook / June 2021

COVER STORY Provide configurability and

automated equipment.

process control and improvement.

Add automation, management, and traceability value.

Respond and adapt to support any type of process such as Just-In-Time Routing, Configureto-Order, and Engineer-to-Order

Unify visibility and control into a single digital platform.

Without MES, factories are left with a gap that inhibits Industry 4.0 innovation. Project management and engineering will lack crucial insight into equipment and process productivity, leaving the factory disconnected. According to an LNS Research survey, only 20% of manufacturers properly fill the MES gap. For many manufacturers, instituting MES applications is the ideal starting point on an Industry 4.0 journey.

Author Profile Jason Spera, CEO and Co-Founder, Aegis Software Spera is a leader in MES/MOM software platforms for discrete manufacturers with particular expertise in electronics manufacturing. Founded in 1997, today more than 2,200 factory sites worldwide use some form of Aegis software to improve productivity and quality while meeting regulatory, compliance and traceability challenges. Spera’s background as a manufacturing engineer in an electronics manufacturing company and the needs he saw in that role led to the creation of the original software products, and continue to inform the vision that drives Aegis solutions today. He regularly speaks on topics surrounding factory digitization, IIoT, and Industry 4.0.

Manufacturing Outlook / June 2021

MANUFACTURING TIDBITS

Wearables + AR = Powerful New Tools for Frontline Workers by DIRCK SCHOU Augmented reality (AR) applications are popping up everywhere. Some researchers estimate the overall market could top $32B by 2026. While gaming and consumer applications may grab headlines, there are a number of exciting developments in the manufacturing industry that promise to improve how frontline workers perform their day-to-day jobs. Technological advancements in AR are poised to create entirely new models for how frontline, deskless workers are trained, and how they maintain and repair the critical equipment manufacturers count on. A key factor of the growing interest in the adoption of AR solutions is the introduction of

Manufacturing Outlook / June 2021

new and improved headset designs. Venerable tech companies including Microsoft, Apple, Nokia, Ericsson, Samsung, Lenovo, and others, as well as new innovators like Magic Leap and RealWear, are exploring entirely new approaches to wearables. These companies are also ramping up production to levels that make widespread AR industry adoption a reality. A Critical Need for AR Solutions New, highly-usable hardware is a critical step in delivering long-overdue technological advances to deskless workers. While employees who spend all or part of their workdays at a desk or workstation have experienced incredible advances

MANUFACTURING TIDBITS in productivity based on evolutionary technology, frontline workers have been largely left behind. AR is changing all of that. From advanced headsets to platforms like Manifest, deskless workers are experiencing the performance-improving benefits of on-demand access to AR-based knowledge. The need for AR solutions has never been greater as the manufacturing industry faces a rapidly expanding skills gap. For every ten retiring frontline workers, only three new workers are being hired to replace them. Compounding the issue of knowledge retention, these new workers only stay in their jobs for an average of three years. This dynamic necessitates a constant cycle of retraining, a challenge exacerbated by an industrial workplace that is increasing in complexity with new automation and sensor technologies. The Role of Great Hardware Headsets have been available for quite some time, but adoption of wearables has been

slow for multiple reasons. In many cases, manufacturers have been waiting for compelling software that made investment in AR systems a strategic advantage. In other instances, network connectivity was not robust enough, making access to AR systems a challenge. And the hardware itself has sometimes prevented adoption as too few designs made products unsuitable in specific cases, such as in highsunlight, outdoor use, or applications in rugged environments. These hardware hurdles are currently being addressed by headset makers, and when combined with powerful, high-utility software, interest among manufacturers has begun to soar. The recent U.S. Army contract to purchase 120,000 HoloLens headsets is certainly testament to the value AR systems are capable of delivering in enterprise-level environments. When outstanding hardware design and powerful Cont’d on Page 14

Manufacturing Outlook / June 2021

MANUFACTURING TIDBITS

AR software are married together, the benefits to frontline employees are immense. Organizations are able to capture and leverage the knowledge of their most skilled workers and share it quickly and efficiently with teams of frontline staff and across locations. AR solutions will allow workers to communicate in real time with one another, using robust video, voice, and remote-guidance capabilities, enabling them to perform their jobs more accurately, more thoroughly, and more safely. For instance, if a worker is managing complex tasks like conducting maintenance or repairs on a piece of machinery, advanced headsets can assist in capturing AR-based instruction, enabling authorized staff to efficiently create step-by-step processes for use in any operational or training capacity within the facility, or any other similarly equipped plant around the world. This expert content is instantly available, anytime, anywhere. And when additional support is needed, advanced AR hardware/software platforms can deliver help-center-like guidance from skilled technicians directly to less knowledgeable workers in real time.

Manufacturing Outlook / June 2021

The role of 5G networks in the AR adoption cycle cannot be underestimated. By their nature, augmented reality platforms require high bandwidth to access and deliver the audio and video content that makes these systems valuable to manufacturers and their frontline staff. 5G addresses this availability issue, while decreasing latency and delivering increased security, making AR systems viable and more valuable to manufacturers. Proven Results Empowering frontline workers with the hardware enabling them to access expert knowledge will deliver exceptional value to manufacturers. Multimillion dollar equipment can be better maintained and more quickly repaired when it breaks down. Forward-thinking equipment makers are even shipping AR hardware with their products, allowing their manufacturing customers to access AR content that enables them to complete repairs without the loss of time or expense of waiting for technicians to travel to the site. Taqtile has conducted studies with its customers and discovered the staff trained with the Manifest

MANUFACTURING TIDBITS AR system complete their tasks much more quickly and more accurately than employees trained with traditional methods. In some case, the benefits are dramatic, such as reducing errors on complex maintenance and repair tasks. For example, the U.S. Air Force Research Labs saw the rate of error occurrence by first-year air maintenance mechanics on C-5 engine component replacement tasks drop from 92% when using traditional manual-based methods, to 0% after implementing Manifest. In terms of training-time reduction, the results can be just as impressive. PBC Linear, an Illinoisbased manufacturer of linear-motion products, is now able to get new employees up to speed on complex procedures in three days using Manifest, down from three weeks using traditional training methods. Advanced hardware and high-utility AR software will change how manufacturers train and support their frontline staff. New and improved headset

designs that are becoming widely available are leading manufacturers to begin investing in AR systems in earnest. This adoption enables manufacturers to use AR platforms such as Manifest as fully-integrated communication and knowledge-sharing platforms for frontline staff. At long last, the deskless workers in the manufacturing industry will benefit from technical advances in hardware and software. A new generation of headsets and high-value AR software are becoming strategic advantages for manufacturers, enabling them to improve the productivity of their frontline teams and their bottom lines. Dirck Schou is CEO of Taqtile (www. taqtile.com), the maker of Manifest, a platform to harness, distribute and apply knowledge to rapidly improve job performance. He can be reached at taqtile@finnpartners.com.

Manufacturing Outlook / June 2021

MANUFACTURING TIDBITS

GEN ZERS: THE FUTURE OF MANUFACTURING

by RACHEL SNYDER For many owner/founder manufacturers it might be difficult to grasp the truth that the state of the manufacturing industry rests in the hands of Generation Z (born in the 1990s to 2010s). As a Gen Zer we do not connect to Facebook. We use Instagram Live to delve into our personal and professional lives, we post embarrassing videos on Snapchat, and enjoy the mindlessness of scrolling on TikTok for hours. These behaviors are vital to the success of the manufacturing industry moving forward. Long before COVID eliminated 1.4 million jobs, Boomers were aging out of the workforce. Millions more Boomers will file for Social Security in the next three years. The need to fill those openings falls to Gen Zers. Sure, skill sets need to be met, but many manufacturers are listening to Zip Recruiter and Indeed.com advertising on media rarely utilized by the Gen Zers to fill needed positions. It is not difficult finding Gen Zers to take these jobs. The transactional nature of this generation combined with high paying manufacturing jobs is attractive. Attracting the young job seekers in the first place is the challenge. Generation Z was born into a world where technology and the Internet already secured its role in the communication dynamic: interaction, motivation, and

Manufacturing Outlook / June 2021

inspiration. Gen Zers grew up with computers, phones, and tablets, so navigating them became second nature to us. We taught our Baby Boomer and Gen X relatives how to use these devices in order to adapt their lives to a tech obsessed world. We are the exception, even overly reliant, with the Internet, especially social media. Curating our image on apps like Instagram, Snapchat, and TikTok takes hours, explaining why nearly half of Gen Zers spend 10 hours glued to their phones a day. Numerous brands recognize that more than 85% of Gen Zers will learn about new products solely through social media. The extrapolation must follow that new job opportunities must be shared through the same platforms. Instagram and TikTok: The path to a Gen Zer manufacturing workforce Failure to appreciate these mechanisms as two of the most powerful tools in the lives of Gen Zers will mean missed opportunities. Generation Z’s whole world is encapsulated by these entertaining apps that are designed to keep anyone glued to their screens. These apps are incredibly smart and intuitive, learning to curate specific content they know the user will enjoy based on previous interactions.

MANUFACTURING TIDBITS No one will find a Gen Zer scrolling through Indeed. com or LinkedIn as often as social media accounts. Instead of thinking of TikTok as a silly “dancing app,” manufacturers must take advantage of the ability to reach millions of eligible Gen Z employees. The Boomer mindset must be disrupted for the communication dynamic of this younger generation. These media are vastly more powerful and entertaining; they are how the manufacturing workforce will be created over the next 20 years. Grabbing the attention of a Gen Zer is one thing, but maintaining it is another. Gen Zers require instant gratification, essentially because we were programmed to seek validation from the number of likes and views received on our posts. Enticing prizes, constant communication, and recognition are things that will attract Gen Zers, and keep them. Participating in trends on TikTok is another great way to engage us and motivate us to learn more about a particular manufacturer, skillset, and even encourage friends to apply for open job opportunities. While Gen Zers have a reputation of being less hard working than our Boomer parents, we also are adept at working smarter and not harder. We embody the principles of lean manufacturing without knowing we

New Jersey Manufacturers,

Do You Have... • Jobs that are difficult to fill with the right candidates? • Positions that have high turnover? • Occupations where a highlyskilled workforce is retiring soon?

are doing so. Bottom-line: rather than making fun of the triviality of TikTok, use it to build a powerful, dedicated, and facile workforce. We are the future of manufacturing. Author Profile:

Rachel Snyder is currently studying Mass Communications at Boston University. As a Generation Z individual herself, Snyder has a unique understanding of the role of social media among her peers; her analysis examines how it impacts the lives, decisions, and actions of fellow Gen Z thinkers. Instagram, Snapchat, and TikTok are more than resources but rather the answer to reaching her generation. These insights are vital for businesses to inspire, motivate, and engage Gen Z job applicants and employees. Traditional PR, messaging, trade shows, job boards will simply be ignored by Gen Z thinkers according to Snyder. Speaking in the lexicon, vernacular, and information dissemination modalities needed to reach Gen Z, Snyder recognizes how many industrial leaders and Marcom professionals simply cannot grasp how to leverage the 20 hours per week the average Gen Z youth spends on TikTok. Snyder hopes to serve as a thought-leader and liaison to bridge the future workforce as Boomers age-out in favor of her generation. Snyder in the newest and youngest member of the 8000+ member Manufacturing Media Consortium. Snyder can be reached at rachsny26@gmail.com.

NJMEP offers Workforce Development Solutions to close the Skills Gap: • Pre-Apprenticeship Programs • USDOL Apprenticeships • ’Project 160’ No-Cost Training • ’Tri50’ Upskilling opportunities discounted with funds from the CARES Act

Building Skills. Building Confidence. Building the Future.

• Challenges in motivating employees?

Workforce challenges are still the number one concern for New Jersey manufacturing businesses. NJMEP is offering manufacturers a suite of workforce programs focused on solving these businesses most disruptive issues.

• Positions requiring skills that can be learned on the job?

New opportunities were developed using funds provided by the CARES Act. These new recruiting and upskilling programs are available for a limited time at a reduced cost.

• Difficulty attracting new and more diverse talent pools?

Contact NJMEP today to learn more about the Pro-Action Education Network™.

Contact NJMEP today and start taking the right steps forward.

2 RIDGEDALE AVE., SUITE 305 • CEDAR KNOLLS, NJ 07927 P: 973.998.9801 | WWW.NJMEP.ORG | INFO@NJMEP.ORG

Manufacturing Outlook / June 2021

THE SMART FACTORY JOURNEY NOT JUST TECH

by JAMES CREAN The implementation of Smart Factory transformations across industries has been part of a growing discussion in recent years – particularly given the impact of the pandemic on manufacturing operations, and the increased emphasis on supply chain flexibility. For any company that intends to remain competitive, making the transition to Smart Factory solutions isn’t an option—it is essential. As organizations begin navigating the process of implementing Smart Factory solutions into their business models, they must ensure that the process is laid out carefully and strategically. Bottom line: it’s not just about the tech. The fundamental mistake too many companies make is focusing on the technology aspect of Smart

Manufacturing Outlook / June 2021

Factory solutions. They want to be newer, more efficient and keep up with industry advancements, but Smart Factory doesn’t simply mean adding technology. If you focus on the technology without first optimizing the process, you may very well realize that the technology made no improvement at all to your process. Technology additions need to be in the context of improving a company’s competitiveness in the marketplace—which means your people and process should be more of the focus of the transformation than the tech itself. With a proper Smart Factory implementation, companies can minimize cycle time, reduce labor costs per unit, and become more flexible producers, which ultimately strengthens their position in the market.

Before you can begin implementing Smart Factory solutions, a company first must have a transformation roadmap that looks at all three of the elements: people, process, and technology. Having a vision and roadmap is essential. Everyone within your organization needs to understand your plan and make sure it’s focused on achieving the business objectives. There will often be people within the organization that will act as roadblocks—not yet sold on the idea of Smart Factory transformations or concerned about their ability to adapt to the changes. Don’t shy away from conversations with these employees. Every individual in the organization should feel they are an integral part of the Smart Factory solution’s success. Skepticism is healthy. Good business leaders will listen to that skepticism and understand where it comes from, then address the issues that people have. If you do it right, your biggest skeptics can become your biggest advocates. Having your team fully ready for the transformation is how you get that process right. Implementing successful Smart Factory solutions requires leadership to be rock solid and positioned to follow through with the process. Once the objectives have been clearly established (and agreed upon) and the best solutions for your business needs have been determined, the focus can shift to the process. Getting your processes right ensures that the tech you ultimately implement is optimizing opportunities rather than encumbering them. A business must take time to have the

right process, visibility, and flexibility to optimize opportunities. Whether it is another pandemic, catastrophic storm, or political fallout, having the flexibility in your supply chain and manufacturing processes will determine whether your company survives the next significant obstacle. A proper Smart Factory implementation improves your flexibility—rather than locking in your processes by putting on a layer of tech that’s inflexible. Adding tech for the sake of tech is a recipe for disaster. If your transformation isn’t focused on achieving improved profitability and competitiveness, then you’re going to spend money that doesn’t add value. Focus on adding flexibility within your operations, organization, mix and supply chain. Listen to your people and focus on their health and safety. Trust the process and follow through. The Smart Factory journey is a commitment by the entire organization—starting at the top. This commitment translates throughout the organization and is a key factor in determining the long-term success of a Smart Factory journey. Of course, any organization will encounter bumps in the road. Issues will arise during the transformation. But when the going gets tough, leadership needs to double down and work through the problems in order to have a successful Smart Factory transformation of their people, processes, and technology. James Crean is CTO and Co-Founder of CREAN, Inc. He can be reached at james@creaninc.com

Manufacturing Outlook / June 2021

CASS INDEX OUTLOOK

CASS TRANSPORTATION INDEX REPORT

by CASS INFORMATION SYSTEMS, INC.

The shipments component of the Cass Freight Index® grew at a record 35.3% y/y pace in May, accelerating from a 27.6% y/y increase in April. It’s safe to say the pandemic recovery is progressing much faster than the recovery from the Great Recession. A very strong y/y result was expected against an easy comparison amid the pandemic shutdown, but the acceleration was ahead of expectations against a similar comp to April. At 1.269, the May Cass shipments index was the second-best result in its long history, behind only May 2018. On a seasonally adjusted (SA) basis, the shipments index surged 5.9% m/m in May from April. The shipments index also turned positive on a two-year stacked basis for the first time this cycle - 3.3% above May 2019, after a 1.3% year-over-twoyear decline in April. Some of the acceleration likely continues to be noise related to the February polar vortex, but it more than reversed the 3.1% m/m decline (SA) in

Manufacturing Outlook / June 2021

April. Auto production recovered a bit in May, with motor vehicle volumes on the railroads up about 4% m/m in May, although semiconductors remain a major challenge. With containership backlogs in the San Pedro Bay whittling down slower than expected despite amazing port throughput, the May surge in the Cass shipments index was also likely due to a step up in demand for inventory restocking following the recent jump in retail sales. Cass Freight Index - Expenditures The expenditures component of the Cass Freight Index grew at its fastest pace ever on a y/y basis in May, up 49.9% y/y, accelerating from 45.1% y/y growth in April. As May faced the easiest comparison of the pandemic quarantine period, tougher comparisons in the coming months will slow these y/y increases essentially regardless of freight fundamentals. On normal seasonal patterns, the easier comparisons would suggest y/y growth at about 45% in June, then slowing to more like 30% y/y growth rates in Q3.

This CASS INDEX has been posted with the permission of Cass Information Systems, Inc.

CASS INDEX OUTLOOK On a seasonally adjusted basis, the expenditures index fell 4.2% from April, and with volumes stronger m/m, the decline was more than explained by lower implied rates (see below), which fell 7.8% m/m. The ACT Freight Forecast report this month fixates quite a bit on the timing of the peak of the rate cycle, but we don’t think this is it. Freight Rates A simple calculation of the Cass Freight Index data (expenditures divided by shipments) produces a data set of “implied freight rates” that explains the overall movement in rates. The freight rates embedded in the two components of the Cass Freight Index slowed to a 10.8% y/y increase in May from a 13.7% y/y increase in April. The embedded rates also fell 7.8% m/m on a seasonally adjusted basis in May, following a 3.4% m/m increase in April. Last month, we discussed our expectation that this series would slow with most annual contract freight having been repriced at this point. However, the significant m/m drop was not likely due to market conditions, which by most accounts, including the Cass Truckload Linehaul Index®, continued to increase in May. Rather, our sense is the modal mix within the index was the cause of the slowdown. We should see reconvergence with the stronger Truckload Linehaul Index® as these mix shifts eventually wash out. This data series is diversified among all modes, with truckload representing more than half of the dollars, followed by rail, LTL, parcel, and so on. Truckload Linehaul Index The Cass Truckload Linehaul Index® value of 149.0 in May represented a third consecutive all-time record and accelerated to a 14.1% y/y increase from a 13.0% y/y increase in April. On a m/m basis, the seasonally adjusted index was 1.7% higher than March, in the eleventh straight increase. With strong freight demand and ongoing supply constraints in both of the critical components of trucking capacity (drivers and tractors), the trend of the Cass Truckload Linehaul Index should remain up and to the right in the near-term. Parts shortages continue to limit truck, trailer, and chassis production, keeping freight markets tight, but equipment fleet growth will improve as the year progresses. For those who follow this closely, the ACT Freight Forecast report has introduced forecasts for the

Cass Truckload Linehaul Index through 2023 (note: forecasts are made solely by ACT Research). Freight Expectations Even with considerable supply constraints, the freight cycle is in high-growth mode. While y/y comparisons will naturally slow going forward, the freight markets continue to benefit from a very strong retail economy, very tight inventories, and a backlog of containerships still anchored in the San Pedro Bay. In addition, while the industrial sector continues to struggle on a relative basis, U.S. capital goods orders have recently broken through a generational ceiling. We believe this portends an unprecedented U.S. capex boom. So, even as federal stimulus effects fade and consumer spending gradually reverts back to services from goods, the extraordinarily strong U.S. freight recovery across the network in 2021 also has longer-term growth drivers. Since the strong rebound early in March from the polar vortex, rail trends have continued modestly above normal seasonal patterns, but Q2’21 acceleration in the y/y data below is mostly due to easier prior year comparisons. In the latest two weeks in the table below, prior year comparisons were skewed by the timing of Memorial Day, which was a week earlier last year. The week ending June 5th was artificially depressed because it included the holiday this year but not last. Still, with comparisons beginning to firm, rail volumes in the coming weeks will likely look more like that first week of June than April and May. In addition to strong demand and ongoing equipment supply chain shortages, the constrained driver market is a major factor in the freight market equation, and one where we see early signs of a trend change. With enough time, we believe the cure for high prices is high prices. Manufacturing Outlook / June 2021

ISM REPORT OUTLOOK

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

BREAKING NEWS

ISM PMI at 61.2% for May ISM PMI for the past 5 years

MAY 2021 61.2%

Manufacturing Outlook / June 2021

ISM REPORT OUTLOOK INSTITUTE FOR SUPPLY MANAGEMENT®

Analysis by

reportonbusiness Economic activity in the manufacturing sector grew in May, with the overall economy notching a 12th consecutive month of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®. The May Manufacturing PMI® registered 61.2 percent. The New Orders Index registered 67 percent, increasing 2.7 percentage points from the April reading of 64.3 percent. The Production Index registered 58.5 percent, a decrease of 4 percentage points compared to the April reading of 62.5 percent. The Backlog of Orders Index registered 70.6 percent, 2.4 percentage points higher compared to the April reading of 68.2 percent. The Employment Index registered 50.9 percent; 4.2 percentage points lower than the April reading of 55.1 percent. The Supplier Deliveries Index registered 78.8 percent, up 3.8 percentage points from the April figure of 75 percent. Sixteen of 18 manufacturing industries reported growth in May, in the following order: Furniture & Related Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Textile Mills; Primary Metals; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Food, Beverage & Tobacco Products; Machinery; Chemical Products; Miscellaneous Manufacturing‡; Transportation Equipment; Wood Products; Paper Products; and Petroleum & Coal Products. ISM

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

ISMWORLD.ORG

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

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

MANUFACTURING

PMI at 61.2% ®

PMI

Manufacturing grew in May, as the Manufacturing PMI® registered 61.2 percent, 0.5 percentage point higher than the April reading of 60.7 percent. The Manufacturing PMI® continued to indicate strong sector expansion and U.S. economic growth in May. All five subindexes that directly factor into the Manufacturing PMI® were in growth territory.

2019

2020

2021

61.2%

50% = Manufacturing Economy Breakeven Line 43.1% = Overall Economy Breakeven Line

Manufacturing at a Glance INDEX

May Index

Apr Index

% Point Change

Direction

Rate of Change

Trend* (months)

Manufacturing PMI®

61.2

60.7

+0.5

Growing

Faster

New Orders

67.0

64.3

+2.7

Growing

Faster

Production

58.5

62.5

-4.0

Growing

Slower

Employment

50.9

55.1

-4.2

Growing

Slower

6 63

Supplier Deliveries

78.8

75.0

+3.8

Slowing

Faster

Inventories

50.8

46.5

+4.3

Growing

From Contracting

Customers’ Inventories

28.0

28.4

-0.4

Too Low

Faster

Prices

88.0

89.6

-1.6

Increasing

Slower

Backlog of Orders

70.6

68.2

+2.4

Growing

Faster

New Export Orders

55.4

54.9

+0.5

Growing

Faster

Imports

54.0

52.2

+1.8

Growing

Faster

Overall Economy

Growing

Faster

Manufacturing Sector

Growing

Faster

*Number of months moving in current direction. Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Inventories indexes. **Correction made to consecutive months from previous report.

Commodities Reported

Note: The number of consecutive months the commodity is listed is indicated after each item.

Commodities Up in Price: Aluminum (12); Aluminum Products (2); Brass; Coatings (2); Copper (12); Copper Products (3); Corn; Corrugate (8); Corrugated Boxes (7); Diesel (5); Electrical Components (6); Electronic Components (6); Epoxy Resin; Fabricated Metal Components; Foam Products (3); Freight (7); High-Density Polyethylene (HDPE) (5); Hydrochloric Acid; Labor — Temporary; Linerboard; Low-Density Polyethylene; Lubricants (2); Lumber (11); Medium-Density Fiberboard (MDF); Natural Gas (2); Ocean Freight (6); Packaging Supplies (6); Paper; Paper Products (6); Plastic Containers; Plastic Resins (9); Polyethylene (4); Polyethylene Terephthalate (PET) Products; Polypropylene (11); Precious Metals (2); Resin-Based Products (4); Rubber Products (4); Semiconductors (4); Solvents; Soybean Products (8); Steel (10); Steel — Carbon (6); Steel — Cold Rolled (9); Steel — Galvanized; Steel — Hot Rolled (9); Steel — Scrap; Steel — Stainless (7); Steel Bars; Steel Drums; Steel Products (9); Stainless Steel Components; Wire Harnesses; Wood for Pallets (2); and Wood — Pallets (Finished Product) (6). Commodities Down in Price: Acetone. Note: To view the full list, visit the ISM website at ismworld.org.

Manufacturing Outlook / June 2021

ISM REPORT OUTLOOK

ISM Report On Business ®

Manufacturing PMI® New Orders (Manufacturing) 2019

May 2021 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

2020

New Orders

2021

ISM’s New Orders Index registered 67 percent. Of the 18 manufacturing industries, the 16 that reported growth in new orders in May — in the following order — are: Nonmetallic Mineral Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Paper Products; Primary Metals; Computer & Electronic Products; Plastics & Rubber Products; Machinery; Chemical Products; Textile Mills; Fabricated Metal Products; Food, Beverage & Tobacco Products; Wood Products; Petroleum & Coal Products; Transportation Equipment; and Miscellaneous Manufacturing‡.

67%

52.8% = Census Bureau Mfg. Breakeven Line

Production (Manufacturing) 2019

2020

Production

2021

58.5%

52.1% = Federal Reserve Board Industrial Production Breakeven Line

The Production Index registered 58.5 percent. The 13 industries reporting growth in production during the month of May — listed in order — are: Nonmetallic Mineral Products; Furniture & Related Products; Plastics & Rubber Products; Primary Metals; Machinery; Wood Products; Fabricated Metal Products; Computer & Electronic Products; Chemical Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing‡; Transportation Equipment; and Electrical Equipment, Appliances & Components.

Employment (Manufacturing) 2019

2020

Employment

2021

ISM’s Employment Index registered 50.9 percent. Of the 18 manufacturing industries, the nine industries reporting employment growth in May — in the following order — are: Electrical Equipment, Appliances & Components; Textile Mills; Primary Metals; Furniture & Related Products; Plastics & Rubber Products; Fabricated Metal Products; Miscellaneous Manufacturing‡; Machinery; and Food, Beverage & Tobacco Products.

50.9% 50.6% = B.L.S. Mfg. Employment Breakeven Line

Supplier Deliveries (Manufacturing) 53.1% 2019

2020

2021

78.8%

Supplier Deliveries The delivery performance of suppliers to manufacturing organizations was slower in May, as the Supplier Deliveries Index registered 78.8 percent. Of the 18 industries, 16 reported slower supplier deliveries in May, listed in the following order: Apparel, Leather & Allied Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Computer & Electronic Products; Textile Mills; Food, Beverage & Tobacco Products; Machinery; Fabricated Metal Products; Furniture & Related Products; Paper Products; Plastics & Rubber Products; Miscellaneous Manufacturing‡; Electrical Equipment, Appliances & Components; Transportation Equipment; Chemical Products; and Primary Metals.

Inventories (Manufacturing) 2019

2020

2021

50.8% 44.5% = B.E.A. Overall Mfg. Inventories Breakeven Line

‡Miscellaneous

Manufacturing (products such as medical equipment and

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

Manufacturing Outlook / June 2021

Inventories The Inventories Index registered 50.8 percent in May, 4.3 percentage points higher than the 46.5 percent reported for April. The eight industries reporting higher inventories in May — in the following order — are: Furniture & Related Products; Textile Mills; Food, Beverage & Tobacco Products; Primary Metals; Chemical Products; Computer & Electronic Products; Fabricated Metal Products; and Transportation Equipment.

ISM REPORT OUTLOOK

ISM Report On Business ®

Manufacturing PMI®

May 2021 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

Customer Inventories (Manufacturing) 2019

2020

2021

28%

Customers’ Inventories ISM’s Customers’ Inventories Index registered 28 percent. None of the 18 industries reported higher customers’ inventories in May. The 16 industries reporting customers’ inventories as too low during May — listed in order — are: Wood Products; Primary Metals; Textile Mills; Apparel, Leather & Allied Products; Fabricated Metal Products; Computer & Electronic Products; Transportation Equipment; Chemical Products; Machinery; Plastics & Rubber Products; Paper Products; Food, Beverage & Tobacco Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; and Miscellaneous Manufacturing‡.

Prices (Manufacturing) 2019

2020

2021

88%

52.7% = B.L.S. Producer Prices Index for Intermediate Materials Breakeven Line

Backlog of Orders (Manufacturing) 2019

2020

2021

70.6%

Prices The ISM Prices Index registered 88 percent. In May, 17 industries reported paying increased prices for raw materials, in the following order: Apparel, Leather & Allied Products; Furniture & Related Products; Textile Mills; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Machinery; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Primary Metals; Computer & Electronic Products; Paper Products; Miscellaneous Manufacturing‡; Transportation Equipment; Plastics & Rubber Products; Wood Products; Chemical Products; and Petroleum & Coal Products.

Backlog of Orders ISM’s Backlog of Orders Index registered 70.6 percent. The 15 industries reporting growth in order backlogs in May, in the following order, are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Machinery; Plastics & Rubber Products; Primary Metals; Paper Products; Wood Products; Furniture & Related Products; Fabricated Metal Products; Transportation Equipment; Chemical Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing‡; and Computer & Electronic Products.

New Export Orders (Manufacturing) 2019

2020

2021

55.4%

New Export Orders ISM’s New Export Orders Index registered 55.4 percent. The eight industries reporting growth in new export orders in May — in the following order — are: Nonmetallic Mineral Products; Miscellaneous Manufacturing‡; Transportation Equipment; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Machinery; Chemical Products; and Computer & Electronic Products.

Imports (Manufacturing) 2019

2020

2021

54%

‡Miscellaneous

Imports ISM’s Imports Index registered 54 percent. The 11 industries reporting growth in imports in May — in the following order — are: Wood Products; Nonmetallic Mineral Products; Furniture & Related Products; Textile Mills; Chemical Products; Machinery; Plastics & Rubber Products; Miscellaneous Manufacturing‡; Transportation Equipment; Fabricated Metal Products; and Computer & Electronic Products.

Manufacturing (products such as medical equipment and

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

Manufacturing Outlook / June 2021

NORTH AMERICAN OUTLOOK

JUNE 2021

NORTH AMERICAN OUTLOOK by AMELIA ROY

The Institute of Supply Management PMI figure rose from 60.7 in April to 61.2 in May. New orders, production, and employment are growing; supplier deliveries are slowing at a faster rate; backlogs are growing; raw materials inventories are growing; customer inventories are too low; prices are increasing; and exports and imports are growing. Sixteen of the 18 manufacturing industries grew in May, with only Printing & Related Support Activities showing contraction. All the six biggest manufacturing industries — Computer & Electronic

Manufacturing Outlook / June 2021

Products, Fabricated Metal Products; Food, Beverage & Tobacco Products; Chemical Products; Transportation Equipment; and Petroleum & Coal Products, in that order — registered moderate to strong growth in April. Comments from the industry are pointing to a universal, ongoing need to obtain sufficient supplies, on time, at a reasonable price. The shortage of skilled labor is on the verge of being critical. CANADA’s PMI eased slightly from 57.2 in April to 57.0 in May. This was a positive month for the Canadian manufacturing sector, with further

NORTH AMERICAN OUTLOOK expansions in production and new orders. Employment growth was up at its sharpest in five months, amidst signs that sales volumes had surpassed production capacity, leading to a further increase in backlogs. Supply-chain disruption weighed somewhat on production growth. Transportation and raw material costs led to record increases in selling prices. There was a solid reduction in stocks of finished goods. MEXICO saw quicker drops in new orders and production in May, and decreases in input purchasing and employment. Companies lowered selling prices despite increased cost burdens. There were further drops in new orders, production, exports, quantity of purchases, employment and inventories. Input costs continued to rise, but companies lowered selling prices in efforts to stimulate demand. The PMI for May, at 47.6, was down on April’s 48.4, and below 50 for the fifteenth consecutive month. Amelia Roy, Staff Writer

NEW EPISODES EVERY TUESDAY AT MFGTALKRADIO.COM

Manufacturing Outlook / June 2021

SOUTH AMERICAN OUTLOOK

GLOBAL OUTLOOK

SOUTH AMERICA by JEANNE-MARIE LOWRIE

After two months in contraction, BRAZIL’s new orders and production, along with input buying and employment, were up in May. Business confidence was up. The PMI for May was at 53.7, up from April’s 52.3. Despite rising Covid-19 cases and ongoing local restrictions to stem the spread of the virus, Brazil’s manufacturing sector returned to expansion in May.

Manufacturing Outlook / June 2021

Jeanne-Marie Lowrie, Staff Writer

ASIA OUTLOOK

GLOBAL OUTLOOK

ASIA OUTLOOK

by CHRIS ANDERSON

PMI STAYS OVER 50 FOR MAJOR COUNTRIES CHINA’s manufacturing sector continued in expansion in May with the strongest increases in new orders for five months. There was a further expansion in production, but this was held back by material shortages and higher purchasing costs. The PMI rose from 51.9 in April to 52.0 in May. Vendor delivery performance was worse that in April, and employment was mostly stable. China sold 2.25 million vehicles in April, up 8.6 percent year-over-year, according to the Chinese Association of Automobile Manufacturers. New energy vehicle (NEV) sales including batterypowered EVs, plug-in-gasoline-electric hybrids, and hydrogen fuel-cell vehicles, were up 180 percent at 206,000 units. JAPAN’s PMI fell back a little in May to 53.0 from 53.6 in April. This economy continued in expansion during May. Manufacturing firms sustained a moderate improvement in operating conditions in May. Expansions in both production and new

orders were softer, but contributed to overall growth. More staff was hired for a second successive month and optimism was at a high level. The quicker expansion in purchasing was hindered by slowing vendor delivery performance. INDIA saw a significant loss of growth due to the intensification of Covid-19, and its attendant effect on demand. The sector saw the slowest rises in new orders and production for ten months. There was a significant slowing of purchasing and more job shedding. The PMI slipped from 55.5 in April to 50.8 in May.

Chris Anderson, Staff Writer

There was a worse delivery performance from vendors, and higher prices for aluminum, chemicals, copper, plastic and steel. Selling prices were up again in May. The level of positive sentiment was at a 10-month low. This economy may slip into contraction in June. Manufacturing Outlook / June 2021

EUROZONE OUTLOOK

GLOBAL OUTLOOK

EUROZONE by CHRIS ANDERSON

A NEW PMI HIGH IN EUROPE IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI), hit new heights in May, at 63.1, from April’s 62.9, which is the highest reading in the survey history - since 1997. All three market sectors showed strong improvements, with investment goods group the best. There were rapid gains in production and new orders, with increased domestic and export, including intra-Europe, demand.

There were ongoing difficulties in sourcing inputs. Selling prices were up at the fastest rate in almost 20 years. There was a fourth successive rise in employment, as backlogs of uncompleted work increased at a record pace.

Manufacturing Outlook / June 2021

The Western European selling rate for cars dropped slightly to 11.1 millionn units per year in April, and is actually 23 percent below April 2019’s sales. Germany’s rate was down to 2.6 million per year; UK’s up to 2.1 million; Italy flat at 1.6 million; France down to 1.6 million; Spain up to almost 900,000. The UK PMI rose to a record high of 65.6 in May from 60.9 in April, above July 1994’s previous record high of 61.0. There was continuing growth in new orders and production, and purchase prices and selling prices were up at unprecedented rates. All three market sectors were up. There was a revival in domestic and export business, and a stronger demand from the EU, the U.S., and China. There were record increases in employment.

Chris Anderson, Staff Writer

There were again lengthened delivery times and input shortages of electronics, plastics and metals. Over 70 percent of companies see production up in one year from now, with only three percent pessimistic.

GLOBAL PMI OUTLOOK

Global Survey Insights Fri. Jun 4, 2021

by NORBERT ORE, DIRECTOR, HEAD OF INDUSTRIAL Strategas Securities, LLC Norbert (404) 488-7380 SURVEYS,Ore STRATEGAS RESEARCH PARTNERS Erica H. Comp, CBE (646) 292-7951

nore@strategasrp.com ecomp@strategasrp.com

Norbert Ore, Director, Head Of Industrial Surveys, Strategas Research Partners

PRICES HIGHER – BACKLOGS GROWING MAY 2021 BUSINESS SURVEY INSIGHTS After a year of hoping things would eventually get back to normal, we find that things are rapidly getting back to normal, or at least for the 1970s and 1980s. The current view of the economy via surveys reveals weaknesses in many supply chains caused by unanticipated circumstances. We hear stories of shortages such as labor and materials affecting housing, manufacturing, consumer, autos, agriculture, and services. It is a supply chain manager’s nightmare as companies try to contain prices from their suppliers and hope to recover in prices to their customers. It is a particularly challenging environment where long term buyer-seller relationships are put at risk.

Manufacturing Outlook / June 2021

PLEASE DO NOT REDISTRIBUTE

06/04/21

PRICES GLOBAL PMI OUTLOOK

HIGHER – BACKLOGS GROWING Global Manufacturing Summary

Emerging Markets

Developed Markets

Most Recent Data

Americas Canada United States Europe Austria Denmark France Germany Ireland Italy Netherlands Norway Spain Switzerland United Kingdom Pacific Australia Japan New Zealand Singapore Americas Brazil Mexico Europe Czech Republic Greece Hungary Poland Russia Asia China (CLFP) China (Caixin) India Indonesia Korea Malaysia Philippines Taiwan (Markit) Thailand

Period

Current Reading

Prior Reading

6 Mo Avg.

12 Mo Avg.

May-21 May-21

57.0 61.2

57.2 60.7

0.3 0.1

1.7 2.8

May-21 May-21 May-21 May-21 May-21 May-21 May-21 May-21 May-21 May-21 May-21

66.4 67.7 59.4 64.4 64.1 62.3 69.4 58.5 59.4 69.9 65.6

64.7 71.6 58.9 66.2 60.8 60.7 67.2 58.9 57.7 69.5 60.9

6.3 12.5 3.3 2.2 6.9 4.3 6.5 1.7 4.9 5.9 6.9

10.7 13.2 5.8 6.6 9.4 7.4 12.7 5.0 6.7 12.7 9.4

May-21 May-21 Apr-21 May-21

61.8 53.0 58.4 50.7

61.7 53.6 63.6 50.9

3.0 1.2 2.2 0.0

6.6 3.9 4.2 0.4

May-21 May-21

53.7 47.6

52.3 48.4

-2.2 2.4

-5.1 4.2

May-21 May-21 May-21 May-21 May-21

61.8 58.0 52.8 57.2 51.9

58.9 54.4 51.0 53.7 50.4

3.6 6.3 1.6 3.5 1.0

7.9 8.1 2.2 5.1 2.2

May-21 May-21 May-21 May-21 May-21 May-21 May-21 May-21 May-21

51.0 52.0 50.8 55.3 53.7 51.3 49.9 62.0 47.8

51.1 51.9 55.5 54.6 54.6 53.9 49.0 62.4 50.7

-0.3 0.3 -4.7 2.4 -0.5 1.2 -1.0 1.2 -1.3

-0.3 -0.4 -3.4 5.3 2.2 1.6 0.0 5.3 -1.0

PLEASE DO NOT REDISTRIBUTE

Manufacturing Outlook / June 2021

Current Reading vs.

GLOBAL PMI OUTLOOK 06/04/21

ISM U.S. Manufacturing PMI™ While the manufacturing sector enjoys the benefits of strong demand for its products, it is also facing growing challenges from labor & component shortages, delays, surcharges, and inflation. Key components from semiconductors to containers are contributing to the problem. The Eurozone and the U.S. are significant beneficiaries of a surge in global trade with record, or 20-year highs, dominating. The manufacturing data for May supports the continuation of an aggressive recovery as the sector has grown for 12 consecutive months with the PMI remaining above 60 for four consecutive months. According to the ISM release, the Manufacturing PMI® for May (61.2 percent) corresponds to a 5.2-percent increase in real gross domestic product (GDP) on an annualized basis.

Drivers: The May data shows continuing strength in the New Orders Index (67.0, +2.7). The Production Index (58.5, -4.0) fell off trend but should recover during June due to the strength of the orders that poured in during May and the resulting increased backlogs. The good news is that the expansion is continuing at an extraordinary pace and should be a constant during the second half of the year. Additionally, survey respondents expect Supplier Deliveries (78.8, +3.8) to remain extended. The biggest challenge is replenishing depleted Inventories (50.8, +4.3) in supply chains, particularly in autos and capital equipment where intermediate components play a large role. Employment (50.9, -4.5) is a challenge to supply chain managers as they try to balance the need for skilled applicants with current production requirements. New Orders Minus Inventories: This key index showed a measured improvement as it declined to (16.2, -1.8), indicating New Orders continued to expand faster than Inventories in May. Compared to the average gap (+7.2) since 2011, inventory availability continues to present challenges. Cont’d on Page 34

PLEASE DO NOT REDISTRIBUTE

Manufacturing Outlook / June 2021

GLOBAL PMI OUTLOOK

06/04/21

Customers’ Inventories: The index (28.0, -0.4) indicates raw materials, components, and finished goods were “too low” for the 56th consecutive month. The index has been under 40 percent for the past 10 months. Industries reporting “too low” during May include: Wood Products; Primary Metals; Textile Mills; Apparel, Leather & Allied Products; Fabricated Metal Products; Computer & Electronic Products; Transportation Equipment; Chemical Products; Machinery; Plastics & Rubber Products; Paper Products; Food, Beverage & Tobacco Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; and Miscellaneous Manufacturing. Prices: The Manufacturing ISM® Prices Index rose slightly (88.0, -1.6), indicating input prices increased at a somewhat slower rate. This is the index’s second highest reading since June 2008 when it registered 91.5 percent. Longer lead-times as indicated by the Supplier Deliveries Index support higher prices and buyers can expect the price issue challenge until many of the bottlenecks are resolved. Commodities Up in Price: Aluminum (12); Aluminum Products (2); Brass; Coatings (2); Copper (12); Copper Products (3); Corn; Corrugate (8); Corrugated Boxes (7); Diesel (5); Electrical Components (6); Electronic Components (6); Epoxy Resin; Fabricated Metal Components; Foam Products (3); Freight (7); High-Density Polyethylene (HDPE) (5); Hydrochloric Acid; Labor — Temporary; Linerboard; Low-Density Polyethylene; Lubricants (2); Lumber (11); Medium-Density Fiberboard (MDF); Natural Gas (2); Ocean Freight (6); Packaging Supplies (6); Paper; Paper Products (6); Plastic Containers; Plastic Resins (9); Polyethylene (4); Polyethylene Terephthalate (PET) Products; Polypropylene (11); Precious Metals (2); Resin-Based Products (4); Rubber Products (4); Semiconductors (4); Solvents; Soybean Products (8); Steel (10); Steel — Carbon (6); Steel — Cold Rolled (9); Steel — Galvanized; Steel — Hot Rolled (9); Steel — Scrap; Steel — Stainless (7); Steel Bars; Steel Drums; Steel Products (9); Stainless Steel Components; Wire Harnesses; Wood for Pallets (2); and Wood — Pallets (Finished Product) (6). Commodities Down in Price: Acetone. Commodities in Short Supply: Acrylates; Aluminum (2); Aluminum Products; Coatings; Corrugated Boxes (7); Electrical Components (8); Electronic Components (6); Foam Products (3); Labor — Temporary; Lumber (3); Medium-Density Fiberboard (MDF); Nylon Fiber (2); Ocean Freight (2); Plastic Containers; Plastic Products (4); Plastic Resins — Other (3); Polycarbonates; Polyethylene Terephthalate (PET) Products; Polypropylene (2); Polyvinyl Chloride (PVC) Resin; Printed Circuit Boards; Printed Circuit Board Assemblies; Semiconductors (6); Steel (6); Steel — Cold Rolled; Steel — Galvanized; Steel — Hot Rolled (7); Steel — Stainless (3); Steel Bars; Steel Products (4); Steel Tubing; and Wood — Pallets (2). Note: The number of consecutive months the commodity is listed is indicated after each item.

Manufacturing Outlook / June 2021

PLEASE DO NOT REDISTRIBUTE

GLOBAL PMI OUTLOOK

06/04/21

Sectoral Breakdown: Sixteen of 18 manufacturing industries reported growth in May: Furniture & Related Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Textile Mills; Primary Metals; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Food, Beverage & Tobacco Products; Machinery; Chemical Products; Miscellaneous Manufacturing; Transportation Equipment; Wood Products; Paper Products; and Petroleum & Coal Products. The only industry reporting contraction in May was Printing & Related Support Activities. ISM Mfg PMI (SA) New Orders (SA) Production (SA) Employment (SA) Supplier Deliveries (SA) Inventories (SA) New Orders - Inv Customers' Inventories (NSA) Prices (NSA) Backlogs (NSA) New Export Orders (NSA) Imports (NSA)

2/28/2021 60.8 64.8 63.2 54.4 72.0 49.7 15.1 32.5 86.0 64.0 57.2 56.2

3/31/2021 64.7 68.0 68.1 59.6 76.6 50.8 17.2 29.9 85.6 67.5 54.5 56.7

4/30/2021 60.7 64.3 62.5 55.1 75.0 46.5 17.8 28.4 89.6 68.2 54.9 52.3

5/31/2021 61.2 67.0 58.5 50.9 78.8 50.8 16.2 28.0 88.0 70.6 55.4 54.0

ISM U.S. Services PMI™ (formerly ISM Non-Manufacturing PMI)

A Services PMI® above 49.2 percent, over time, generally indicates an expansion of the overall economy. Therefore, the May Services PMI® (64.0, 1.3) indicates expansion for the 12th consecutive month following two months of contraction and a preceding period of 127 months of growth. According to the press report, “The past relationship between the Services PMI® and the overall economy indicates that the Services PMI® for May (64.0 percent) corresponds to a 5.2-percent increase in real gross domestic product (GDP) on an annualized basis.” The ISM U.S. Services Employment Index (55.3, -3.5) lost some of the momentum gained in April – it is still lacking the robustness that we would expect as lockdowns and other challenges fade. There is still much to recover as the Services Employment Index averaged a meager 44.1 for the last three quarters of 2020. Services Employment grew at an average index reading of 56.0 January through April while Manufacturing Employment averaged 55.8 for the first five months of 2021. When we compare the average over the long term, Manufacturing averages 51.4 pp while Services averages 51.6 pp -- a good indication we PLEASE DO NOT REDISTRIBUTE Manufacturing Outlook / June 2021

GLOBAL PMI OUTLOOK

06/04/21

are making steady progress, but at a much slower rate when compared to order and output rates slowed by component shortages, etc.

Drivers: In May, the Services PMI (64.0, +1.3) continued to expand at a rate consistent with the Q1 data. Business Activity (66.2, +3.5) and New Orders (63.9, +0.7) both indicate that expansion momentum will carry into Q3-Q4. Prices: The Prices Index (80.6, +3.8) reflected pricing power favoring sellers as buyers mentioned supply constraints and the fear of broad-based inflation. Commodities Up in Price: Aluminum Products (2); Beef; Chicken; Computer Products; Construction Materials (3); Copper; Copper Wire (2); Corn; Corrugated Boxes (2); Diesel (6); Electrical Components (4); Electronic Components (2); Equipment; Exam Gloves; Food; Freight; Fuel (5); Gasoline (6); Gasoline-Related Products; Integrated Circuits; Labor (6); Labor — Construction (3); Labor — Skilled; Labor — Temporary (5); Logistics Services; Lumber (5); Lumber Products; Maintenance Services; Metal Products; Nitrile Gloves (2); Oriented Strand Board (OSB) (6); Packaging Materials; Pallets; Pharmaceuticals; Plastic Products; Plywood; Polyvinyl Chloride (PVC) (2); Polyvinyl Chloride (PVC) Products (9); Resin Products (5); Rubber-Based Products; Steel (9); Steel — Carbon; Steel Products (5); Transportation; and Trucking Services. Commodities Down in Price: None. Commodities in Short Supply: Ammunition; Chicken; Chicken Wings; Computer Hardware; Construction Contractors (8); Construction Subcontractors; Electrical Components (2); Electronic Components (2); Gloves (6); Labor; Labor — Skilled; Labor — Temporary (5); Lumber (2); Lumber Products; Needles & Syringes (6); Nitrile Gloves (12); Oriented Strand Board (OSB); Personal Protective Equipment (PPE); PPE — Gowns; Pipette (3); Polypropylene; Polyvinyl Chloride (PVC) Products (4); Resin-Based Products; Semiconductors (3); Steel; Steel Products (6); and Vehicles. Note: The number of consecutive months the commodity is listed is indicated after each item.

Manufacturing Outlook / June 2021

PLEASE DO NOT REDISTRIBUTE

GLOBAL PMI OUTLOOK

06/04/21

Sectoral Breakdown: The 18 services industries reported growth in May: Retail Trade; Wholesale Trade; Construction; Arts, Entertainment & Recreation; Transportation & Warehousing; Real Estate, Rental & Leasing; Mining; Finance & Insurance; Management of Companies & Support Services; Utilities; Other Services; Information; Accommodation & Food Services; Health Care & Social Assistance; Agriculture, Forestry, Fishing & Hunting; Public Administration; Professional, Scientific & Technical Services; and Educational Services. ISM NMfg PMI (SA) Business Activity (SA) New Orders Employment (SA) Supplier Deliveries (SA) Prices (SA) Inventory Change (NSA) Inventory Sentiment (NSA) Backlogs (NSA) New Export Orders (NSA) Imports (NSA)

2/28/2021 55.3 55.5 51.9 52.7 60.8 71.8 58.9 54.3 55.2 57.6 50.5

3/31/2021 63.7 69.4 67.2 57.2 61.0 74.0 54.0 52.7 50.2 55.5 50.7

PLEASE DO NOT REDISTRIBUTE

4/30/2021 62.7 62.7 63.2 58.8 66.1 76.8 49.1 46.8 55.7 58.6 55.7

5/31/2021 64.0 66.2 63.9 55.3 70.4 80.6 51.5 40.5 61.1 60.0 50.4

Manufacturing Outlook / June 2021

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 As credit managers are well aware, their interests are often oriented toward the future. It is the nature of their tasks. As decisions are made regarding the extension of credit and credit terms, they are consumed about more than the present day. Rather, they look forward to what will happen in 90 days or longer. This is an important point to consider when looking at NACM’s Credit Managers’ Index. The index is an assessment of what is likely to happen from the perspective of credit managers. “When the numbers are as consistently good as they have been the last few months, that is a signal that economic conditions are expected to be positive in the next quarter or two,” said NACM Economist Chris Kuehl, Ph.D. Month on month, the data changed very little from April to May. The numbers remain healthy and firmly in the expansion zone. The combined score for the manufacturing and service sectors slipped just 0.8 points—about where it was in January. The last time the combined numbers were in contraction territory was in May of 2020. The combined index of favorable factors also remained robust despite a slight fall from April’s readings, and the combined index of unfavorable factors only dropped 0.4 points month on month.

Manufacturing Outlook / June 2021

Sales have been beyond robust for months now, Kuehl pointed out. “The memories of readings as low as 28.6 and 54.1 are fading as these readings remain above 70 for six of the last eight months.” New credit applications remain high, while dollar collections slipped a little more than the other favorable categories. “This is hardly concerning given that the number remains above 60, but this is a category we watch aggressively, after all ‘it isn’t a sale until we are paid,’” Kuehl said. Amount of credit extended held. With a 5.4-point drop, accounts placed for collection had the biggest change. “However, that is a similar reading to what it has been the last few months,” Kuehl said. Rejections of credit applications was one of four unfavorable categories to improve—albeit slightly. Disputes gained 2.4 points. “There has been a little less controversy over what position companies find themselves in,” Kuehl explained. With a 2.3-point drop, dollar amount beyond terms returned to where it has been in previous months. Dollar amount of customer deductions held close to last month’s reading, and filings for bankruptcies had its best reading since January 2014. “It is well above the average for the last 12 months,” Kuehl said. “The shake-out in most of the business community seems to have taken place, and those companies that were severely weakened by the pandemic have met their fate and left the survivors to seek market share.”

CREDIT MANAGER’S OUTLOOK

Manufacturing Sector Although the combined score for manufacturing is a bit weaker than it was in April, the score remains quite strong. The sector’s index of favorable factors has returned to March levels. Its index of unfavorable factors repeated that same pattern. “It would seem that April was a bit of an anomaly, but

the important part is that these numbers are still firmly in expansion territory,” Kuehl said. Sales is strong—although a little off the pace from last month. “This is a reading that takes numbers back to the levels in February,” Kuehl pointed out. New credit applications dropped one point. “Not at Manufacturing Outlook / June 2021

CREDIT MANAGER’S OUTLOOK the high levels seen in January and February, but still very solid readings,” he said. Dollar collections slipped 0.3 points and amount of credit extended, 0.7 points. “In general, the favorable categories were stable,” Kuehl said. “The majority of change took place in some of the unfavorable categories.” Rejections of credit applications held close with a 0.5 shift upward. Accounts placed for collection, however, took a 11.4-point drop as it went from 65.4 to 54.0. “This month’s numbers are back to levels seen earlier in the year, and that indicates that April numbers were likely an anomaly,” Kuehl said. Disputes returned to the expansion zone, and dollar amount beyond terms fell 6.1 points from its peak last month. “This number combined with data from accounts placed for collection suggests there are more issues appearing in the manufacturing sector that have challenged companies,” Kuehl explained. Dollar amount of customer deductions slipped slightly, “but overall, this reading was reasonably stable,” he added. Filings for bankruptcies gained 2.1 points. “The concern is that these numbers may

Manufacturing Outlook / June 2021

start to deteriorate if the issues of collection and slow pays continue to develop,” Kuehl said. “Manufacturing did better than expected during the recession, but it has now started to feel the impact of the consumer shift back to services. There have also been consistent supply chain issues that have hampered the continued progress of the sector,” Kuehl said. “The manufacturing sector is starting to enter an interesting stage. Last year the performance of manufacturing was far better than had been anticipated due to the fact consumers started to shift their emphasis from services to buying goods. The money that was poured into the economy ended up driving everything from appliances to cars and electronics. Now the consumer has an opportunity to return to the service economy and early evidence shows that this is precisely what they are doing. Does this mean a sharp reduction in demand for those goods?”

CREDIT MANAGER’S OUTLOOK

Author profile Dr. Christopher Kuehl (PhD) is a Managing Director of Armada Corporate Intelligence and one of the co-founders of the company in 1999. He has been Armada’s economic analyst and has worked with a wide variety of private clients and professional associations in the last ten years. He is the Chief Economist for the National Association for Credit Management and is on the Board of Advisors for their global division – Finance, Credit and International Business. He prepares NACM’s monthly Credit Managers Index. He is the Economic Analyst for the Fabricators and Manufacturers Association and writes their bi-weekly publication, Fabrinomics, which details the impact of economic trends on the manufacturer. Chris is the chief editor for the Business Intelligence Briefs, distributed all over the world by business organizations and he is one of the primary writers (with Keith Prather) for the Executive Intelligence Briefs. He also makes close to a hundred presentations each year to business and industry associations in the US and overseas. He is on the Board of the Business Information Industry Association in Hong Kong and serves as a resource for the media and for many trade publications.

Manufacturing Outlook / June 2021

METALS OUTLOOK

JUNE 2021

METALS OUTLOOK by ROYCE LOWE

ALGOMA STEEL GETS ANOTHER GO Canada’s Algoma Steel Inc., based in Sault Ste. Marie, Ontario, said in late May that it had agreed to be acquired by a U.S. special purpose acquisition company (SPAC) in a deal that values the company at U.S. $1.3 billion. Algoma Steel and Legato Merger Corp. signed a definitive merger agreement on May 24, three years after Algoma came through a long restructuring under creditor protection following its takeover by (India’s) Essar Global Fund Limited. It was an American entrepreneur, Francis Clergue, who started up Algoma Steel in 1902, when a Bessemer converter was installed and the first rails were produced. Today’s product mix includes heavy sections, hot and cold rolled coils, and plate. The company had an interesting if somewhat rocky road, surviving two bankruptcies, emerging from the second in 2002. The company did fairly well for a while and attracted the attention of India’s Essar

Manufacturing Outlook / June 2021

Global which made a cash offer of CA$1.85 billion for the company in April 2007. There was a subsequent name change to Essar Steel Algoma Inc. In 2017, the name was changed again to Algoma. The company is planning a return to public markets after a 14-year absence and is looking to spend up to $650 million to transform its primary production process to electric furnace steelmaking. The deal would inject $336 million into Algoma and would catch the surge in steel demand and production that has been going on in most of the globe for the best part of a year. The supply situation, particularly in North America and Europe, is tighter than it has been for decades, with prices on hot-rolled coil at record highs. The electric arc furnace will result in lower carbon emissions, whose cost will rise significantly up to 2030. The SPAC deal follows a period of financial and

METALS OUTLOOK operating improvements at Algoma since it emerged from creditor protection, including U.S. $44 million in annual cost savings, a newly secured iron ore supply contract, and improvements to its plate mill. Algoma, like all steel companies, is presently profiting from the buoyant market, and looks to do well from its estimated 2.8 million tons per annum capacity.

Recent moves by the Chinese government is to constrain capacity, shutting down smaller, more airpolluting mills. Growth in commodity costs caused steel prices to fall in late May, almost erasing gains made earlier in the month. Buyers around the world will be watching to see if this latest trend in China continues.

The deal is scheduled to be finalized in the third quarter of this year. In any event, for Algoma to go ahead and modify its steelmaking methods will take more than a little time, plus an electrical infrastructure that might well include the Sault Ste. Marie area in addition to Algoma’s requirements. There is nothing definite about the plan to switch to electric arc steelmaking. Who knows what the steel supply and demand situation will be when Algoma gets around to deciding its steelmaking future. Much may depend on plans for infrastructure projects in Canada, and negotiations for an infrastructure plan in the U.S. Additional electric furnace steelmaking capacity will be coming on stream from ArcelorMittal and U.S. Steel Corp. in the U.S. It is most likely that tariffs will stay on steel (and aluminum) imports into the U.S. It should also be noted that the U.S. market will be a prime target for Algoma’s products. When all is considered, Algoma’s plans may be a go.

Manufacturers are beginning to feel the impact of increases in their input costs. These increases go beyond steel, to other metals, commodities, and energy. Manufacturers are expected to pass increases on to consumers, hence there is growing concern regarding inflationary pressures. Steel prices are expected to continue their upward path in the short term, particularly in western countries. Many buyers fear a significant downward price correction later in the year, which measn they bought too soon and too high. Steel continues its relentless price rise, with hotrolled coil in the U.S. at over $1,600 per ton in late May. The European price for hot-rolled was over 1100 euros per ton. S.E. Asia, at $880 per ton, was falling. U.S. cold rolled was approaching $1800 per ton in late May. Prices in Canada followed the same pattern as in the U.S.

U.S. and Canadian hot-rolled coil prices are up over 200 percent since last summer, with Europe also showing significant advances. The situation in Japan is less pronounced, as there is some resistance among local buyers to accept significant price increases. Large increases, as seen elsewhere, are unusual in Japan. Covid-19 restrictions have reduced domestic steel consumption, but prices are now moving up, with significant upward movement proposed for June.

Non-ferrous metal prices were fairly stable during May, showing little change from April. Aluminum is steady over the past month at $1.08 per pound; copper steady at $4.45; nickel and zinc steady at $7.75 and 1.35 respectively. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. Manufacturing Outlook / June 2021

AEROSPACE OUTLOOK

JUNE 2021

AEROSPACE OUTLOOK

ANOTHER SPACE RACE We recall NASA’s spacecraft Perseverance touching down on Mars in February, and the flights of its tiny helicopter Ingenuity, a couple of months later. We remember the Chinese being the first country to put a rover on the far side of the Moon in early 2019. A Chinese mission, Tianwen-1, landed on Mars, on May 14 after orbiting the planet since February 10. On that day in May, the mission made an adjustment to its flight path, one that put it on course to hit the planet’s surface six hours later. After three hours it broke itself in two, and one part readjusted its path so as to skim past the

Manufacturing Outlook / June 2021

by ROYCE LOWE planet and stay in orbit. The other part, a sealed shell with a heat shield on the outside and a precious cargo within, carried on towards the surface at just over 10,000 miles per hour. It entered Mars’s atmosphere some 80 miles above ground, and once friction with the air had used up most of its energy, slowing its decent, it deployed a parachute. The shell broke open, and there was a landing platform with four legs, a rocket engine, and a six-wheel rover attached to its top. The engine ignited, and when the platform had just over 300 feet to go, it paused briefly, hovering as its sensors searched for obstacles

AEROSPACE OUTLOOK in size and design to two rovers America landed in 2004, which lasted up to 14 years, so the Chinese rover has time to develop its mission. The next significant step in Mars exploration is the return of samples to Earth, something that NASA has considered for decades and now intends to complete. Part of Perseverance’s mission is the collection of samples to be later picked up by a joint NASA-ESA mission.

that would impede a safe landing. Then, in a cloud of red dust, it set itself down on Utopia Planitia, a great flat plain on Mars’s northern hemisphere. By orbiting and landing on a planet China had never previously visited, this became the most successful first mission to Mars in history. America did not land on the red planet until five years after first orbiting it. That said, America’s first orbiting craft and its subsequent Viking landers made their trips in the seventies, when the Soviet Union also managed a landing. The European Space Agency (ESA) failed twice, in 2003 and 2016. China still has a way to go. Perseverance, that was set down at a precisely chosen location in Jezero crater on February 18, has capabilities over and above those of China’s rover, Zhurong, which is a quarter of its size. And Perseverance has access to the Mars Relay Network, five satellites - three from the U.S., two from Europe - that can send data back to earth. Zhorong failed to send pictures back to earth until May 19 because it lacked this technology. Zhurong is looking for ice, and it is equipped to detect it to depths up to 330 feet. Viking-2 may have been near it in the 1970s. Zhurong is similar

What is being planned here sounds like science fiction: in some years, the plan goes, America will land a package close to the sample collection. The package will contain both a small European rover to retrieve the samples and a rocket capable of getting them into orbit, the whole then being scooped up by another European spacecraft and brought back to earth. This is the most ambitious planetary-science mission currently been planned. China is reportedly looking to a sample-return mission too, for launch around the end of the decade. It returned samples from the Moon last year. If it were to choose a sample at random that could be reached from a lander with rocket on board, such a mission might be accomplished at about the same time as the more sophisticated NASA-ESA attempt. But we’ll have to wait for a take-off. In the meantime, there will surely be some interesting discoveries on Mars. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. Manufacturing Outlook / June 2021

AEROSPACE OUTLOOK

DOES COMMERCIAL SUPERSONIC FLIGHT HAVE A FUTURE? by CRAIG ROVERE

UNITED AIRLINES & BOOM SUPERSONIC THINK SO On Tuesday, July 25th, 2000 at 16:44:33 local time Air France Flight 4590 began it’s takeoff from Charles de Gaulle Airport bound for JFK International Airport. About three-quarters of the way down the runway sat a piece of metal debris from an earlier flight. As the Aérospatiale-BAC Concorde approached takeoff speed, the debris on the runway punctured a tire. The blowout sent chunks of the tire into the underside of the left wing of the supersonic jet, rupturing the fuel tank. The ensuing fire compromised the ability for engines 1 and 2 to make sufficient power to stay in the air. The crew struggled unsuccessfully to make it back to the runway. Roughly 2 minutes after

Manufacturing Outlook / June 2021

takeoff, Flight 4590 fell from the sky, taking with it the lives of all 109 people aboard as well as the future of commercial supersonic flight. In the wake of the Flight 4590 disaster, all Concord’s were grounded pending the results of an investigation. The outcome of the investigation wouldn’t matter. The accident didn’t cause the cancellation. It merely hastened it. Rising fuel costs had rendered the program unprofitable. Air France had been keeping the service going as a matter of national pride. The crash and ensuing PR nightmare were the final straw. By 2003 all supersonic routes were cancelled.

AEROSPACE OUTLOOK than Concorde’s operating speed of Mach 2.04, it would still make a 3.5 hour flight from Newark to Heathrow possible as well as Sam Fransisco to Tokyo in just 6 hours. In all, United claims the new jet will allow them to connect over 500 destinations with a flight time reduction of 50%.

Now Boom Supersonic intends to resurrect commercial supersonic flight. Advances in aircraft technology and a new fuel called SAF (sustainable aviation fuel) have paved the way for a return to commercial supersonic flight. Leading the charge is Boom Supersonic, a privately-held aircraft manufacturer based in Denver, Colorado. Boom Supersonic’s plane, the Overture, will, according to Boom’s press release, travel at Mach 1.7, which is approximately 2x as fast as current commercial passenger flights. This isn’t the first time the industry has seen the possibility of a return to supersonic flight. Boeing announced plans for a new-supersonic jet dubbed the Sonic Cruiser, but scrapped the program in favor of the fuel-efficient 787 Dreamliner. Renobased Aerion Supersonic announced only last month that it was shutting down it’s development of a supersonic commercial jet citing the difficulties in making it a profitable venture. While it seems no one shares Boom Supersonic enthusiasm and belief in the feasibility of the program, one major airline has just announced their confidence in the company and it’s vision by committing to purchase 15 of their supersonic jets with an option to purchase 35 more. United Airlines has announced plans to begin test flights in 2026 and to open international, supersonic routes by 2029. According to their press release, the Overture will operate at Mach 1.7. While this is a bit slower

While it looks like Boom Supersonic has the speed portion of the equation sorted, the cost of fuel required to push an object through the air at supersonic speed remains an issue. SAF to the rescue. According to British Petroleum’s website, SAF is “...produced from sustainable feedstocks and is very similar in its chemistry to traditional fossil jet fuel.” Some of these feedstocks include cooking oil, waste wood from the forestry industry, solid household waste such as packing paper and food scraps as well as fast-growing algae and animal waste fat. In addition to being a sustainable fuel source, BP claims their SAF gives a reduction in carbon emissions of up to 80% vs traditional fossil fuels. So the hardware and the fuel to power it are in place, the missing piece of the puzzle appears to have been found in United’s commitment, which appears to be solid. According to United CEO Scott Kirby, “United continues on its trajectory to build a more innovative, sustainable airline and today’s advancements in technology are making it more viable for that to include supersonic planes. Our mission has always been about connecting people and now working with Boom, we’ll be able to do that on an even greater scale.” The purchase agreement still has some substantial contingencies. First and foremost, the aircraft must meet United’s sustainability, safety and operating requirements. Boom’s demonstrator aircraft, the XB-1 is currently undergoing netzero carbon flight tests. These proof of concept flights are crucial if the program has any hopes of getting off the ground. It’s the key to the entire deal for United. Maximizing sustainability without impacting performance unlocks the door to profitable supersonic flight. Manufacturing Outlook / June 2021

ENERGY OUTLOOK

JUNE 2021

ENERGY OUTLOOK by JOCELYN BRIGHT

AN ENERGETIC LADY In 2020, Sophie Brochu took over as CEO of HydroQuébec, the province-owned enterprise, in the midst of the pandemic, after 32 years in the fossil energy business. She became the first woman to fill this post since Hydro-Québec’s founding in 1944. She takes over at a time when Québec, along with Ontario and the U.S., are looking to take steps to decarbonize its economy. According to the plan for a green economy outlined in November 2020, the Québec government will invest $3.6 billion towards the electrification of automobiles and public transport. Sophie Brochu had been approached to take the reins at Hydro-Québec in 2015, when she held

Manufacturing Outlook / June 2021

them at what was Gaz Métro - renamed Energir - but she wanted to finish what she’d started there, namely to broaden the horizons of the natural gas company by mandating it to produce wind energy and to distribute electricity, plus guiding it towards the sector of renewable natural gas produced in new biomethanation plants springing up in Québec. These facilities process organic material generated by local agri-food businesses, table scraps, and green waste from the various municipalities. The waste processed in these plants is recycled and transformed into biomethane and fed into the Energy grid, a Québec natural gas distributor. In the coming years, Hydro-Québec will

ENERGY OUTLOOK concentrate on what Sophie Brochu calls the “bouquet” of options, namely energy efficiency, solar and wind energy, hydrogen, natural gas and, of course, hydroelectricity. For the moment there is no large hydroelectric project on the cards, and the company’s strategy will be to use all tools available and take advantage of their complementarity. The new CEO has undertaken to bring Hydro-Québec and its population closer together, by in one way developing an online forum, wherein she asks Quebeckers how the enterprise can help them realise “their objectives and their dreams.”

Traditionally, the short-term electricity market, or

Sophie Brochu sees the number one challenge for Hydro-Québec as the anticipation of energy and power requirements over the next ten years, even longer. Once the various scenarios have been determined, the production methods to fill the need will be effected. She sees no need, at least for the next fifteen or twenty years, for further large hydroelectric projects, but this source of energy will always be there if required as a “top up” in the event of insufficient power being available from solar or wind power, for example.

“spot,” was a way to sell this available energy. But

Hydro-Québec’s energy efficiency, a measure of savings in electricity consumption, has resulted in a reduction in consumption since 2003 of 10 Trillion watt hours (TWh), or sufficient to power 590,000 homes. This is the equivalent to the agreement recently signed with Massachusetts, the largest export contract in Hydro-Québec’s history (see May’s Manufacturing Outlook).

State and Andrew Cuomo has opted for the same

Québec’s electricity is relatively inexpensive; some might say “cheap.” Some might also say, with all the hydroelectricity available, that there is a large surplus. Sophie Brochu doesn’t like this word, saying it is ambiguous, and that what Québec has is energy that is latent or available energy produced and stored. At the moment there is latent energy, but seeing that Hydro-Québec’s mandate is to fill needs at all times, regardless of fluctuations in demand, there is always a need for latent, available energy.

unanimous respect for her business acumen, and

with the supply agreement with Massachusetts, a different approach is used, in that Hydro-Québec will sell 10TWh per annum for 20 years under a firm contract, hence these 10 TWH will no longer be available. Sophie Brochu stresses the point that there are companies who want the electricity, and they figure they might get “a deal” but no, HydroQuébec doesn’t put its power “on special.” There are negotiations underway with New York approach to renewable energy as Massachusetts. Hydro-Québec is presently evaluating its reply, and the type of contract it will offer. It will perhaps offer a firm contract, but maybe not if the price, the conditions, and the context are not favorable. Those who have worked with Sophie Brochu have for her knowledge of the energy field. Plus her sense of humor and her musical talents, on piano and clarinet. She also cooks and gardens and finds time to sit on the boards of a number of companies that do good work in the health field. Certainly a lady whose energy augurs well for Jocelyn Bright, Staff Writer

the future of Hydro-Québec.

Manufacturing Outlook / June 2021

AUTOMOTIVE OUTLOOK

JUNE 2021

AUTOMOTIVE OUTLOOK

by LAWRENCE MAKAGON

THE TRUCK, ACCORDING TO FORD President Biden was there to witness the unveiling of Ford’s new battery-powered F150 truck, America’s and the world’s best-selling truck, that has been thus since the Reagan administration. On the occasion of his visit to Ford, Joe Biden highlighted his $174 billion proposal to transform the automobile industry, and this in the midst of a global shortage of semiconductors. Alluding to the appearance on the scene of the F150 Lightning, the president said the future is electric and that the U.S. is in a race against China to lead the global market for EVs. The new F150 model will be produced in a new 500,000 sq.ft. facility, where Ford expects to spend $700 million and create 300 jobs. Under the proposed infrastructure program, there will be $15 billion for 500,000 public chargers and $100 billion on customer rebates for EV purchases.

Manufacturing Outlook / June 2021

There is a global chip problem, common to all automakers; a problem estimated at $110 billion. The chip shortage will cut Ford’s production in half in the second quarter, and will cost $2.5 billion in earnings this year. Ford has built 22,000 vehicles without semiconductors, including thousands of F150 pickups, and parked them in lots, waiting for chips. Ford predicts that this shortage will result in a loss in production of 1.1 million vehicles this year. The U.S. market share of plug-in EV sales is only one-third that of China’s EV market. The U.S.’s overall auto sales are two-thirds those of China. It will be interesting to see how orders line up for the F150EV when it comes out next year. Sales of this truck are highest in Texas, where there is some significant interest in fossil fuels. In fact, sales are reported as highest in red states.

AUTOMOTIVE OUTLOOK

We can look for more auto companies to come out with more electric vehicles. We can look for a continuing shortage of semiconductors, together with proposals to spend billions on new chip facilities. Regardless of commitments to carbon reduction, there will doubtless be a fossil fuel - electric clash in the U.S., and hesitancy on the part of many individuals to think twice about purchasing an EV. There should be an answer to this in the number of pre-orders Ford gets for the F150EV. Production of EVs is heating up globally, and if there is to be a race, then China looks the likely winner, with its advantage of having no serious bridges to cross before pressing all the necessary start buttons. Ford and South Korea’s SK Innovation recently announced plans to team up to develop and produce battery technology for electric autos. The companies signed a memorandum of understanding to establish BlueOvalSK, a joint venture that will initially plan production of 60 gigawatt hours annually of capacity at mid-decade, with potential to expand further. SK Innovation has produced mid-to-large EV batteries since 1991 and currently operates a battery plant in Georgia that serves two global carmakers.

The Manufacturing & Business Podcast Network

O U R

P O D C A S T S :

MFGTALKRADIO.COM

L I S T E N TO O U R P O D C A S T S AT:

www.jacketmediaco.com

Meanwhile, back in Canada, Québec’s Lion Electric Company announced May 10 that it had selected Joliet, Illinois, as the site of its U.S. manufacturing location, and will invest $70 million over the course of three years. The plant will cover an area of 900,000 sq.ft. and will create 745 jobs. The annual production capacity will be 20,000 trucks and buses after becoming operational in the second half of 2022. The company is looking to pick up on one of its major markets, U.S. school buses.

Lawrence Makagon, Staff Writer

In the fall of 2020, Lion Electric announced a partnership with ABB to produce its electric charging equipment, and a deal with Amazon for ten of its battery electric trucks made in Canada. To date, the company has delivered at least 390 heavy-duty EVs in North America. Manufacturing Outlook / June 2021

ISSUES OUTLOOK

JUNE 2021

ISSUES OUTLOOK by ROYCE LOWE

INTERNATIONAL TRADE PUCKERS UP The World Trade Organization (WTO) has increased its projection for growth in global merchandise trade to 8 percent for 2021, the biggest increase since 2010, while warning that Covid-19 is still the biggest threat to the recovery/ outlook as new waves of the virus could adversely affect the recovery. This is, of course, a significant jump from 2020 when the pandemic saw global trade contract by 5.3 percent, less than the 9.2 percent drop estimated last October. Global trade may increase by 4 percent in 2022, according to the WTO. The WTO’s Director-General said the rapid vaccine roll out is the best stimulus for recovery. The global GDP was down by 3.8 percent in 2020, less than forecast, and may expand by 5.1 percent in 2021, and 3.8 percent in 2022.

Manufacturing Outlook / June 2021

Meanwhile, world trade in goods is already beating pre-pandemic levels, according to the United Nations Conference on Trade and Development (UNCTD), which forecasts that global trade will increase by 10 percent year-over-year, and by 4 percent from the last quarter of 2020, mainly driven by exports from East Asian economies. Trade in goods has already surpassed prepandemic levels, though trade in services is still catching up. Trade growth in 2021 will be driven by China and the U.S., with the U.S. exporting 16 percent more goods, importing 14 percent more in the first quarter of 2021 than the 2020 average, while Chinese exports went up 20 percent, imports by 22 percent. Services imports rose 10% in the U.S. and 3% in China, while services exports were up

ISSUES OUTLOOK 3% in the U.S. and 27% in China, also relative to the respective countries’ 2020 averages.

causing some friction, and freight rates going up there, too.

When compared to 2019 figures, U.S. exports in the first quarter of 2021 were flat relative to 2019, with imports up 7 percent. Imports and exports of services in the U.S. were both down, 14 and 18 percent respectively. China exported 25 percent more goods, imported 20 percent more goods than its 2019 average, and also exported 22 percent more services, with service imports down 23 percent.

Trade appears to be improving faster for developing countries than for developed countries. The UNCTD says developing countries saw exports rise 22% and imports rise 18%, while developed countries like the U.S., China, and Russia collectively saw exports climb about 7% and imports rise 12%. Developing countries in East Asia are performing particularly well.

An important factor in world trade is the availability, or lack of, containers. A year ago the container-shipping industry was struggling to stay afloat, as trade plunged from pandemic lockdowns. When demand picked up in the second half of the year and factories returned nearer to full production, thousands of containers were stranded in European and American ports rather than Asian ones, where they were needed. This shortage of empty containers at Asian ports has sent container-shipping costs through the roof. Since November 2020, the cost of a 40 foot container from Asia to Europe has more than tripled, North America to Asia has doubled. It should also be noted that trade in Europe, and the UK, have seen similar increases and difficulties, with the new UK-Europe “relationship”

The ongoing need and demand for goods and commodities, particularly metals and iron ore, augurs well for international trade in the short to medium term. One of the big problems over the past year has been the lengthening of vendors’ deliveries, and the availability and costs of raw materials. Trade may be peaking, but it’s difficult to tell at the moment, with the prices of steel, other metals, and commodities being to a large extent in the hands of China.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook.

200” Max O.D. 6” Min O.D. To 80,000 lbs.

ISO9001:2015 SINCE 1994 AND AS9100D SINCE 1998 - NIST SP 800-171 (COMPLIANCE UNDER DEVELOPMENT)

TOLL FREE IN THE U.S. 800.600.9290 - 973.276.5000 - CANADA: 416.363.2244 - INFO@STEELFORGE.COM - STEELFORGE.COM

Manufacturing Outlook / June 2021

ISSUES OUTLOOK

U.S. 54TOLL FREE 800.600.9290 - IN CANADA: 416.363.2244 Manufacturing Outlook / June 2021

ISO9001:2015 SINCE 1994 AND AS9100D SINCE 1998 NIST SP 800-171

(COMPLIANCE UNDER DEVELOPMENT)

*Toll free within the U.S.