Manufacturing Outlook for July 2020

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AMERICAN AUTOMOBILE MANUFACTURING IS LEADING THE WAY. PAGE 12

MANUFACTURING OUTLOOK PAGE 6

THE CASS TRANSPORTATION INDEX REPORT PAGE 10

ENERGY OUTLOOK JUNE ISM PMI: 52.6%

[

PAGE 39

Released July 1st -The Full Executive Summary Report On Business - Page 26

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Manufacturing Outlook / July 2020

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Publisher LEWIS A WEISS Editor in Chief TIM GRADY Creative Director CRAIG ROVERE Contributing Writers ROYCE LOWE CRAIG ROVERE NORBERT ORE CHRIS KUEHL THOMAS R. CUTLER

TABLE OF CONTENTS

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PUBLISHER’S STATEMENT A word from our publisher

6 MANUFACTURING OUTLOOK A look at manufacturing around the globe

10 THE CASS TRANSPORTATION INDEX REPORT A look at shipping volumes and costs

MANUFACTURING TIDBITS

12 COVER STORY: THE ROAD TO RECOVERY

Current Circulation 45,200

16 AUTOMATING PRICING

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31 GLOBAL PMI OUTLOOK

32 THE CREDIT MANAGER’S OUTLOOK

by Dr. Chris Kuehl

by Craig Rovere

STRATEGIES IN Q3/Q4 2020

by Thomas R. Cutler

18 AUTONOMOUS FORKLIFTS DURING THE PANDEMIC

by Thomas R. Cutler

20 BIDEN OFFERS AGGRESSIVE PROUSA MANUFACTURING PLAN

by Thomas R. Cutler

22 ISM MANUFACTURING REPORT ON BUSINESS

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30 A look at Europe

Insights from inside manufacturing in action

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ASIA OUTLOOK China, Japan and India

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

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34 METALS OUTLOOK The cost, making and treating of metals

36 AEROSPACE OUTLOOK The aerospace industry

38 ENERGY OUTLOOK Energy and the environment

40 AUTOMOTIVE OUTLOOK Auto industry news

42 ISSUES OUTLOOK Issues around the globe

SOUTH AMERICA OUTLOOK Brazil in the spotlight

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PUBLISHERS STATEMENT Publishers Statement Uncertainty – it is the bane of manufacturing, but it has become the bane of everyone facing COVID-19, the shutdown, the restart, political divide, civil unrest, riots, wanton destruction, and defund the police. We don’t feel safe or certain anymore. Life, liberty, and the pursuit of happiness have all been disrupted in just 4 months. Psychologically, we are all struggling, all around the planet. A world of struggling economies became a world of stopped economies – as surrealistic as the aftermath of war.

But there is great hope, and it begins with manufacturing, that has led us out of every recession and which will lead us out of this economic and psychological disruption. How? It is the epicenter of innovation; in this case, for a vaccine or antibody treatment to render COVID-19 harmless. Some of the most advanced biopharma research and development exists in the U.S. The ability of a country to ramp up its production of ampules or vials filled with an answer to this pathogen is nowhere greater than in the U.S. The infrastructure to move those remedies from the manufacturer to hospitals, doctors offices, and clinics by the much unheralded truck drivers across interstate highways, county roads, and city streets efficiently and quickly is here, in this country. And, by extension of air travel, can also be delivered to almost anywhere in the world to the front line health care workers who will administer injections or oral medicines to control and possibly bring an end to this contagion.

From glass flasks and test tubes, to mass production machines, from trucks and tires, to needles and PPE, manufacturing provides the means to deliver a solution. And every worker who tests a possibility, runs a machine, dons a gown, loads or unloads a truck, handles medical waste, answers a phone, and a thousand other routine activities is part of the overall return to normal. And much of this is categorized in nonmanufacturing, but all of it – and every one of us – is needed to overcome the disruptions to normalcy.

Yes, right now, it is psychologically difficult to handle all the disruption being thrown at each of us. Many are out of work; they may be getting unemployment or PPP funds, but idleness is haunting, especially when even a trip to the store increases the risk of catching a deadly virus. And although it is summer, the ‘normal’ things we do during the summer put us at further risk.

So, as we look forward to a resolution to the troubles of our times, we celebrate manufacturing in its resilience and its research and development. An answer will come; several potential ones are already in clinical trials, fasttracked by the FDA in cooperation with the biopharmaceutical industry. Hope is on the horizon, and we have the means and the motivation to get there.

Keep in tune with manufacturing through the ezine, Manufacturing Outlook, by listening to podcasts like Manufacturing Talk Radio, The WAM podcast, Where’s Willie, Hazard Girls, and Manufacturing Matters with Cliff Waldman, all of which convey some aspect of manufacturing and its incredible importance to our everyday lives. These resources are not the negative main steam news. They are a light at the end of the tunnel. You’ll feel better having spent some time in productive listening and reading about manufacturing.

Lewis A. Weiss, Publisher

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 / July 2020

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MANUFACTURING OUTLOOK

JULY 2020

MANUFACTURING OUTLOOK

by ROYCE LOWE

GLOBAL MANUFACTURING SHOWED A MARKED MONTH-OVER-MONTH IMPROVEMENT IN JUNE. MORE PEOPLE ARE BACK AT WORK, BUT THE ECONOMIC BATTLE IS ONLY IN ITS BEGINNINGS. THE OUTCOME IS STILL VERY MUCH WAIT AND SEE

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Manufacturing Outlook / July 2020

MANUFACTURING OUTLOOK Control of the COVID -19 virus remains elusive in most countries, with serious concerns in the U.S., Brazil and India. “Opening up” has had mixed global results.

So far, the virus has shown few ‘flattened curve’ signs.

As states begin to open up businesses, two somewhat unrelated things seem to be happening: the unemployment rate is dropping, and COVID-19 cases are rising. The hope that warmer summer temperatures would diminish the virus are dashed.

The unemployment rate reported for June on July 2, 2020, sits at 11.1 percent, a decline of 2.2 percentage points from the 13.3 figure reported in May, which was subsequently questioned about accuracy.

Apparently, workers were reporting as temporarily laid off instead of as unemployed, which could have pushed the unemployment number for May to 16 percent, but that classification anomaly seems to have faded away and not caused an upward spike for June. The number of unemployed people who were on temporary layoff decreased by 4.8 million in June to 10.6 million, following a decline of 2.7 million in May. Presumably, the Bureau of Labor Statistics has adjusted for the reporting disparity in its June figures.

Improvement in employment also was reflected in the latest ISM report where employment rose from 32.1 percent in May to 42.1 percent in June, as measured in the ISM’s Manufacturing Report on Business®. Total nonfarm employment rose by

4.8 million in June, and employment in leisure and hospitality increased sharply. Job gains also occurred in the retail trade, education and health services, other services, manufacturing, and professional and business services.

Since February, just as businesses across the country were shut down to slow the spread of COVID-19, the number of unemployed is 7.6 percent and 12 million people above the February 2020 unemployment number of 3.5 percent. Thus, while the U.S. has some catching up to do, the outlook for employment remains encouraging. Whether those workers will be sequestered at home or in modified office space

Manufacturing Outlook / July 2020

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MANUFACTURING OUTLOOK U.S. LIGHT VEHICLE SALES The sales below are for June 2020 and YTD

or production floors is unknown, and it is likely that many small businesses and some large companies will fail to recover from the shutdown. The number of permanent job losses continued to rise, increasing by 588,000 to 2.9 million in June. The number of unemployed re-entrants to the labor force rose by 711,000 to 2.4 million.

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Manufacturing Outlook / July 2020

Among the major worker groups, the unemployment rate declined in June for adult men (10.2 percent), adult women (11.2 percent), teenagers (23.2 percent), Whites (10.1 percent), Blacks (15.4 percent), and Hispanics (14.5 percent). The jobless rate for Asians (13.8 percent) changed little over the month.

MANUFACTURING OUTLOOK

Unfortunately, with recent spikes in COVID-19 rates,

increase in the manufacturing PMI, attributed

the employment rate will remain uncertain as states

to looser COVID-19 restrictions. Contraction in

and localities adjust business closings and openings,

production slowed and new orders stabilized. There

as well as public spaces and places, in their

was the first, albeit fractional, increase in selling

attempts to turn the tide against the virus. Equally

prices since February. The job loss rate moderated

unfortunate is that there are anomalies within

sharply. There was increased optimism for the year

the COVID-19 reporting data of case positives,

ahead. The IHS PMI for June increased from May’s

recoveries and fatalities, so the true adverse

39.8 to 49.8.

impacts of the virus remain unknown. However, it is likely that the impact will remain throughout 2020,

THE ECONOMIST magazine, in its latest weekly

and maybe into 2021 until it either peters out, or

report on world economies highlights changes in

medicine provides a defense against it.

Gross Domestic Product (GDP), Consumer Prices and Unemployment Rates for what it considers

The Bureau of Economic Analysis recently released

the world’s major economies. These data are not

its ‘third’ estimate for the annual rate of Real GDP

necessarily good to the present day, but are mostly

growth in the first quarter of 2020, putting it at

applicable to at latest the past two months, and

minus 5.0 percent. The figure for the fourth quarter

show definite trends in the world economy. The

of 2019 was 2.1 percent.

figures are qualified as being the latest available, and with reference to a given quarter or month.

The ISM PMI figure for U.S. manufacturing retrieved

The figures for GDP represent the % change on the

much ground, moving from 43.1 percent in May to

previous quarter, annual rate. The consumer price

52.6 percent in June. The overall economy returned

increases represent year-over-year changes.

to a second month of expansion.

The unemployment figures, %, are for the month as IHS Markit’s remarks on the U.S. show a record

noted.

Manufacturing Outlook / July 2020

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CASS INDEX OUTLOOK

JULY 2020

CASS TRANSPORTATION INDEX REPORT

by CASS INFORMATION SYSTEMS, INC.

Following what we believe was the trough in April, the Cass Freight Index® showed some—but only little—improvement in activity last month. The index for both shipments and expenditures remained at recessionary levels and came in >20% below May 2019. We were surprised not to see more of an up-tick; the re-opening schedule appears to have unfolded slower than we anticipated—and also because the freight data reported by some of the public companies (LTL carriers and rails specifically) showed a more significant sequential jump and better y/y improvements than Cass showed. June is normally the best month of the second quarter, and we’d expect a significant improvement in the Cass Index this month – even if still well below year-ago readings. We do not believe we will reach 2019 freight activity levels until 2021 (at the earliest) due to the significant rise in unemployment and other results of government intervention.

Cass Freight Index - Shipments As a measure of economic activity, Cass Freight Index shipment volumes dropped 23.6% vs. yearago levels, slightly worse than the -22.7% y/y change in April. But the absolute index reading nudged up 1.6% sequentially from 0.923 to 0.938. This shows, in our view, a continued severe weakness in the U.S. economy that is counter to the stock market surge we saw from mid-May until the pull-back this week (giving some justification to the pull-back).

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Manufacturing Outlook / July 2020

We are now close to 80% through the second quarter of 2020, and we see volumes down double-digits for most carriers across most modes in the U.S., including truckload, LTL, intermodal, and rail. E-commerce (including parcel and big and bulky last mile) remains a hot area, as longterm trends in consumer buying patterns were accelerated in recent months. Customer exposure is also the biggest differentiator in terms of carrier to carrier performance.

Consumer confidence remained poor through May, as uncertainty about the recovery lingers.

With all the talk about potential shapes the recovery could take, we feel comfortable removing a “V” from that discussion. The long-term effects of sky-high unemployment and 0% interest rates should be quite negative and sufficient this year to suppress any kind of sharp rebound in activity.

On the international side, we saw May container volumes bounce back at the Port of Long Beach, from a 20% y/y drop in import volumes in April to a 7.6% y/y increase in May. But then the Port of Los Angeles reported volumes down 30% y/y in May (but vs. a strong May 2019). So, ocean freight, on balance, remains soft. International airfreight volumes have softened, but capacity remains constrained, and yields continue to stay well above normal levels.

CASS INDEX OUTLOOK The weekly rail traffic data, excluding coal and grain shipments, typically tracks comparably to the Cass index, but it seemed to outperform last month—at least in y/y growth off the bottom (possibly due to a weaker truckload environment or freight mix issue). For June, we expect these numbers to get “less bad,” as businesses open more and consumers slowly start to leave their homes. However, shipment levels should remain below year-ago levels all year.

Cass Freight Index - Expenditures Back to the Cass Freight Index, freight expenditures also fell in May, down 21.2% y/y)— the worst reading since the global financial crisis and worse than April. It fell 5.7% sequentially, but revenue per shipment rose 3.1% y/y. Like April, we did not expect expenditures to outpace volumes, particularly with the intermodal and truckload linehaul indexes (which measuring prices) dropping and fuel declining y/y. With shipments down 23.6%, and expenditures down less (21.2%), and knowing that prices were down y/y, you may be asking how overall freight spend could be down less than volumes, if rates were lower.

Our view remains that it has been a mix issue in that the freight that has been moving has a higher revenue per shipment, due to longer average length of haul (which has a negative impact on TL yield) and/or other characteristics. And those customers who remained opened for business had a higher freight cost per shipment than those who were closed. (Note that the intermodal and truckload linehaul indexes look at per-mile costs.)

We believe expenditures on an apples-to-apples basis were down more than volume, and lower fuel surcharges are offering shippers at least some near-term relief with respect to their freight budgets.

As we typically note, the Cass Truckload Linehaul Index has a strong correlation to the quarterly yield metrics reported by the publicly traded TL carriers. May’s data is showing that TL yields will probably average ~5% decline y/y in 2Q20. We’ll have an even better idea next month exactly what carriers, as a group, are likely to report .

When we look at spot rates posted in May (and into June), we have seen a similar bounce off the April bottom, but they’re not even back to yearend 2019 levels. Spot rates are currently tracking down 8% y/y in the dry van market. Reefer is holding slightly better, down 7% y/y, while flatbed is still off 13% right now vs. a year ago. We believe the spot market (as well as the contract market) has bottomed and that the rebound in rates, as discussed above, will depend on the strength of the recovery coupled with the pinch of industry supply from factors besides just truck production, such as rising insurance costs and limited driver supply.

In summary, while the Cass Shipments Index likely bottomed for this cycle in April, May was not as strong as anticipated. June readings should be better and, like many other things right now, will depend on how quickly the economy re-opens and how quickly the very high unemployment levels can retreat.

Manufacturing Outlook / July 2020

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COVER STORY

THE R

AMERICA IS LEADIN It’s been a tough year for just about every industry so far, and American auto manufacturing is no exception. It’s been a brutal year so far. New car sales have cratered. Factories shut down. Dealerships closed in the interest of public safety. Vehicle sales are down 22% vs pre-virus levels back in February of this year. For an industry that represents 6% of our economic outlook and employs 835,000 Americans to endure this kind of drop in such a short time is unprecedented. But there is a light on the horizon and American automotive manufacturing is poised for a comeback.

With the arrival of summer, as dealerships around the country begin to open their doors and we see some encouraging sales numbers in May and June, it appears things may be headed in the right direction, with a few new challenges thrown in for good measure. We’re going to look at the immediate road ahead for the American auto industry as it struggles to find traction on a very rocky road.

Let’s start with some good news.

U.S vehicle sales continued to rebound in June with a 5.7% month-to-month increase over May. The rate of growth was a bit lower than the previous month and sales are 26.9% below where they were a year ago during the same time period, but any growth is good at this point. June’s daily selling rate was 44,152 units measured over 25 days. This was 24.0% below samemonth levels last year, which was 58,064 units over 26 selling days.

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Manufacturing Outlook / July 2020 Manufacturing Outlook / July 2020

Year-over-year things look bleak, but that’s an unfair comparison. No one could have imagined the events that have taken place in the past 6 months, so we’re

COVER STORY

ROAD TO RECOVERY:

AN AUTOMOBILE MANUFACTURING NG THE WAY.

by CRAIG ROVERE

going to focus on growth in the short term, as that’s the only good nows to be found.

Let’s get back to those gains. Passenger vehicles rose the most, climbing by 8.8% month-over-month, while sales of light trucks rose by 4.8% month-over-month.

Light trucks, including SUVs were responsible for 77% of sales in the month of June. Americans love their trucks.

With things starting to open up, industry experts are now forecasting new car sales to come in at just under 14 million in 2020. Compared to a pre-virus forecast of 17 million, that number seems like a disaster, but taking into consideration those same experts were talking 12 million just 3 months ago, by comparison things look better than expected.

With buyers beginning to emerge from quarantine, it appears they haven’t forgotten about the fact that they need a new car. “There’s pent-up demand,” said Doug Waikem, owner of six new-car franchises in Massillon, Ohio. “There are people who were ready to buy, and then the virus hit. They put it on hold, but some are starting to come back.”

Pete DeLongchamps, senior vice president of manufacturer relations at Group 1 Automotive, a dealership network located in Houston, TX said, “It’s certainly not as bad as we feared right now. The government put a lot of money into the market, and now people are spending money on cars.”

The Big Three have done just about everything they can to entice shoppers to take their $1,200 stimulus checks to the local dealership. Earlier this

year, when things were looking really bleak, General Motors, Ford Motor and Fiat Chrysler, were offering zero-interest loans for 84 months on most of their vehicles. Naturally, as sales have started to show signs of coming back, those once-in-a-lifetime deals have gone away, but you can still get 72-month zero interest loans at most dealers.

The dealerships themselves should be seeing some relief as sales increase, but some of them have received support from a different source recently. According a report released last week by the Small Business Administration, 12,693 new-car dealerships collectively received between $6.97 billion and $10.36 billion in PPP loans. Since there are 16,682 dealerships in the U.S that means 76% of all U.S. dealerships received these loans from the government. This should come as no surprise as bailing out the auto industry is a regular thing for them at this point.

Supply and Demand The Big Three were keen on not maintaining high production rates in the face of plummeting demand, a move that would have resulted in an insane backlog of inventory and made things exponentially worse for everyone. However, as demand for new cars begins to rise, automakers are finding it difficult to get the parts they need, particularly if those part come from Mexico.

Worker attendance at some Mexican auto parts supplier factories is hovering around 50% as Mexico struggles to crawl back from the COVID-19 pandemic.

U.S. automotive production that’s been working valiantly to get back anywhere near 100% operation Manufacturing Outlook / July 2020 Manufacturing Outlook / July 2020

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Car dealerships suck. Everyone hates them. That could be the entire business plan for companies like Carvana, which sells cars online and delivers them to your home.

Copycat online car sales companies like vroom.com and cars.com have done well in a time when dealerships are either closed or seen as a health risk. The Big Three should take a close look at how these companies do business as they are the future of automotive sales. Car dealerships add a layer of cost and complexity to buying a car and nobody is going to miss dealing with shady care salesmen. is now seeing a parts shortage. Most automakers are not commenting on the looming concern, Ford has been open about what is going on in their supply chain. While they are not openly admitting it, The Big Three may have to throttle back production due to a parts shortage of all things. In a statement to Automotive News, Ford President of the Americas Kumar Galhotra said, “Due to COVID-19, the State of Chihuahua in Mexico has limited employee attendance to 50 percent, a region in which we have several suppliers. With our U.S. plants running at 100 percent, that is not sustainable. While we do not expect any impact to production next week, we are continuing to work with government officials on ways to safely and constructively resume remaining production.”

As if that weren’t enough to stifle the much-needed growth in the U.S. auto industry, let’s add USMCA, the replacement for the North American Free Trade Agreement to the mix. The deal, which went into effect July 1st is important for President Donald Trump’s administration. USMCA will level the playing field for American manufacturers and bring manufacturing back to the United States. When things were normal, the deal would certainly do just that. Unfortunately we’re through the looking glass now, down is up, up is down and car manufacturers cannot afford to have the cost of parts imported from Mexico rise just as they are struggling to regain lost ground.

Missed opportunities and the road to recovery After facing down low demand, followed by supply chain woes on the onset of increasing demand, the U.S. automotive industry not only needs to focus on the immediate recovery issue, but also on changing how they do business in the future.

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Manufacturing Outlook / July 2020

Another opportunity to improve things for themselves and the planet would be to take electric cars seriously. In the past, the Big Three have gone out of their way to avoid developing a viable electric car and now they are playing catchup with just about everyone including the other American car manufacturer, Tesla. GM is the worst offender in this category. They were making and leasing the first truly viable electric car, the EV1, back in 1996. Despite building and leasing over 2,000 EV1’s to overwhelmingly positive feedback from owners, GM decided to take them all back, kill the program and crush every one of them. A handfull were disabled and donated to museums where you can go see them and think about the almost decade-long head start GM had over Tesla, who is now the 3rd most valuable car maker on the planet.

Sure, all American car manufacturers now offer electric cars, and even GM seems to be taking it seriously, but one can’t help but wonder what could have been had they not looked the other way for the past 15 years while Tesla was building the future.

Ford has been doing a bunch of promo for it’s allelectric F-150, but the fact of the matter is this; electric startup Rivian and Tesla will both have allelectric pickups on the road before the first electric F-150 rolls off the assembly line two years from now.

You can’t undo the past but you can learn form past mistakes. As things begin to turn for the better, American car manufacturers are feeling optimistic.

In an interview with the Detroit Free Press, GM CEO Mary Barra said, “I don’t see any further need for (job) reductions. I am really proud of the team across the globe. We’ve had cost-cutting actions and we’re on a good path now from what we started and built on since 2018.”

COVER STORY

Indeed factories are approaching pre-COVID production levels despite some minor virus-related setbacks. Just last Ford week introduced their long-awaited Bronco, a direct competitor to the Jeep Wrangler and the introduction of it’s electric Mustang Mach-e will be back on track for an early 2021 release. American manufacturing is resilient and despite being a bit resident to change, to it’s own detriment, will not only survive but thrive as it has before. The time it takes to fully recover and the opportunities for improvement car makers take advantage of and learn from is entirely on their shoulders. Every setback is an opportunity to come back stronger. The Big Three must focus on improving their survivability by learning to expand in a way that will allow them to contract when needed without having to rely on Federal life support to keep the factory lights on.

Hopefully American automobile manufacturing will not only fully recover for this unprecedented setback quickly, but also return as a stronger, more innovative industry.

Author profile: Craig Rovere is Creative Director at Rovere Media, a full-service advertising and marketing agency specializing in helping manufacturers achieve their marketing goals.

Craig can be reached vie email at craig@roveremedia.com.

Rovere Media can be found online at RovereMedia.com

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Manufacturing Outlook / July 2020

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MANUFACTURING TIDBITS

Automating Pricing Strategies in Q3/Q4 2020

by T.R. CUTLER

Shockingly, many Fortune 500 companies are still using spreadsheets and manual data collection.

Such antiquated processes prevent the required price alignment and robust management of pricing strategies. Researching the perceived barriers to price alignment automation, most industrial business decision-makers feared an extensive implementation time, complexity, and significant costs.

New solutions overcome those concerns offering an automated pricing alignment technology which can be implemented cost-effectively in just weeks.

Delivering significant improvements in revenue and margin by providing a clear, guided user experience (via insightful dashboards and comprehensive pricing science) means hundreds of manufacturing companies in Q3 and Q4 2020 will ensure pricing execution remains aligned with strategic objectives.

In fairness there a several expensive solutions on the market, well into six figures, which promised the automation, yet became as cumbersome as legacy ERP installations and maintenance challenges.

The notion of price alignment is not new The way these new automation solutions have been adapted and adjusted promotes the ease of setting and managing pricing boundaries in context of all variables. Price alignment was designed to alleviate the pain for any manufacturing organization using simple rules or trial-and-error methods to derive prices; this is especially true if corporate objectives include rapidly and repeatedly adjusting and maintaining prices at the most granular level.

Automation must start with easy integration to source systems followed by seamless population of

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Manufacturing Outlook / July 2020

transactional systems with optimized prices. With those processes in place price alignment enables complex pricing logic automation.

Manufacturing pricing experts Pricing experts, Dallas Crawford and Dan Barrett were asked to elaborate how manufacturers should analyze pricing needs using data analytics.

Crawford insisted that price aligning with data analytics can be done readily in real-time. The ability to concentrate on high and low volumes that fall outside a normal distribution of trend or seasonality can inform where margin opportunities exist. This is particularly valuable during the pandemic where buying patterns are in greater flux. Higher volume provides opportunities to adjust prices based on demand or to capture market share. Lower volume provides opportunities to analyze pricing, determining if market share is being lost or if the product’s lifecycle is near its end.

Barrett noted the best method to analyze and optimize customer pricing is to model the data and ensure that the analytics platform supports it at a very discrete level. Customer data by location or product SKUs allow for optimal delivery of unique pricing. Understanding and forecasting the customers’ pricing elasticity is key to determining the optimal price.

Pricing sensitivity for manufacturers during the pandemic Crawford suggested that PriceAlign’s Machine Learning models can be more adaptive than typical time series models in the pandemic environment.

MAANUFACTURING TIDBITS allowing for more targeted and dynamic pricing adjustments.

This unique automation approach leverages predictive demand plans that utilize advanced analytics to drive accuracy and optimal prices.

Only with automated real-time pricing based on up-to-thesecond market information will companies be able to properly respond to rapid pricing fluctuations during the pandemic.

Adding more qualitative and timely input variables (like fuel costs) allow the model to be more contextual and tolerant to the aberrant data collected during this unique event. The pandemic gives manufacturing organizations, which embrace the PriceAlign technology, the opportunity to study and model the effects to be better prepared for future events. Shutdowns will potentially cause incomplete data; future training of Machine Learning models will have to deal with it.

Barrett is convinced while the pandemic is an important driver for price aligning, it remains just one factor impacting manufacturers on the demand and supply side.

Weeks to capture enterprise-wide control of the entire pricing process Only through automated price alignment are midsized manufacturers able to raise pricing strategies to new levels of sophistication, achieving dynamic pricing based on a variety of factors, and understand price elasticity across different customers, products, or regions.

By eliminating spreadsheets, price aligning improves the ability to rapidly adjust pricing to the most detailed levels and market conditions. In weeks, the automated pricing data ensures that manufacturers are able to visualize customer segments driven by variables that shape demand, such as demographics,

Pricing Industry Experts: Dallas Crawford is an Advanced Analytics Executive with over 10 years of experience helping customers leverage predictive analytics to make informed strategic decisions. Prior to QueBIT PriceAlign, he spent 7 years at IBM serving clients in the Distribution Sector and led multiple key Predictive Analytics and Reporting projects. Dallas graduated with an MBA from Florida A&M University in 2008.

Dan Barrett is an advanced analytics technical manager at QueBIT PriceAlign. Barrett served as Controller and CFO for a manufacturing organization for more than 12 years. He successfully led evaluations of Advanced Analytics solutions in hundreds of evaluation cycles with some the world’s leading manufacturing and retail organizations. He directed the development and field enablement of Distribution and Manufacturing Performance Management Solutions while at IBM and Cognos.

Author Profile:

Thomas R. Cutler is the President and CEO of Fort Lauderdale, Florida-based, TR Cutler, Inc., celebrating its 21st year. Cutler is the founder of the Manufacturing Media Consortium including more than 8000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement. Cutler authors more than 1000 feature articles annually regarding the manufacturing sector.

More than 4400 industry leaders follow Cutler on Twitter daily at @ThomasRCutler. Contact Cutler at trcutler@trcutlerinc.com.

Manufacturing Outlook / July 2020

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MANUFACTURING TIDBITS

AUTONOMOUS FORKLIFTS DURING THE PANDEMIC AUTOMATION AS A RETURN-TO-WORK STRATEGY

by TR CUTLER

Realistically an operation with just a few forklifts will replace a unit every 5 – 7 years. A manufacturer currently operating just a few units will exchange the next purchase in 2020 with an autonomous forklift to discover the true value that automation can bring to the operation. Implementing automation as a scalable solution, will allow for an unbiased comparison of autonomous and manual forklift operations.

Driverless industrial vehicles are getting so much attention now as a way to automate the processes of transporting, lifting, lowering, putting away, or retrieving loads without a human operator. Fewer than 2% of forklifts sold in North America are automated, yet there has never been a greater need for this technology. Many manufacturers are looking to automate material handling processes because it reduces the potential for COVID-19 exposure by reducing human contact.

Though predicted years ago, COVID-19 has made autonomous forklifts an immediate reality for small footprint manufacturing facilities.

Autonomous forklifts are a type of automated guided vehicles (AGVs), but that term is more commonly used to describe conveyances that typically (but not always) lack forks and only provide horizontal transportation.

Significant growth for this product category was predicted before the pandemic due to a tight labor market in the U.S. Automation was the obvious answer to fill that labor gap, providing continuous 24/7 and consistent performance while mitigating the cost of finding and onboarding new workers.

According to Nic Temple VP U.S. Sales at Global AGV, “Some of the key advantages of autonomous forklifts are critical during the pandemics. A single unit offers a dynamic flexibility, scalability, and reliability that may allow compliance with safety requirements avoiding contamination. Automation reduces product damage and alleviates the ergonomic impact of repetitive, physically demanding tasks in today’s highly-complex manufacturing operations.

Autonomous forklifts are seeing an increasing demand by essential manufacturers during the pandemic who demand automation for largely repetitive and routine processes. Frequently, instances where product comes off a production line in batches and moves into an attached warehouse is one of the most effective

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Manufacturing Outlook / July 2020

MANUFACTURING TIDBITS uses of automated driverless product movement; it generates heightened productivity and throughput. Food and beverage manufacturing and packaging are great examples of autonomous forklift applications.

Autonomous forklifts provide automation which reduces movement costs per pallet and per case. Many manufacturers track these automation data as key performance indicators (KPIs). These units seamlessly integrate alongside humans, often working collaboratively, unlocking significant productivity advances while also serving to address anticipated challenges resulting from the pandemic, the competition, and escalating operating costs.

Any manufacturer operating two or more forklifts currently, must consider replacing one unit with an autonomous forklift in 2020.

Autonomous forklift 2020 breakthrough Autonomous forklifts finally offer a straightforward interface solution: a simple point to point horizontal movement of pallets. Temple shared Global AGV is happy to work with small manufacturers who have never ventured in the mobile space and simply want to see the merits of a single autonomous forklift, particularly during the pandemic. He added the breakthrough is selling an automated forklift as a product rather than a project. Instead of a $200k installation cost, it can be $0 when using salaried labor. If the manufacturer wants a turnkey solution, a local network of system integrators is available.

Simplicity is essential for small and midsized manufacturers purchasing their first autonomous forklift.

Nic Temple, Global AGV COVID-19 and Q3/Q4 2020 delivery of autonomous forklifts The Manufacturing & Business Podcast Network

Traditional AGVs are often custom-built vehicles with long (six-month plus) delivery times. They use navigation which requires additional infrastructure versus a natural feature-based navigation where no infrastructure modifications are needed.

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Temple shared manufacturers are ordering a standard product which can be delivered in weeks. Local partner integrators help to ensure a low-cost quick installation in just days rather than months (and provides a qualified service arm is there to help when manufacturers need them). This is a critical differentiator during the pandemic ensuring all employees are kept safe and following the protocols to keep the doors open.

Author Profile: Thomas R. Cutler is the President and CEO of Fort Lauderdale, Florida-based, TR Cutler, Inc., celebrating its 21st year. Cutler is the founder of the Manufacturing Media Consortium including more than 8000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement. Cutler authors more than 1000 feature articles annually regarding the manufacturing sector. More than 4200 industry leaders follow Cutler on Twitter daily at @ThomasRCutler. Contact Cutler at trcutler@trcutlerinc.com.

Manufacturing Outlook / July 2020

19

MANUFACTURING TIDBITS

BIDEN OFFERS AGGRESSIVE PRO-USA MANUFACTURING PLAN

by TR CUTLER

On July 9th, Joe Biden offered his aggressive proUSA manufacturing plan. In his economic plan, the federal government would spend $400 billion on manufacturing during the next four years and $300 billion on research and development during the same period. The plan will create 5 million jobs beyond the restoration of millions lost this year during the COVID-19 pandemic.

The manufacturing plan is part of a broader economic agenda called “Build Back Better,” which Biden will make the focus until election day. Part of the manufacturing emphasis will include deals with infrastructure and clean energy, care-giving and the workforce, and racial equity.

“Everyone will be cut in on the deal this time, as we rebuild the middle class,” Biden said adding, “When the federal government spends taxpayers’ money, we should use it to buy American products and support American jobs.”

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Manufacturing Outlook / July 2020

The Biden manufacturing and innovation proposal aims to marshal U.S. resources in what the campaign called the largest domestic investment in procurement and research and development since World War II. As part of his plan, Biden pledged to sign an executive order requiring his administration to identify which products the country could run short on and fix the problem. That could include forcing companies to make certain products or using federal spending to encourage domestic production rather than buying imported goods.

The plan rests on six pillars: Buy American. Biden proposed to spend $400 billion on U.S. products, materials and services, and ensure they are shipped on U.S. flagged cargo carriers.

Manufacture. The goal is to provide incentives and financing tools that revitalize smaller manufacturers,

MANUFACTURING TIDBITS The plan for racial equity will aim to close the racial wealth gap, expand affordable housing and invest in Black, Latino and Native American entrepreneurs.

Patience and rigor are needed Accomplishing the goals of this plan will not be easy. Relocating supply chains will take time and determination because tightening of domestic content rules is rigorous, particularly for industries where electronic content is growing (like the automotive industry).

The U.S. lost most of the electronics supply chain; many suppliers will resist a move back to the U.S. and throughout the supply chain. China took nearly two decades to capture the electronics supply chain, and Chinese manufacturers today have tremendous scale and efficiency. This will take more than four years of the Biden Presidency to accomplish.

particularly when owned by women and minorities.

Innovate. The proposal will invest $300 billion in research and development in technology such as electric vehicles, 5G cellular networks, and artificial intelligence.

Invest. Ensure that investments will be distributed nationwide rather than the few cities where venture capital tends to concentrate.

Stand up for America by confronting foreign efforts to steal American intellectual property, claw back public investments and tax benefits from companies that reduce domestic jobs and send them overseas and apply a carbon fee on countries failing to reduce greenhouse gas emissions.

Supply. Retrieving manufacturing for critical goods which have migrated abroad.

Other elements during the roll-out of the plan included raising the minimum wage to $15 per hour and end lower minimum wages for tipped workers and those with disabilities. The campaign also said Biden would reverse some of the tax cuts for corporations and enact “common-sense tax reforms that finally make sure the wealthiest Americans pay their fair share.�

Ultimately, the proposed plan is not just a response to the current administration’s massive mismanagement of the pandemic but also aims to address longstanding weaknesses and inequities in the economy. On August 17th while accepting the Democratic party nomination, the candidate will speak more about the manufacturing sector.

With unemployment expected to remain far greater than 10% for the next year, voters are listening to the opportunities for the U.S.-based manufacturing sector.

The current administration doubled the rate of offshore federal contracting during its first 18 months. The Defense Department spending $3 billion on foreign construction contracts during 2018 at the expense of American steel companies and nearly $300 million on foreign engines and vehicles rather than buying them from domestic companies.

Author Profile: Thomas R. Cutler is the President and CEO of Fort Lauderdale, Florida-based, TR Cutler, Inc., celebrating its 21st year. Cutler is the founder of the Manufacturing Media Consortium including more than 8000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement. Cutler authors more than 1000 feature articles annually regarding the manufacturing sector. More than 4200 industry leaders follow Cutler on Twitter daily at @ThomasRCutler. Contact Cutler at trcutler@trcutlerinc.com.

Manufacturing Outlook / July 2020

21

ISM REPORT OUTLOOK

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

BREAKING NEWS

ISM PMI at 52.6% for June ISM PMI for the past 5 years

22

Manufacturing Outlook / July 2020

ISM REPORT OUTLOOK

reportonbusiness

Analysis by

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

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

ISM Report On Business : Manufacturing ®

®

Economic activity in the manufacturing sector grew in June, with the overall economy notching a second month of growth after one month of contraction, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The June PMI® registered 52.6 percent. The New Orders Index registered 56.4 percent, an increase of 24.6 percentage points from the May reading of 31.8 percent. The Production Index registered 57.3 percent, up 24.1 percentage points compared to the May reading of 33.2 percent.

The Backlog of Orders Index registered 45.3 percent, an increase of 7.1 percentage points compared to the May reading of 38.2 percent.

The Employment Index registered 42.1 percent, an increase of 10 percentage points from the May reading of 32.1 percent. The Supplier Deliveries Index registered 56.9 percent, down 11.1 percentage points from the May figure of 68 percent. As predicted, the growth cycle has returned after three straight months of COVID-19 disruptions. Of the 18 manufacturing industries, the 13 that reported growth in June — in the following order — are: Textile Mills; Wood Products; Furniture & Related Products; Printing & Related Support Activities; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Plastics & Rubber Products; Chemical Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Paper Products; and Electrical Equipment, Appliances & Components. ISM

‡Miscellaneous Manufacturing (products such as medical

PMI at 52.6% ®

PMI

Manufacturing grew in June, as the PMI® 2018 2019 2020 registered 52.6 percent, 9.5 percentage points higher than the May reading of 43.1 52.6% percent. The PMI® signaled a rebuilding of economic activity in June after three months below 50 percent. The PMI® recorded its 50% = Manufacturing Economy Breakeven Line largest increase since August 1980, when it 42.8% = Overall Economy Breakeven Line increased 10.5 percentage points. Among the big six industries, three of the industry sectors expanded. New Orders and Production returned to expansion, and at respectable levels. Supplier Deliveries reached a normal level of tension between supply and demand. Five of the 10 subindexes registered expansion, a marked improvement from previous periods. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

Manufacturing at a Glance INDEX

Jun Index

May Index

% Point Change

PMI®

52.6

43.1

+9.5

Growing

From Contracting

1

New Orders

56.4

31.8

+24.6

Growing

From Contracting

1

Direction

Rate of Change

Trend* (months)

Production

57.3

33.2

+24.1

Growing

From Contracting

1

Employment

42.1

32.1

+10.0

Contracting

Slower

11

Supplier Deliveries

56.9

68.0

-11.1

Slowing

Slower

8

Inventories

50.5

50.4

+0.1

Growing

Faster

2

Customers’ Inventories

44.6

46.2

-1.6

Too Low

Faster

45

Prices

51.3

40.8

+10.5

Increasing

From Decreasing

1

Backlog of Orders

45.3

38.2

+7.1

Contracting

Slower

4

New Export Orders

47.6

39.5

+8.1

Contracting

Slower

4

Imports

48.8

41.3

+7.5

Contracting

Slower

5

Overall Economy

Growing

Faster

2

Manufacturing Sector

Growing

From Contracting

1

*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.

Commodities Reported Commodities Up in Price: Aluminum*; Caustic Soda; Copper; Crude Oil (2); Diesel Fuel*; Ethanol; Natural Gas; Personal Protective Equipment (PPE) — Masks (3); Steel — Hot Rolled; Steel — Scrap; and Steel Products*.

Commodities Down in Price: Aluminum* (5); Diesel Fuel* (4); Methanol (2); Nylon (2); Packaging Materials (2); Plastic Products (2); Resins; Solvents (2); and Steel Products* (3).

Commodities in Short Supply: Ethanol; PPE (2); Sanitizers & Disinfectants; and PPE — Gloves (4).

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

14

ISMMAGAZINE.ORG

Note: The number of consecutive months the commodity is listed is indicated after each item.*Reported as both up and down in price./ Manufacturing Outlook

July 2020

23

ISM REPORT OUTLOOK

ISM Report On Business ®

®

manufacturing

June 2020 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

New Orders (Manufacturing) 2018

2019

New Orders

2020

56.4% 52.5% = Census Bureau Mfg. Breakeven Line

20

ISM’s New Orders Index registered 56.4 percent. Of the 18 manufacturing industries, the 11 that reported growth in new orders in June — in the following order — are: Textile Mills; Plastics & Rubber Products; Wood Products; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Chemical Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing‡; Machinery; and Computer & Electronic Products.

Production (Manufacturing) 2018

2019

Production

2020

57.3%

51.7% = Federal Reserve Board Industrial Production Breakeven Line

20

The Production Index registered 57.3 percent. The 13 industries reporting growth in production during the month of June — listed in order — are: Textile Mills; Furniture & Related Products; Wood Products; Printing & Related Support Activities; Petroleum & Coal Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Chemical Products; Computer & Electronic Products; Paper Products; Machinery; Electrical Equipment, Appliances & Components; and Miscellaneous Manufacturing‡.

Employment (Manufacturing) 2018

2019

Employment

2020

ISM’s Employment Index registered 42.1 percent. Of the 18 manufacturing industries, the five industries to report employment growth in June are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Chemical Products.

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

42.1%

20

Supplier Deliveries (Manufacturing) 53.1% 2018

2019

2020

56.9%

80

Supplier Deliveries The delivery performance of suppliers to manufacturing organizations was slower in June, as the Supplier Deliveries Index registered 56.9 percent. Fourteen of 18 industries reported slower supplier deliveries in June, listed in the following order: Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing‡; Textile Mills; Computer & Electronic Products; Paper Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Chemical Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Fabricated Metal Products; Transportation Equipment; and Machinery.

Inventories (Manufacturing) 2018

2019

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

‡Miscellaneous

2020

50.5%

Manufacturing (products such as medical equipment and

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

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Manufacturing Outlook / July 2020

Inventories The Inventories Index registered 50.5 percent. The nine industries reporting higher inventories in June, in order, are: Apparel, Leather & Allied Products; Furniture & Related Products; Textile Mills; Printing & Related Support Activities; Wood Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing‡; and Computer & Electronic Products.

ISM REPORT OUTLOOK

ISM Report On Business ®

®

manufacturing

June 2020 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

Customer Inventories (Manufacturing) 2018

2019

2020

Customers’ Inventories ISM’s Customers’ Inventories Index registered 44.6 percent. Of the 18 industries, the four reporting higher customers’ inventories in June are: Furniture & Related Products; Transportation Equipment; Primary Metals; and Electrical Equipment, Appliances & Components.

44.6%

Prices (Manufacturing) 2018

2019

2020

51.3%

Prices The ISM Prices Index registered 51.3 percent. The eight industries reporting paying increased prices for raw materials in June — listed in order — are: Apparel, Leather & Allied Products; Wood Products; Fabricated Metal Products; Computer & Electronic Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing‡; Machinery; and Chemical Products.

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

Backlog of Orders (Manufacturing) 2018

2019

2020

Backlog of Orders ISM’s Backlog of Orders Index registered 45.3 percent. The six industries reporting growth in order backlogs in June, in the following order, are: Textile Mills; Plastics & Rubber Products; Nonmetallic Mineral Products; Computer & Electronic Products; Machinery; and Chemical Products.

45.3%

New Export Orders (Manufacturing) 2018

2019

2020

47.6%

New Export Orders ISM’s New Export Orders Index registered 47.6 percent. The three industries reporting growth in new export orders in June are: Textile Mills; Paper Products; and Plastics & Rubber Products. The nine industries reporting a decrease in new export orders in June, in the following order, are: Nonmetallic Mineral Products; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Primary Metals; Fabricated Metal Products; Computer & Electronic Products; Transportation Equipment; Food, Beverage & Tobacco Products; and Chemical Products.

Imports (Manufacturing) 2018

2019

2020

Imports ISM’s Imports Index registered 48.8 percent. The five industries reporting growth in imports in June are: Apparel, Leather & Allied Products; Wood Products; Printing & Related Support Activities; Machinery; and Food, Beverage & Tobacco Products.

48.8 % ‡Miscellaneous

Manufacturing (products such as medical equipment and

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

Manufacturing Outlook / July 2020

25

NORTH AMERICAN OUTLOOK

JULY 2020

NORTH AMERICAN OUTLOOK

by ROYCE LOWE

There was significant improvement in both Manufacturing and Non-Manufacturing for the month of June as reported by The Institute of Supply Management. The Manufacturing Report on Business® PMI figure regained much ground, rising from May’s 43.1 to 52.6 in June.

The four industries reporting contraction in June are: Transportation Equipment; Primary Metals; Fabricated Metal Products; and Machinery.

Comments from the manufacturing industry are significantly more optimistic than of late, more so than May’s. There is some slight concern regarding the possibility of a second wave of COVID-19.

New orders and production grew at the highest rates in over 50 years; employment is contracting slower; supplier deliveries are slowing at a slower rate; backlogs are contracting; raw materials inventories are growing; customer inventories are too low; prices are increasing, and exports and imports are contracting.

Commodities Up in Price Aluminum*; Caustic Soda; Copper; Crude Oil (2); Diesel Fuel*; Ethanol; Natural Gas; Personal Protective Equipment (PPE) — Masks (3); Steel — Hot Rolled; Steel — Scrap; and Steel Products*.

Of the 18 manufacturing industries, the 13 that reported growth in June — in the following order — are: Textile Mills; Wood Products; Furniture & Related Products; Printing & Related Support Activities; Apparel, Leather & Allied Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Plastics & Rubber Products; Chemical Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Paper Products; and Electrical Equipment, Appliances & Components.

Commodities in Short Supply Ethanol; PPE (2); Sanitizers & Disinfectants; and PPE — Gloves (4).

26

Manufacturing Outlook / July 2020

Commodities Down in Price Aluminum* (5); Diesel Fuel* (4); Methanol (2); Nylon (2); Packaging Materials (2); Plastic Products (2); Resins; Solvents (2); and Steel Products* (3).

Note: The number of consecutive months the commodity is listed is indicated after each item. * refers to both up and down in price.

NORTH AMERICAN OUTLOOK The Institute of Supply Management’s NonManufacturing Report on Business® NMI® registered 57.1 percent, 11.7 percentage points higher than the May reading of 45.4 percent. This change represents month-over-month growth in the non-manufacturing sector after a two-month period of contraction preceded by 122 straight months of expansion. This is the largest singlemonth percentage-point increase in the NMI® since its debut in 1997. (In April, the index suffered its biggest one-month decrease, a 10.7 percent drop). The Business Activity Index registered 66 percent, up 25 percentage points from May’s figure of 41 percent. The New Orders Index registered 61.6 percent; 19.7 percentage points higher than the reading of 41.9 percent in May. The Employment Index increased to 43.1 percent; 11.3 percentage points higher than the May reading of 31.8 percent.

The Supplier Deliveries Index registered at 57.5 percent, down 9.5 percentage points from May’s reading of 67 percent. It is important to note that Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases. The higher index readings the previous three months were primarily a product of supply chain disruptions and some demand shock related to the coronavirus (COVID-19) pandemic.

The Supplier Deliveries Index now more closely correlates to current supply and demand.

ISM®’s Business Activity Index registered 66 percent in June, an increase of 25 percentage points from the May reading of 41 percent. This represents growth after three consecutive months of contraction. Two months after Business Activity fell 22 percentage points in April, the index

recorded its largest-ever single-month increase.

Comments from respondents include: “The easing of restrictions of movement of people both in the U.S. and abroad has led to an increase in business” and “Slow reopening for elective procedures.”

The 15 industries reporting an increase in business activity for the month of June — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Real Estate, Rental & Leasing; Wholesale Trade; Health Care & Social Assistance; Retail Trade; Utilities; Construction; Transportation & Warehousing; Management of Companies & Support Services; Finance & Insurance; Professional, Scientific & Technical Services; Educational Services; Information; and Public Administration. The only industry reporting a decrease in business activity for the month of June is Other Services.

CANADA showed easing in its falls in production, new orders and production in June. There was a further sharp lengthening in suppliers’ lead times.

An ongoing lack of demand saw export sales continuing to fall at a faster pace than total new orders in June. Employment fell for the fourth consecutive month. The PMI for June, at 47.8, was up from May’s 40.6. Business optimism continued to rise from April’s low, with 42 percent surveyed looking to an increase in production over the next 12 months, 16 percent a reduction.

MEXICO saw a continuing deterioration in operating conditions in June as demand slid further. There were further steep drops in new orders and production, and little action in exports.

The PMI for June was at 38.6, up from May’s 38.3. There is continuing negativity regarding the business outlook, and fear of a prolonged economic downturn.

Manufacturing Outlook / July 2020

27

SOUTH AMERICAN OUTLOOK

GLOBAL OUTLOOK

SOUTH AMERICA

by ROYCE LOWE

BRAZIL’s PMI went into expansion in June with growth in both production and new orders. There was a strengthening in confidence for the future.

The improvement is basically domestic with

export orders still down. Purchasing activity and employment are down, and there is inflation and an unfavorable exchange rate. The PMI rose from 38.3 in May to 51.6 in June.

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Manufacturing Outlook / July 2020

ASIA OUTLOOK

GLOBAL OUTLOOK

ASIA OUTLOOK

by ROYCE LOWE

CHINA saw continued strengthening in its manufacturing sector in June ,with a continuing expansion in production and an increase in total new orders for the first time since January. The June PMI, at 51.2, was up from May’s 50.7.

Business confidence was up in June, to a fourmonth high. Staffing levels were down for the sixth consecutive month.

There was a year-over-year increase in May of 14.5 percent in the sale of passenger cars and commercial vehicles to almost 2.2 million vehicles.

Passenger car sales, at 1.67 million, were up 7 percent. The year-to-date figures to May are down 27.4 percent.

business conditions in June, with regional lockdown extensions. There were sharp contractions in production and new orders, but there has been considerable easing since May. New export orders fell for the fourth consecutive month. Employment is still falling significantly. The PMI was up from 30.8 in May to 47.2 in June.

In spite of all this, manufacturers’ positive sentiment is at a four-month high.

JAPAN saw a continuing lack of demand in June, with export demand down, but with business confidence rebounding into positive territory. There was a sharp drop in production, new orders and purchasing activity. Employment was down at a fast rate and there was continuing disruption in supplier deliveries. The PMI eased up from 38.4 in May to 40.1 in June.

INDIA saw another significant deterioration in Manufacturing Outlook / July 2020

29

EUROZONE OUTLOOK

GLOBAL OUTLOOK

EUROZONE

by ROYCE LOWE

IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) rose to 47.4 in June from 39.4 in May, along with an easing of COVID-19 restrictions. The zone has nonetheless seen 17 successive months with a PMI below the 50 mark. There was a return to growth among consumer goods producers, but continued contraction in intermediate and investment goods producers. There are ongoing transportation and inventory problems.

Production fell only modestly, but there was continuing weakness in new orders. Employment fell for the 14th consecutive month. Business confidence showed increasing improvement.

Car sales in Western Europe were down 57.3 percent in May, with French sales down 50.3%; German down 49.5%; Spanish down 72.7%; Italian down 49.6% and UK down 89.0%. Forecasts are putting the reduction in sales for the year at 20-25 percent.

IHS Markit’s PMI for the UK saw production edging

The Manufacturing & Business Podcast Network

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Manufacturing Outlook / July 2020

up, in fact back into growth, and business optimism increasing to a 21-month high.

Employment fell for the fifth consecutive month.

The PMI for June was at 50.1, up from 40.7 in May. Over 63 percent of manufacturers are looking for production to increase over the coming year. Incoming new orders are showing signs of stabilizing, but new export orders are down for the eighth consecutive month.

GLOBAL PMI OUTLOOK

GLOBAL PMI OUTLOOK

by NORBERT ORE, DIRECTOR, HEAD OF INDUSTRIAL SURVEYS, STRATEGAS RESEARCH PARTNERS Since the U.S. was the strongest global economy prior to the pandemic unleashing its torpid grip, it is fair to expect that the U.S. is the fastest to recover.

While there is still much ground to recoup, June saw things moving in the right direction as both the Manufacturing and Non-manufacturing PMIs took big steps toward recovery. All 18 of the surveys that we closely watch strengthened during the month with ten Expanding – Strengthening and eight Contracting – Strengthening. Australia (51.5, +9.9 bounced above the mid-point. The Eurozone gained momentum as the EZ index (47.4, +8.0) for the eight countries made significant progress toward the 50-mark.

In June, the U.S. Manufacturing ISM PMI® (52.6, +9.5) reversed its nosedive, returning to growth mode after three months of pandemic driven decline. The 9.5 percentage point

increase in the Index gives credence to either a V-shaped or at least a Square-Root (√) recovery.

Even more encouraging were the sources of the change: the New Orders Index (56.4, +24.6) and Production Index (57.3, +24.1) strongly indicate the sector is gaining much needed momentum.

The past relationship between the PMI® and the overall economy indicates that the PMI® for June (52.6) corresponds to 2.9% annualized GDP growth, according to the press release.

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) – saw a vast reduction in contraction rates of production and new orders. Production, new orders and new export orders showed steep gains in June, but continued in contraction. The rate of decline was the weakest during the current fivemonth sequence of global manufacturing decrease.

Manufacturing employment was down for the seventh consecutive month in June.

There was growth in China, France, the UK, Brazil, and downturns eased in the U.S., Japan, Germany and south Korea. The Global PMI rose from 42.4 in May to 47.8 in June. International trade fell for the 22nd straight month in June, and at a fast rate.

Manufacturing Outlook / July 2020

31

GLOBAL PMI 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 Last month it was suggested that we should all refrain from dancing in the streets based on just one month of promising data but now I think some of that terpsichorean activity might be warranted as there has been a second month of progress and those categories that were in the most trouble have staged a dramatic turnaround. The lockdown has started to end for a wide variety of business sectors and it is showing up in the credit data. There is still a long way to go for many of the service sectors and that shows up in some of the index readings but even in this arena there has been substantial progress. The gains have been more obvious in several of the manufacturing sectors although there are others that are still waiting for that consumer demand to kick in. The majority of the predictions asserted this would be a “V” shaped recession and these numbers continue to support that conclusion.

The combined score for the Credit Managers’ Index this month left the contraction zone as it jumped from 44.1 to 51.0. This is the best score since March and is certainly a major improvement over the 40.6 notched in April. In February, the reading was 56.2 and not all that far from where it is today. The combined score for the favorable factors made a major gain as it also jumped back into expansion territory with a reading of 55.3. Consider that in April it was languishing at 32.0 and in May it was still in the 30s with a reading of 39.5. Granted, the reading in February was 62.2 but 55.3 is solidly in expansion territory. The combined score for the unfavorable factors also saw a little gain from 47.2 to 48.1. This suggests that there has now been enough time for companies to have entered credit difficulty. The good news is that the recovery in

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Manufacturing Outlook / July 2020

the favorables may have come in time to keep the unfavorables from dragging the entire index down.

The really good news is coming from the four break out categories in the favorable section. The sales data made a simply stunning rebound – from 20.0 in April to 28.6 in May and now it is sitting at 54.1.

This reading managed to skip right past the 30s and 40s and that is more than a little encouraging. The new credit applications made a dramatic leap as well – from 43.3 to 57.9. This is not far from the 62.2 that was noted in February. The dollar collections data shifted from 43.2 to 53.9 and the amount of credit extended moved from 42.8 to 55.2. It is hard to overestimate the importance of these gains. The favorable factor collapse was the issue that drug the whole index in territory it had not seen since the 2008 recession and it took years to recover from that series of losses.

The data from the unfavorables showed a little weakness this month but there was no collapse.

The sudden nature of the lockdown recession caught the business and credit community by surprise. Prior to the recession of 2008 there was the usual warning that something threatening was starting to build and most credit managers started to behave more cautiously. They were not offering generous terms to any but their best clients and new applications were carefully scrutinized. This time there was abundant confidence at the start of the year and there was no time to exercise much caution.

The rejections of credit applications took a little hit this month as it moved from 51.9 to 49.8. There is a little more concern regarding the ability of companies to stay current while the economy finds

CREDIT MANAGER’S OUTLOOK its footing. The accounts placed for collection also slipped considerably – from 49.1 to 46.7. There had not been time for companies to get in trouble prior to this month but it has now been three months since the lockdown started and there are companies getting far behind in their ability to pay on their credit. The dollar amount beyond terms had been a problem for the last few months as companies have been watching their cash flow like a hawk. The numbers reflect the fact this continues to be a concern. It has gone from 49.1 to 46.7 and is likely to fall further in the coming month as some companies will still be struggling to get back to previous levels. The disputes category also slipped a bit and fell into contraction territory with a reading of 49.6 as opposed to last month’s 51.5. The dollar amount of customer deductions stayed about where it had been with a reading of 50.6b as compared to 50.9 in May. The filings for bankruptcies also remained fairly stable at 47.7 as compared to 47.3. There is hope that bankruptcy activity will slow as business are allowed to start making a comeback.

Manufacturing Sector The recovery from the lockdown recession was destined to be odd and that has certainly been the case. There was very little wrong with the overall economy at the start of this recession, no signal that tough times were ahead. The manufacturing sector was looking forward to a decent year of growth around 2.5% or maybe more. Demand was up, consumers were confident and even the trade wars had not dented the export sector seriously.

Then everything stopped. It was as if the economy was placed in suspended animation. Now that the system has been allowed to start thawing there is evidence that consumers are picking up where they left off – at least for the most part.

The combined score for the manufacturing sector staged a nice rebound this month and jumped back into expansion territory with a reading of 51.0 as compared to the 44.1 in May and the even more uncomfortable 42.0 in April. This is the strongest reading since February. The most dramatic leap was in the combined index of favorable factors as the new reading is 55.7. Last month the numbers were still in the 30s with a reading of 38.6 and the month before the damage was even more obvious with a 34.3. The current reading is still a far cry from the 62.0 seen in February but something in the mid-50s is certainly acceptable. The index of unfavorable factors showed stability at this point – the number is the same as it was last month – 47.8.

There has been some distress in the sector and that started to show up but it has not crashed and with the high favorable numbers it probably will not.

There was a great deal of movement in the favorable sub-categories and all of it in a positive direction. The sales numbers jumped from a multi-year low of 27.5 to 57.8. This says it all in many respects. There never was a reduction in real demand, the consumer simply did not have access to goods and services and therefore spent no money. The surge is a reaction to pent up demand. The new credit applications also jumped back into positive territory with a reading of 57.5 after languishing at 43.2. The dollar collections data similarly rose from 40.5 to 52.4 and the amount of credit extended returned to expansion territory after a 43.0 reading in May. It now stands firmly at 55.4 and that signals that the bigger organizations are asking for extensive credit again.

There was not as much movement as far as the unfavorables were concerned but that has been the story thus far. The negative activity doesn’t show up right away given that actions taken by credit managers are triggered by distress. In a more normal recession, there would have been warning signs that would have provoked some caution but these signs were missing this time.

The rejections of credit applications actually fell a little this month as they slipped from 53.3 to 49.5.

There has been enough time for some businesses to show problems and that affects their ability to get credit. There was also a deterioration as far as accounts placed for collection. The reading was at 50.4 and has now fallen into contraction territory at 47.1. It has been at least three months since the crisis started and companies have been at risk for a while.

The disputes category slid from 51.6 to 47.4 and that signals that some are working to negotiate a better deal as they try to rebound. The really good news came in the dollar amount beyond terms category as these numbers jumped from 31.9 to 44.0. This was the first category that showed stress in the unfavorable list and now appears to be on the mend as companies catch up with their credit.

The dollar amount of customer deductions stayed roughly the same as it moved from 50.5 to 49.5.

The filings for bankruptcies stayed more or less stable as well – going from 49.3 to 48.8. There is an expectation that these filings will accelerate a bit in the coming months as there are sectors of the economy that are not yet part of the recovery.

In the next month or two the favorables will likely keep showing improvement and the unfavorables will continue to show stress.

Manufacturing Outlook / July 2020

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METALS OUTLOOK

JULY 2020

METALS OUTLOOK GLOBAL STEEL PRODUCTION WAS DOWN BY 8.7 PERCENT YEAR-OVER-YEAR IN THE MONTH OF MAY for the 64 reporting countries – which represent 99 percent of world crude steel production – to 148,775 MT. The only major country that did not show a significant drop was China, whose output rose by 4.2 percent to an unprecedented 92,267 MT. U.S. crude steel production for May was 4.790 MT, down 36.6 percent year-over-year. Canada produced 0.830 MT of crude steel in May, down 19.6 percent year-over-year. Mexico produced 1.450 MT of crude steel in May, down 13.2 percent year-over-year.

Primary Global Aluminum Production in May was reported at 5.448 million tons, with production in China, at 3.105 million tons, representing 57 percent of world total. Production was 496,000 tons in GCC; 342,000 tons in the rest of Asia;

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Manufacturing Outlook / July 2020

by ROYCE LOWE

284,000 tons in Western Europe; 346,000 tons in North America and 351,000 tons in Eastern and Central Europe.

Crude steel production in Germany in May was at 2.850 MT, down 18.9 percent year-over-year; in Italy 1.250 MT, down 43.6 percent year-over-year; in France 0.784 MT, down 36.5 percent year-overyear and in Spain 0.833 MT, down 33.7 percent year-over-year. The UK produced 0.700 MT of crude steel in May, up 10.1 percent year-over-year.

Brazil’s crude steel production for the month of May was 2.188 MT, a decrease year-over-year of 22.6 percent.

Russia’s crude steel production for May was at 6.00 MT, down 4.8 percent year-over-year; Ukraine’s was 1.638 MT, down 10.4 percent year-over-year.

CHINA produced 92.267 MT of crude steel in May, up 4.2 percent year-over-year; Japan 5.916 MT, down 31.8 percent year-over-year; India 5.767 MT, down 39.1 percent year-over-year and South

METALS OUTLOOK which we’ve heard hardly anything since the virus outbreak.

The bottom line seems to be a much greater relative demand for steel in China than in Europe and North America. Perhaps they have the right idea; sounds like the one FDR had some years ago.

Maybe less money on fighter planes at a zillion dollars a pop and missiles, more money to repair roads and bridges and schools?

Korea 5.387 MT, down 14.1 percent year-overyear. Taiwan produced 1.730 MT in May, down 10.6 percent.

In the month of May, China produced 62 percent of the world’s crude steel. While most of the world’s steel-producing countries suffered yearover-year reductions in production from 20 to 40 percent in May, China increased its year-overyear production by 4.2 percent. That’s not bad for a country that keeps threatening to cut its steelmaking capacity.

All this is going on while the price of H.R. steel coil keeps falling in the U.S. and Europe, and while U.S. Steel Corp is re-starting two blast furnaces.

Demand is picking up, but it’s not nearly where it needs to be. The automotive and energy markets are far from healthy, and the aircraft industry is particularly troubled.

The price of iron ore has recently increased from $80 to over $100 per ton. (Copper prices are also up). China is the world’s biggest buyer of commodities; its blast furnaces are running at 92 percent capacity, versus a normal range of 80-85 percent, and its steel mills are going flat out. They are making steel for infrastructure projects, some of which have been in the cards for a while. The iron ore supply took a bit of a kicking with Brazil being “in a mess” so it was up to Australia, the world’s largest exporter of iron ore, to go with the demand and pick up the slack. Australia took early steps to contain the COVID-19 virus and it kept its mines open.

China is big in construction. There are reports of many projects in the government’s push to give a kick to the economy. Maybe a good amount of steel is destined for the Belt and Road Project, of

The dilemma seems to be one of supply and demand. U.S. Steel is starting up their blast furnaces hoping that demand will come back.

They have no choice but to start the blast furnaces “just in case.” Their major competition, Nucor the largest steel company in the U.S., and Steel Dynamics, both use electric arc furnaces, a much more flexible steelmaking route. Their workers are suffering through the pandemic, too.

Demand is down in the U.S. and Canada, and there has been a recent tendency for hot-rolled prices in the U.S. to ease back between June and early July, with a drop of almost $30 per ton. Cold-rolled dipped in early July and hot-dip galvanized along with it. The pattern is similar in Canada. Hotrolled coil dropped below 400 euros per tonne in Northern Europe, but increased demand in early July gives some cause for optimism.

It’s wait and see. Both European and North American mills are hoping for a gradual improvement as the effects of the pandemic fade away; where they fade away.

Six companies are bidding to purchase the French rail mill, Hayange, that wasn’t part of the recent acquisition of British Steel by China’s Jingye, according to “sources.” The companies are ArcelorMittal; the UK-based Group Liberty House; the French special steel producer Ascoval; Germany’s Saarstahl, India-based JSW, and British Steel, Hayange’s former owner. Results of the ‘auction’ should be known in late July, early August.

Hayange rolls rails for France’s SNCF, the country’s national railroad.

Non-ferrous metal data show aluminum up from 0.69 per lb in early June to $0.72 per lb in early July; copper ranging from $2.48 per lb in early June to $2.72 per lb in early July; nickel from $5.65 to $5.75, and zinc from $0.91 to 0.925.

Manufacturing Outlook / July 2020

35

AEROSPACE OUTLOOK

JULY 2020

AEROSPACE OUTLOOK

by ROYCE LOWE

About the only good news to come out of the commercial airline industry these days is that the skies are clear. Nobody’s flying, and Americans can’t go to Paris…sorry, Europe. This is, of course, all due to the pandemic, but for Boeing it goes somewhat deeper than that.

Almost 400 737 MAX aircraft have been grounded for over a year because of the two fatal accidents they were involved in. It’s time for recertification flights, and the involvement of both Boeing and the Federal Aviation Administration (FAA) therein. The chief of the FAA, when called before the Senate’s Committee on Commerce, Science, and Transportation to discuss “issues associated

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Manufacturing Outlook / July 2020

with the design, development, certification, and operation of the Boeing 737 Max following the two fatal accidents,” admitted mistakes were made in the oversight of the Boeing Company.

Both Boeing and the FAA came under scrutiny after the two planes crashed due to faulty software. The agency chief said both the manufacturer and the agency made mistakes in its oversight. He added that “ the full implications of the flight-control systems were not understood as design changes were made.”

Recertification flights were scheduled for late Juneearly July, coincident with the COVID-19 pandemic

AEROSPACE OUTLOOK and its effect on Boeing’s production capacity.

Operations at Seattle-area production plants were suspended on March 25 through April 23. The demand for planes has taken an unprecedented drop. Production of the 737 MAX resumed May 27.

Boeing’s recently-appointed CEO, Dave Calhoun, who replaced Dennis Muilenburg, directed the company to release a batch of internal messages from company employees expressing worry or contempt for the 737 MAX. He did this in an effort to demonstrate transparency and he set recertification of the 737 MAX as a top priority.

The pandemic got in the way, and the end of April saw Boeing reduce its entire workforce by 10 percent.

But it wasn’t over for Boeing. A flight-deck engineer charges that Boeing and the safety agency ignored regulations and safety concerns during the initial pre-crash 737 MAX certification trials. The engineer contends that Boeing tried to minimize design changes to the 737 MAX flightdeck to avoid a regulatory review of the jet as a “new aircraft.” He maintained that this would have slowed the development and certification process, and required pilots to be trained in flight simulators.

Flight-deck engineer Curtis Ewbank wrote in a letter to the U.S. Senate Commerce Committee: “The 737 MAX’s original certification was accomplished with hand-waving and deception to hide the numerous ways the 1960s-era design of the 737 does not meet current regulatory standards or a modern concept of aviation safety.”

In both fatal crashes, the flight crews were “overwhelmed” by cockpit alerts from the Maneuvering Characteristics Augmentation System (MCAS) flight control software,” but were not able to address the reasons for the warnings. Boeing has revised the MCAS on the aircraft during the past 15 months. Once this has been approved by the FAA, the European Air Safety Administration and other agencies around the world, Boeing will be able to go ahead with updating the flight-control systems in current and future 737 MAX aircraft. Evaluation of the MCAS is the main objective of the recertification flights.

Ewbank doesn’t think this is enough. He maintains there are further flaws and that it is just a matter of time before another flight crew is overwhelmed by a design flaw known to Boeing and further lives are lost. The FAA states that it is working with other nations on safety panels on the recertification, and that it looks forward to these agencies feedback.

There is hope on Boeing’s part that the 737 MAX might be allowed to fly around this September. A little more time will tell.

Airbus SE, Boeing’s friendly competitor, has of course experienced the same reduced demand, and has cut its production by 40 percent from the early 2020 forecasts. It will let go 15,000 positions no later than the summer of 2021: Airbus noted that air travel may not return to pre-pandemic levels before 2023, possibly as late as 2025. There are plans to reduce the A320 series by a third, to 40 units per month; the A350 by some 40 percent to six per month, and the A330 by over 40 percent to two aircraft per month.

The Airbus cuts will mean the elimination of 5,000 positions in France; 5,100 positions in Germany; 900 in Spain; 1,700 in the UK, and 1,300 around the world - including the U.S. and Canada. Jet engine builders, such as GE Aviation and Rolls Royce, will suffer accordingly.

Manufacturing Outlook / July 2020

37

ENERGY OUTLOOK

JULY 2020

ENERGY OUTLOOK

by ROYCE LOWE

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Manufacturing Outlook / July 2020

ENERGY OUTLOOK BP just joined a list of companies taking steps to get rid of the pain it’s suffering as a result of the COVID-19 pandemic. It is laying off some 10,000 employees, with office jobs hit hardest, with oil prices below the level the company needs to be profitable. The first quarter saw debt of $6 billion, and the intention to reduce capital expenditure by 25 percent this year, a reduction of some $3 billion.

BP will reduce workforce costs by $2.5 billion in 2021.

According to the International Energy Agency (IEA), oil demand in 2020 is expected to fall by 8.1 million barrels per day (8.1mb/d), the largest in history, before recovering by 5.7mb/d in 2021. Reduced jet and kerosene deliveries will impact total oil demand until at least 2022.

The global oil supply dropped by 11.8mb/d in May, driven by a record cut by OPEC+. OPEC+ is a super cartel that comprises the 14 members of OPEC plus ten other members, most notably Russia, Mexico and Kazakhstan. OPEC represents 35 percent of global supply and 82 percent of proven reserves; OPEC+ 55percent of global supply and 90 percent of proven reserves.

After tumbling by 7.2mb/d in 2020, global oil output is set for a modest 1.7mb/d recovery in

2021. U.S. supply is poised to fall by 0.9mb/d in 2020 and a further 0.3mb/d in 2021 unless higher prices unlock further investments in the shale patch.

Global refining was down in April by 12.3mb/d year-over-year and by a further 1mb/d in May. Industry stocks in April were at 208 million barrels, above the five-year average. In the U.S. preliminary data show commercial stocks in early June at record highs.

Crude prices in May rose to their highest in three months with demand recovering amid a sharp fall in global supply. This recent modest recovery in prices means the first half of the year ending on a more optimistic note.

Airline passenger traffic in 2020 is expected to be almost 55 percent lower than that in 2019. First estimates show that having fallen by 3mb/d in 2020, jet/kerosene demand will come back by only 1mb/d, or below pre-crisis level.

Renewable energy demand is expected to increase because of low operating costs and preferential access to many power systems. A recent growth in capacity and some new projects coming online in 2020 would also boost output.

The outlook for the oil industry for the next couple of years is to say the least uncertain. We will monitor it with interest.

Manufacturing Outlook / July 2020

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AUTOMOTIVE OUTLOOK

JULY 2020

by ROYCE LOWE

These are trying times for the global automotive industry, an industry that had become accustomed to selling over 90 million units per year. Although it hadn’t been plain sailing in 2019, when sales fell after a couple of bumper years, the situation has fallen into very choppy waters with the outbreak of COVID-19.

Following year-over-year drops in light-vehicle sales in the U.S. of 34.1 percent in March, 46.5 percent in April and 32.1 percent in May, there was an upswing in June, with more dealerships open and all automotive plants effectively back to work.

Sales in June were down 17 percent year-over-year, with total sales at 1.16 million units. Year-to-date sales, at 6.18 million, are down 23.7 percent yearover-year.

By contrast, U.S. sales in February 2009, at the height of the last recession, were at 657,964 units, a figure that increased to 738,386 units in February 2010, for a year-over-year increase of 12.2 percent.

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Manufacturing Outlook / July 2020

AUTOMOTIVE OUTLOOK

Annual sales in 2008 were at 13.19 million; in 2009 at 10.40 million; in 2010 at 11.55 million and in 2011 at 12.74 million. It is quite conceivable that the U.S. automotive industry is in for a few more years of reduced sales due to demand shock, lack of Millenial interest in car ownership, and some consumer catch-up in newer cars over their former vehicles that averaged 11.2 years in age.

The year-over-year drop in sales in Canada was 48.3 percent in March, 74.6 percent in April and 44 percent in May. The year-over-year drop in February 2009 was 27.7 percent.

The situation looks even worse in Western Europe, the world’s third-largest car market, with a yearover-year drop in May of 57.3 percent, France at -50.3, Italy at -49.6, UK at -89, Germany at -49.5 and Spain at -72.7 percent. The forecast for the year is a drop in sales of 26 percent, or sales of 10.58 million, down from 14.29 million in 2019.

AUTOMOTIVE OUTLOOK These are frightening figures for the industry itself, and for all the supply chain support industries. The next few months will tell us if the forecasts are on track. Perhaps the warm summer days will help.

China’s recent figures are more encouraging, with a year-over-year increase in May of 14.5 percent in the sale of passenger cars and commercial vehicles to almost 2.2 million vehicles. Passenger car sales, at 1.67 million, were up 7 percent. The year-todate figures to May are down 27.4 percent, so an industry recovery may be in the cards. Plug-in car sales were down 23.5 percent year-over-year in May at 82,000 units, or 3.7 percent of the market.

Figures are improving, but are still far from the levels seen in May/June 2019. There was weakening demand for EVs after the government reduced subsidies, but they say they will extend them through 2020 to help sales.

The soft demand figures may be head-spinning, but they seem to be the only way to represent the current status of the automotive industry.

Ford Motor Co. and Volkswagen AG signed an agreement in early June to cooperate on the development of new commercial vehicles. The partnership, which includes no exchange of ownership, will focus on a medium pickup truck to be built by Ford and marketed by VW, a Ford electric vehicle built on VW’s modular electric drive system to be sold in Europe, and new commercial vehicles for both companies.

Lordstown Motors, which sprang from the ashes of the GM Lordstown plant, where the automaker once made 400,000 Chevy Cruze models annually, recently announced its plans to produce, eventually, 600,000 units per year of a batteryelectric pickup named the Endurance. The truck will have a range of 250 miles and a 6,000 lb towing capacity. It will cost around $52,000. Production could start next year. Stay tuned.

Volvo, meanwhile, will lay off 4,100 white-collar positions, of which 15 percent are consultants and 1,250 are located in Sweden.

Manufacturing Outlook / July 2020

41

ISSUES OUTLOOK

JULY 2020

ISSUES OUTLOOK

by ROYCE LOWE

42 42

Manufacturing Outlook / July 2020

ISSUES OUTLOOK

The new trade deal, signed by Donald Trump this past January, went into effect July 1. The deal, USMCA, or MUSCA, or CAMUS - depending on which country you’re from - differs in several important respects from the original NAFTA, which dates from 1994.

Both Canada and Mexico agreed to raise their De Minimis trade exemption values. Trade law stipulates that shipments less than the De Minimis value are exempt from taxes and duty. According to the U.S. Trade Representative, an increase in these limits will improve the ability of small and medium firms to export goods to Mexico and Canada cost effectively.

Under the agreement, Canada and Mexico will not charge duties on shipments under $117. Canada will double the maximum value of tax-free shipments to C$40 ($29.50) from C$20, and Mexico will raise its taxfree shipment threshold to $50.

This trade agreement is, of course, mostly about automobiles and who makes them, and what the North American content is, in parts and in metals like steel and aluminum. NAFTA said automobiles could be shipped tariff-free if more than 62.5 percent of their parts were manufactured in North America.

Under USMCA, this percentage will be 75, and 70 percent of the steel and aluminum used in vehicles must be made in North America. (Some 90 percent of U.S. steel exports goes to either Canada or Mexico.

This will serve to prevent what the AISI calls “dumped and subsidized” steel imports that have plagued the North American steel market.

The U.S. Trade Representative estimates that the USMCA will generate $34 billion in U.S. auto

investments and 76,000 U.S. auto jobs over the next five years, and $23 billion in new U.S. auto parts purchases annually within 5 years.

New labor regulations will form part of the agreement. The USMCA will mandate that 40-45 percent of parts in a vehicle must be made by workers earning at least $16 per hour by 2023.

At the time of signing of the agreement, the UAW released a statement to the effect that the “USMCA will not bring back the hundreds of thousands of U.S. manufacturing jobs already shipped to Mexico.”

The union said, however, that it would be “vigilant in monitoring” the agreement and its goal to protect and create U.S. jobs.

On the agricultural front, U.S. farmers stand to benefit from expanded access to Canadian markets under USMCA. Canada will eliminate country of origin statements on its wheat certificates and two classes of milk the U.S. Trade Representative says it used to undersell U.S. products.

According to the U.S. Trade Representative, USMCA represents a leap forward in the enforcement strength of NAFTA. Law enforcement officials can stop goods leaving, entering, or moving through member countries if they suspect goods are stolen or counterfeit. The agreement also requires any USMCA party to let the other members know if they want to negotiate a free-trade agreement with “China or another non-market economy,” according to the U.S. Trade Representative office.

There is a 16-year sunset clause and the deal is also subject to review every six years. At first glance, the U.S. seems to have done pretty well out of this deal.

Manufacturing Outlook / July 2020

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AUTOMOTIVE OUTLOOK

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Manufacturing Outlook / July 2020

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