Manufacturing Outlook for March 2020

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THE SKILLS GAP PART 3: RECORD BLUE-COLLAR LABOR SHORTAGES WILL CONTINUE THROUGH L I S T E N TO O U R P O D C A S T S AT:

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2030 PAGE 6

PLUS MANUFACTURING TIDBITS

THE MANUFACTURING MARKETING CAMPAIGN: CONTENT MARKETING AND AWARENESS OF COMPETITION PAGE 14

EMERGING TRENDS: 3PL MARKET IN THE U.S. WORTH $43 BILLION BY 2022… $1800 BILLION GLOBALLY BY 2026 PAGE 12

THE CREDIT MANAGER’S OUTLOOK PAGE 22

[

FEBRUARY ISM PMI: 50.1%

Released February 3rd -The Full Executive Summary Report On Business - Page 20

METALS OUTLOOK PAGE 28

AUTOMOTIVE OUTLOOK PAGE 34

GLOBAL PMI OUTLOOK PAGE 40

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

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32

PUBLISHER’S STATEMENT

AEROSPACE OUTLOOK

A word from our publisher

6 THE SKILLS GAP PART 3 Cover Story by T.R. Cutler

MANUFACTURING TIDBITS

Insights from inside manufacturing in action

14 THE MANUFACTURING

MARKETING CAMPAIGN: CONTENT MARKETING AND AWARENESS OF COMPETITION

by Thomas R. Cutler

16 EMERGING TRENDS:

3PL MARKET IN THE U.S. WORTH $43 BILLION BY 2022… $1800 BILLION GLOBALLY BY 2026

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by Thomas R. Cutler

MANUFACTURING OUTLOOK

© 2020 Jacket Media Co. No part of this publication may be reproduced or used in any form without the prior written permission of the publisher.

Metals & Manufacturing Outlook is a registered trademark of Jacket Media Co.

34 AUTOMOTIVE OUTLOOK Auto industry news

36 ISSUES OUTLOOK Issues around the globe

38 ENERGY OUTLOOK Energy and the environment

40 GLOBAL PMI OUTLOOK

by Norbert Ore

42

A look at manufacturing around the globe

EUROZONE OUTLOOK

20

A look at Europe

ISM MANUFACTURING REPORT ON BUSINESS

24 THE CREDIT MANAGER’S OUTLOOK

by Dr. Chris Kuehl

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

The aerospace industry

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

28 METALS OUTLOOK The cost, making and treating of metals

Open call for...

43 ASIA OUTLOOK China, Japan and India

44 SOUTH AMERICA OUTLOOK Brazil in the spotlight

45 DIFFERENTIATION IS NOT ABOUT CUSTOMER NEEDS, BUT OBJECTIVES

by Andrea (Belk) Olson, MSC

46 ALL U.S. AUTOMOBILE PRODUCTION SHUT DOWN

by Craig Rovere

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

PUBLISHERS STATEMENT PUBLISHER’S STATEMENT The coronavirus looms large in the news, wildly overpowering the anemic reporting on the annual flu which has sickened nearly 30 million and killed over 16,000 people just in the U.S., a story which has been back-burnered by the mainstream media. Why – because little is unknown about COVID-19, so it’s scarier and captures more ears and eyeballs. So far, it is deadlier than the flu percentage-wise, with a 2-3 percent mortality rate versus less than 1% for the seasonal flu, but much less impactful in the numbers of people sickened, more than 200,000 – so far. It is doubtful that a vaccine will be delivered much before June, by which time the annual flu season will have peaked (usually in February) and abated (usually in April or May). So, it is unsettling whether or not this one will follow suit, but it likely will die off soon.

What is surprising is the aggressiveness of the response in China, closing businesses, schools, events, government offices, entire cities, and even locking down a province or two, spraying disinfectants, building hospitals is less than 2 weeks, and dozens of other remedial and preventative actions to contain and diminish the spread – knowing full well that their economy will take a serious short-term hit. The official China PMI CLFP index fell to 35.7 for manufacturing and 29.6 for non-manufacturing, while the Caixin index dropped to 40.3 for February. The March numbers will be similar as the country puts people back into their daily lives.

So, how does this impact manufacturing? Overall, the present consensus, subject to change, is that the flow of Chinese exports will be delayed by 5 weeks, more or less (likely more), as China plays catch-up. This will put pressure on steamship lines leaving China and may cause some backlog at receiving ports, similar to the September/October timeframe when goods are arriving for the holidays. UNLESS – this nasty bug doesn’t die out in April/May. If it withstands the warming weather, then the world could have a pandemic of significant proportions. At the moment, that seems unlikely from what I hear and read.

All this to say that supply managers have been activating their contingency plans since late January, when it became apparent that the usual Chinese New Year celebrations would be extended due to the government’s response to the virus, adversely impacting production and exports. Which is in addition to the tariffs that are still in effect and caused companies to rework their supply chains beginning two years ago. Not every company has this luxury, even the largest players, including major tech and manufacturing companies, who built manufacturing plants in China. In our radio shows, we were just discussing the 1st quarter of previous years that can often experience an economic pothole from a major winter storm, and that 2020, in mid-January when much wasn’t know about COVID-19, may be a fairly smooth Q1 – then the uncertainty of the virus hit the fan.

This will be yet another learning moment for global supply chains – a new “What if…” scenario to consider.

When a supply chain is fairly well locked in, is there a Plan B or C or D that is workable? This is the wonder of manufacturing, where anything can happen with little notice, and staff members have to be agile and adaptive to the unexpected. And another assurance that robots, even with A.I., won’t be replacing some positions – perhaps ever. They can do repetitive things well, but anything off-script and not in the program leaves them quite still, while humans are picking up the phone, shooting out emails, flying to vet resources, cutting new deals, and whatever else it takes to keep production humming.

And, this is why we report on Manufacturing, in this Manufacturing Outlook ezine, in our Manufacturing Talk Radio podcasts, as well as Manufacturing Matters with Cliff Waldman, Where’s Willie, and Women And Manufacturing. It is information that needs to be captured, encapsulated and shared, from inputs to outputs and every practice or innovation in between: locally, across this great country, and all around the world.

Keep in Touch – Stay in Touch with the foundation of every industrialized economy – 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 / March 2020

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COVER STORY

REPORT: RECORD BLUE-COLLAR LABOR SHORTAGES WILL CONTINUE THROUGH 2030

Research reveals causes of labor shortages and how companies are filling job openings Labor shortages benefiting workers: bigger paychecks, higher job satisfaction, less wage inequality For employers, rising wages and labor turnover are straining business operations and squeezing profits— Today, America’s businesses face the challenge of staying competitive amid record labor shortages. To help reverse this trend and combat its consequences, a new study explains the factors causing labor shortages and how companies are filling their job openings. The Conference Board published the study, which features the results of its new survey of more than 200 human resource executives. They detailed the ways vacancies are hurting

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Manufacturing Outlook / March 2020

their companies and how they’re solving this problem.

The Conference Board warns that labor shortages – especially in blue-collar jobs – will likely continue through at least 2030. Without a concerted effort by companies and governments, the nation’s overall standard of living will decline, along with profits in blue-collar-heavy industries such as transportation, warehousing, and manufacturing.

COVER STORY The Cause of Blue-Collar Labor Shortages: Shrinking Supply Amid Soaring Demand Factor #1: Shrinking Supply of Blue-Collar Workers The Baby Boomer exodus: Baby Boomers perform much of the nation’s blue-collar work, but they are leaving the workforce in droves. The proliferation of retiring Baby Boomers will continue through 2030.

Dismal growth in the working-age population: Amid this Baby Boomer exodus, the working-age population has largely stopped growing. The US economy has never before experienced a swell of retirements amid near-zero growth in its working-age population.

Disappointing recovery in overall labor force participation: The tight labor market has brought more individuals into the workforce, but participation hasn’t grown fast enough to prevent it from further tightening.

Men without a college degree are less likely to work: Their declining workforce participation results, in part, from more of them being single, living with their parents, and having less of a need to earn an income.

Large increase in disability rates: The share of people not in the labor force due to disability has soared and is now at a record high, with a strong concentration in the South and the Midwest.

Manufacturing Outlook / March 2020

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COVER STORY

More young adults are avoiding the trades, instead pursuing college: As a growing share of young adults enroll in fouryear colleges, the number of working-age people with a bachelor’s degree continues to increase. Meanwhile, the number without a bachelor’s degree – those who typically choose blue-collar jobs – continues to shrink.

Young adults are much less likely to be in the labor force: The decline in labor force participation of 16-24-year-olds significantly reduces the supply of workers in jobs that hire young, less-educated workers. Since this trend mostly results from more young people attaining higher education, it’s positive from a societal perspective.

Factor #2: Soaring Demand for Blue-Collar Workers Amid a shrinking pool of blue-collar workers, several factors have led to more demand for them: Overall labor productivity slows, creating more demand for human workers: Slow productivity growth means employers need to increase employment more rapidly to meet demand, further tightening the labor market. From 2010 to 2019, labor productivity in the nonfarm US business sector increased by 0.9 percent per year, on average, compared to 2 to 3 percent annually in the decade prior to the Great Recession.

Manufacturing labor productivity suffers near-zero growth, leading to a hiring frenzy: Manufacturing is the largest employer of blue-collar jobs. Over the past decade, its productivity growth has essentially remained flat, after having averaged over 4 percent annually for the prior two decades. Static productivity growth has helped spur a surge in demand for actual workers. The sector has experienced its fastest growth in employment since the 1970s.

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Manufacturing Outlook / March 2020

COVER STORY Explosive growth in e-commerce: The surge of e-commerce activity has created a surge in blue-collar jobs, particularly in transportation and warehousing.

How Labor Shortages are Helping Workers but Hurting Companies Workers Benefit

Wages are rising fastest for new hires and blue-collar workers: As a result of these trends, the labor market for jobs that do not require a college degree is tighter than for highly educated white-collar workers. For the first time in recorded history, wage growth for management and professional workers is significantly lower than for other occupations. At the same time, rapid wage acceleration for new hires is contributing to historic levels of pay compression and higher labor turnover.

Higher job satisfaction: While companies are facing severe challenges in recruiting and retaining workers, plentiful job opportunities and rising wages have contributed to improved job satisfaction for nine consecutive years.

Less poverty and wage inequality: The prolonged tight labor market has led to wage gains for those at the bottom of the wage income distribution, resulting in record-low poverty rates for black and Hispanic workers.

Manufacturing Outlook / March 2020

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Companies Agonize Increased labor turnover is straining business operations: Rapid wage growth, especially among new hires, has led to increased job-hopping. With the voluntary quits rate well above the 2007 rate and the time needed to fill positions reaching historic highs, many companies are operating with unfilled positions and overstretched workforces.

Labor quality a rising concern: Given the perceived difficulty of finding qualified candidates, employers are hiring lesseducated workers, which is partially responsible for historically high levels of concern about labor quality.

Accelerating wages are squeezing corporate profits: The accelerations in wages and quit rates, along with slow labor productivity, are reducing US corporate profits – a trend that will continue in the coming years as the labor market continues to tighten.

Workforce Diversity Improves

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Manufacturing Outlook / March 2020

Women make record gains in employment: Part of this gain reflects the rising share of women in traditionally maledominated blue-collar occupations, especially in transportation.

Companies widen their talent pools: Companies are increasing their efforts to recruit other underrepresented populations such as minorities, mature workers, the disabled, immigrants, the previously incarcerated, and veterans.

Solutions: How are Blue-Collar-Heavy Companies Solving Labor Shortages?

The Conference Board surveyed human resources leaders at more than 200 companies. They identified the consequences their companies were experiencing due to shortages and the actions being taken. Frequently used solutions include: Increasing salaries and wages: Although the most popular tactic, raising pay helps only to a point. Given increased employment opportunities for workers and the financial constraints companies face, employers must innovate to attract and retain workers.

Manufacturing Outlook / March 2020

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Enacting tactical HR solutions: The biggest difference between companies most and least affected by shortages is that those hardest hit are making tactical changes to the recruitment process. Solutions frequently cited include: Increasing referrals: 51 percent of blue-collar-heavy companies indicated they had added or modified an employee referral program, compared to only 21 percent of white-collar-heavy companies.

Ramping up social media: Increasing social media efforts ranked as the second most popular recruitment strategy (69 percent) among blue-collar-heavy companies, behind increasing wages and salaries (79 percent).

Shortening the recruitment process: 37 percent of blue-collar-heavy companies have experienced candidates ghosting interviews. As such, the most affected companies are responding by not requiring multiple interviews.

Extending outreach beyond the usual recruits: 55 percent of blue-collar-heavy companies ranked expanding the target demographic as a key tactic; just 30 percent of white-collar-heavy companies said the same.

A blind spot? Not doing enough to retain mature workers: The lowest-ranked retention strategy was providing new incentives to retain older workers in full or partial capacity.

The report and survey results are free to the media and public. Access the research here.

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Manufacturing Outlook / March 2020

Media Contact: Joseph DiBlasi: Joseph.DiBlasi@conference-board.org About The Conference Board The Conference Board is the member-driven think tank that delivers trusted insights for what’s ahead. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org About the Authors Gad Levanon is head of The Conference Board Labor Market Institute. Elizabeth Crofoot is a Senior Economist at The Conference Board. Frank Steemers is an associate economist at The Conference Board. Robin Erickson, PhD, is a Principal Researcher in Human Capital at The Conference Board.

Acknowledgments We would like to thank Ben Cheng, Alex Campagna, and Brian Schaitkin for their support and helpful comments.

Manufacturing Outlook / March 2020

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MANUFACTURING TIDBITS

THE MANUFACTURING MARKETING CAMPAIGN:

CONTENT MARKETING AND AWARENESS OF COMPETITION

by Thomas R. Cutler

Content marketing is a strategic marketing approach focused on creating and distributing valuable, relevant, and consistent content to attract and retain a clearly defined audience which drives actionable and profitable customer action. The marketing research division of TR Cutler, Inc. completed a national survey of more than 1000 manufacturing executives; they reported on average, the consumption of more than 300 pieces of work-related content every year. Thirty percent of respondents read more than 600 content professional items each year.

Of equal importance nearly four in five (79%) reported that they were somewhat or much more likely to do business with a company that regularly produces new and current content.

The Demand Gen Report shared the sources of content which typically perform best. Eighty-seven percent of B2B buyers give more credence to industry influencer content. Sixty-eight percent of

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Manufacturing Outlook / March 2020

buyers said they frequently give credence to peer reviewed and user-generated feedback. Sixty percent give credence to content authored by a third-party publication or analyst.

The TR Cutler, Inc. survey reported that creating captivating content is a common headache among marketers in the manufacturing sector. By tailoring content correctly, manufacturers can create endless opportunities for the manufacturing sector. From boosting brand awareness to generating leads and gaining the trust of a target audience, content creation is no longer optional.

Content marketing for manufacturing provides useful, actionable information to industrial leaders from lean manufacturing professionals to C-suite personnel. Manufacturers become disinterested with overt product, process, and technology claims. They are data-driven and information gatherers. These pragmatic business leaders want decision-making rationale.

MANUFACTURING TIDBITS

Manufacturers want information According to the Roper Public Affairs, 80% of decision-makers prefer to receive company information in a series of articles instead of an advertisement. Some 70% say that content marketing fosters a connection with the company, while 60% say this content helps them make better buying decisions. Content marketing is credible information; promotional disguised advertisements will fail miserably.

There are no quick-fix solutions. Too often the focus has been on search engine optimization (SEO) and social media marketing with ever-changing search engine algorithms.

Well-executed marketing campaign for manufacturers Competitor awareness Key competitors are looking to take away customers.

Even the product differentiation today may change next week. Unique value propositions this month may evaporate by next month. What makes a product different and better this quarter could

be gone by next quarter. A consistent competitor assessment is essential; these insights will drive salient and effective content creation.

The bottom-line A well-executed marketing campaign generates more revenue; those funds should be reinvested into product innovation and online marketing. Because the competition is constantly changing, being aware of their moves provides agility and responsiveness to keeping ahead and growing market share.

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 7000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement. Cutler authors more than 1000 feature articles annually regarding the manufacturing sector. Cutler can be contacted at trcutler@trcutlerinc.com and followed on Twitter @ThomasRCutler.

Manufacturing Outlook / March 2020

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MANUFACTURING TIDBITS

EMERGING TRENDS:

3PL MARKET IN THE U.S. WORTH $43 BILLION BY 2022‌ $1800 BILLION GLOBALLY BY 2026

by Thomas R. Cutler

According to Technavio Research Report, 3PLs (Third Party Logistics) as a service (transportation, warehousing and distribution, and others) and end-users (retail industry, manufacturing industry, automotive industry, food and beverage industry, and others) will grow to $43 billion at a CAGR of 4% through 2022.

3PL market in the US: Top emerging trend The introduction of blockchain technology in the logistics industry is an emerging 3PL trend in the U.S. The digital platform offers a distributed transaction ledger. Identical copies of the ledger are easily maintained in multiple computer systems controlled by the stakeholders. Blockchain is a system which uses a thread of cryptographically protected records and the details of transactions for all stakeholders in

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Manufacturing Outlook / March 2020

the supply chain. The blockchain technology helps in developing a cost-efficient and effective supply chain.

Cost minimization through 3PL services The reduction in cost obtained from 3PL services is a key market driver in the U.S. logistics industry.

With the rising increase in operating costs, logistics industries are requiring high capital investment for setting up a structured infrastructure and maintaining large fleet sizes, technology, and labor.

Several industries are also focusing on outsourcing logistics services for minimizing the operational costs and maintaining profitability. 3PL service providers are customizing services while meeting the demands of the suppliers.

MANUFACTURING TIDBITS

$1800B by 2026 According to the latest Global Market Insights report, Third-Party Logistics Market by Solution Dedicated Contract Carriage (DCC), Domestic Transportation Management (DTM), International Transportation Management (ITM), Warehousing & Distribution, Logistics Software), Mode (Air, Sea, Rail & Road), Regional, the market valuation of third-party logistics (3PL) will cross $1800 billion by 2026. The growing demand for low-cost services and rapid expansion of the e-commerce sector will drive market growth.

Manufacturing driving 3PL growth The 3PL market is experiencing significant growth, owing to steady development of the manufacturing sector, rising internet penetration, and improved economic conditions across the region.

3PL service providers are transforming the supply chain management system in emerging markets.

These services help retailers to add value and enhance engagement with customers, while maximizing operational efficiency and improving profitability. Globally, 3PL service providers are investing in new technology, delivering data-driven solutions, broadening their service offerings, and expanding geographical reach to increase market share.

Globalization and the role of 3PLs The rise in globalization and increased trade

activities are driving the 3PL market growth.

The adoption of various software solutions including SCMs (Supply Chain Management) and cloud-based ERP (Enterprise Resource Planning) for logistics applications are being witnessed. Features provided by these software solutions such as warehouse management systems (WMS), real-time data, online documentation for international freight, and inventory tracking are attracting manufacturers across the globe. Free trade agreements with various countries worldwide are further fueling the market growth.

Key players are focusing on improving processes and delivering enhanced value-added services to gain customer loyalty. Technologically advanced and cost-cutting services are being extensively adopted in the 3PL market. These industry participants in the market are leaning toward adopting digital technology to attract more customers. Supply chain management platforms provide value-added services to manufacturers, including greater pricing visibility.

Author Profile Thomas R. Cutler is the President and CEO of Fort Lauderdale, Florida-based, TR Cutler, Inc., celebrating its 20th year. Cutler is the founder of the Manufacturing Media Consortium including more than 7000 journalists, editors, and economists writing about trends in manufacturing, industry, material handling, and process improvement. Cutler authors more than 1000 feature articles annually regarding the manufacturing sector.

Cutler can be contacted at trcutler@ trcutlerinc.com and followed on Twitter @ThomasRCutler.

Manufacturing Outlook / March 2020

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MANUFACTURING OUTLOOK

MARCH 2020

MANUFACTURING OUTLOOK

by ROYCE LOWE

GLOBAL MANUFACTURING FALLS BACK UNDER SPREAD OF CORONAVIRUS. U.S. HANGS ON; EUROPE COMING BACK FOR MOMENT. BUT WORLD IN STATE OF UNCERTAINTY.

Predictions for global economic growth in 2020 are being cut by the OECD and the World bank.

percent. The figure for the third quarter of 2019 was 2.1 percent.

Global trade saw its first full-year drop since the financial crisis in 2019, when it fell by 0.4 percent after growing 3 percent in 2018. This reflects Trump’s protectionism and the U.S. - China trade war, as well as Germany’s industrial slump.

The ISM PMI figure for U.S. manufacturing fell back from 50.9 percent in January to 50.1 percent in February. The overall economy grew for the 130th consecutive month.

The U.S. Department of Labor recently announced it would award $100 million in grants to 28 publicprivate apprenticeship programs throughout the country. It will target the fields of IT, Healthcare and Advanced Manufacturing.

The BLS jobs report for February shows the addition of 273,000 non-farm payroll jobs. The unemployment rate was at 3.5 percent. In February, notable job gains occurred in health care and social assistance, food services and drinking places, government, construction, professional and technical services, and financial activities. Employment in other major industries, including mining, manufacturing, wholesale trade, retail trade, transportation and warehousing, and information, changed little over the month.

The Bureau of Economic Analysis recently released its ‘second’ estimate for the annual rate of Real GDP growth in the fourth quarter of 2019, putting it at 2.1

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Manufacturing Outlook / March 2020

IHS Markit’s remarks on the U.S. showed manufacturing output weakening amid a slower upturn in new orders. Operating conditions improved at the slowest pace for six months, with new order growth slowing to a nine-month low. Business confidence was the strongest since April 2019.

Employment growth slowed despite a renewed backlog rise. There were supply-chain delays due to the coronavirus. Export orders were off.

U.S. LIGHT VEHICLE SALES : GM, Ford, FCA, Nissan N.A., BMW Group, VW Group and others are no longer releasing U.S.sales figures. So the industry must wait until early April to get the first official figures for 2020.

In the meantime, here are some figures for Japanese and Korean companies.

THE ECONOMIST magazine, in its latest weekly report on world economies highlights changes in Gross Domestic Product (GDP), Consumer Prices and Unemployment Rates for what it considers the world’s major economies. These data are not necessarily

MANUFACTURING OUTLOOK

good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month. The figures for GDP represent the % change on the previous quarter, annual rate. The consumer price increases represent year-over-year changes. The unemployment figures, %, are for the month as noted.

Manufacturing Outlook / March 2020

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ISM REPORT OUTLOOK

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

BREAKING NEWS

ISM PMI at 50.1% for February ISM PMI for the past 5 years

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Manufacturing Outlook / March 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 February, and the overall economy grew for the 130th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The February PMI® registered 50.1 percent. The New Orders Index registered 49.8 percent, a decrease of 2.2 percentage points from the January reading of 52 percent. The Production Index registered 50.3 percent, down 4 percentage points compared to the January reading of 54.3 percent. The Backlog of Orders Index registered 50.3 percent, an increase of 4.6 percentage points compared to the January reading of 45.7 percent. The Employment Index registered 46.9 percent, an increase of 0.3-percentage point from the January reading of 46.6 percent. The Prices Index registered 45.9 percent, down 7.4 percentage points as compared to the January reading of 53.3 percent. The New Export Orders Index registered 51.2 percent, a decrease of 2.1 percentage points as compared to the January reading of 53.3 percent.

Of the 18 manufacturing industries, 14 reported growth in February — listed in order — are: Wood Products; Furniture & Related Products; Plastics & Rubber Products; Printing & Related Support Activities; Paper Products; Textile Mills; Primary Metals; Food, Beverage & Tobacco Products; Computer & Electronic Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Machinery; and Chemical Products. ISM ‡Miscellaneous Manufacturing (products such as medical

PMI at 50.1% ®

PMI

Manufacturing expanded in February, as the 2018 2019 2020 PMI® registered 50.1 percent, a 0.8-percentage point decrease from the January reading of 50.9 percent. The PMI® expanded in February, but at a slower rate. Four of the big 50.1% six industries expanded, at similar rates as 50% = Manufacturing Economy January. Four of the PMI®’s 10 subindexes Breakeven Line recorded expansion, down from six the 42.8% = Overall Economy Breakeven Line previous month. 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

Feb Index

Jan Index

% Point Change

PMI® New Orders

50.1

50.9

-0.8

Growing

Slower

2

49.8

52.0

-2.2

Contracting

From Growing

1

Production

50.3

54.3

Employment

46.9

46.6

-4.0

Growing

Slower

2

+0.3

Contracting

Slower

7

Direction

Rate of Change

Trend* (months)

Supplier Deliveries

57.3

52.9

+4.4

Slowing

Faster

4

Inventories

46.5

48.8

-2.3

Contracting

Faster

9

Customers’ Inventories

41.8

43.8

-2.0

Too Low

Faster

41

Prices

45.9

53.3

-7.4

Decreasing

From Increasing

1

Backlog of Orders

50.3

45.7

+4.6

Growing

From Contracting

1

New Export Orders

51.2

53.3

-2.1

Growing

Slower

2

Imports

42.6

51.3

-8.7

Contracting

From Growing

1

Overall Economy

Growing

Slower

130

Manufacturing Sector

Growing

Slower

2

*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: Capacitors; Crude Oil* (2); Resistors; Steel — Hot Rolled* (4); and Steel Products.

Commodities Down in Price: Aluminum; Aluminum Products (2); Copper; Corrugate; Crude Oil*; Natural Gas (3); Polypropylene (4); Scrap; Steel — Hot Rolled*; and Steel — Stainless.

Commodities in Short Supply: None.

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

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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 / March 2020

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ISM REPORT OUTLOOK

ISM Report On Business ®

®

manufacturing

FEBRUARY 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

52.5% = Census Bureau Mfg. Breakeven Line

2020

New Orders ISM’s New Orders Index registered 49.8 percent. Of the 18 manufacturing industries, 16 reported growth in new orders in February, in the following order: Wood Products; Paper Products; Printing & Related Support Activities; Primary Metals; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Textile Mills; Furniture & Related Products; Computer & Electronic Products; Miscellaneous Manufacturing‡; Nonmetallic Mineral Products; Fabricated Metal Products; Machinery; Food, Beverage & Tobacco Products; and Chemical Products.

49.8%

Production (Manufacturing) 2018

2019

2020

Production ISM’s Production Index registered 50.3 percent. The 12 industries reporting growth in production during the month of February — listed in order — are: Wood Products; Paper Products; Printing & Related Support Activities; Furniture & Related Products; Plastics & Rubber Products; Primary Metals; Textile Mills; Miscellaneous Manufacturing‡; Fabricated Metal Products; Machinery; Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products.

50.3% 51.7% = Federal Reserve Board Industrial Production Breakeven Line

Employment (Manufacturing) 2018

2019

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

2020

ISM’s Employment Index registered 46.9 percent. Of the 18 manufacturing industries, three reported employment growth in February: Food, Beverage & Tobacco Products; Plastics & Rubber Products; and Computer & Electronic Products. The nine industries reporting a decrease in employment in February, in the following order, are: Petroleum & Coal Products; Paper Products; Primary Metals; Textile Mills; Transportation Equipment; Machinery; Miscellaneous Manufacturing‡; Fabricated Metal Products; and Chemical Products.

46.9%

Supplier Deliveries (Manufacturing) 53.1% 2018

2019

Employment

2020

Supplier Deliveries The delivery performance of suppliers to manufacturing organizations was slower in February, as the Supplier Deliveries Index registered 57.3 percent. The 13 industries reporting slower supplier deliveries in February — listed in order — are: Textile Mills; Apparel, Leather & Allied Products; Computer & Electronic Products; Chemical Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Paper Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing‡; Transportation Equipment; Fabricated Metal Products; Food, Beverage & Tobacco Products; and Machinery.

57.3%

Inventories (Manufacturing) 2018

2019

2020

Inventories The Inventories Index registered 46.5 percent. The five industries reporting higher inventories in February are: Furniture & Related Products; Wood Products; Primary Metals; Plastics & Rubber Products; and Food, Beverage & Tobacco Products.

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

‡Miscellaneous

46.5%

Manufacturing (products such as medical equipment and

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

22

Manufacturing Outlook / March 2020

ISM REPORT OUTLOOK

ISM Report On Business ®

®

manufacturing

FEBRUARY 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 41.8 percent. Of 18 industries, the only industry reporting higher customer inventories in February is Transportation Equipment.

The 11 industries reporting customers’ inventories as too low during February — listed in order — are: Plastics & Rubber Products; Wood Products; Textile Mills; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Fabricated Metal Products; Paper Products; Chemical Products; Machinery; Primary Metals; and Food, Beverage & Tobacco Products.

41.8%

Prices (Manufacturing) 2018

2019

2020

Prices The ISM Prices Index registered 45.9 percent. The five industries reporting paying increased prices for raw materials in February are: Wood Products; Textile Mills; Computer & Electronic Products; Miscellaneous Manufacturing‡; and Fabricated Metal Products.

45.9% 52.5% = B.L.S. Producer Prices Index for Intermediate Materials Breakeven Line

Backlog of Orders (Manufacturing) 2018

2019

2020

50.3%

Backlog of Orders ISM’s Backlog of Orders Index registered 50.3 percent. Eleven of the 18 industries reported growth in order backlogs in February, in the following order: Apparel, Leather & Allied Products; Textile Mills; Wood Products; Primary Metals; Paper Products; Furniture & Related Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Machinery; and Fabricated Metal Products.

New Export Orders (Manufacturing) 2018

2019

2020

New Export Orders ISM’s New Export Orders Index registered 51.2 percent. The eight industries reporting growth in new export orders in February, in the following order, are: Wood Products; Paper Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Fabricated Metal Products; Transportation Equipment; and Machinery.

51.2%

Imports (Manufacturing) 2018

2019

2020

Imports ISM’s Imports Index registered 42.6 percent. The five industries reporting growth in imports in February are: Wood Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Furniture & Related Products; and Plastics & Rubber Products.

42.6% ‡Miscellaneous

Manufacturing (products such as medical equipment and

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

Manufacturing Outlook / March 2020

23

CREDIT MANAGER’S OUTLOOK

CREDIT MANAGERS’ OUTLOOK

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

Combined Sectors NACM Economist Chris Kuehl, Ph.D., commented that at the start of 2020, there were essentially two schools of thought as far as the progress of the year’s economy. The more optimistic looked at the situation at the start of the year and noted there were some very positive indicators—low levels of unemployment, a robust stock market, a loose money position by the Fed, high rates of consumer confidence and so on. The GDP numbers came in better than expected. The pessimists noted there were headwinds to be wary of—trade fights, political instability, reduced levels of business investment and continued distress in the manufacturing sector. “It looked like a balance of opinions, but now there is the threat from the coronavirus (COVID-19) and its impact on China and global supply chains,” he said. “Is the Credit Managers’ Index lending support to either position at this point? The growth shown last month faltered a bit, but the data still remains strong, so it may be too early to draw many conclusions.”

The combined CMI score remained very close to what it had been in January—slipping from 56.4 to 56.2, both months higher than any in the past two years. The index of favorable factors remained exactly where it was the month before at 62.2, but there was a very slight decline in the unfavorable factors (52.6 to 52.2). “The bottom line is there has been very little change despite the factors that might have affected the business community,” Kuehl said. “This is not to say that next month will

24

Manufacturing Outlook / March 2020

not show reaction to all the global angst over the spread of the virus, but it is not showing up yet.”

The sales numbers actually improved to 64 from 63 and now sit near the high point reached in August of last year. The new credit applications reading was also higher than it has been since June. Last month, it stood at 61.1 and is now at 62.2. The dollar collections number fell fairly dramatically, however. That will be a development to keep an eye on. It was sitting at 61.7, but has declined to 58.8. This is not a drastic decline as the reading remains higher than in December, but this is the fifth-lowest point reached in the last 12 months. “This seems to signal that more companies are starting to guard their cash flow,” Kuehl said. The amount of credit extended improved a little from 62.9 to 63.6. He continued, “If it were not for the fall in dollar collections, the entire favorable category would have improved.”

The rejections of credit applications improved by a significant degree—moving from 52 to 53.8, good news given the increase in applications for credit.

The accounts placed for collection stayed the same as the month before at 50.6— in the expansion zone (a reading above 50). The disputes category declined a little but is still in expansion. Last month, the reading was 52.4 and this month it is 50.3. The dollar amount beyond terms also slipped a bit but still stayed comfortably in the expansion category going from 54.2 to 53.5—similar to the high reached in August. The dollar amount of

CREDIT MANAGERS’ OUTLOOK customer deductions fell as well, but stayed in expansion territory (52.5 to 51.5). There was a similar slight decline in filings for bankruptcies as it went from 54.4 to 53.5. “The important takeaway is that even with the declines noted, all of the categories are in the expansion zone for the third month in a row,” Kuehl explained.

Manufacturing Sector As for the manufacturing sector, Kuehl noted there has been a real slump over the last several months—at least according to some of the measures. The industrial production numbers have been down and there was a slide in the level of capacity utilization. For five months in a row, the Purchasing Managers’ Index (PMI) was in contraction territory. That slide in the PMI ended last month. There have been a few other suggestions that manufacturing has started to make a bit of a comeback. That is also showing up in the CMI as the decline has been very slight.

The combined reading moved down a bit from 56.5, but at 55.9, the reading remains one of the highest in the past year. The combined favorable index stayed right where it was—at 62 for the second month in a row. The combined index for the unfavorable factors slipped a bit from 52.7 to 51.8, but remains in the expansion zone and higher than it was in November of last year.

“Manufacturing most definitely has been facing some serious headwinds, but there are still sectors that remain relatively healthy,” Kuehl explained. “The slump has been pronounced in sectors connected to the aerospace industry as

well as the agricultural sector, but automotive has been holding more or less steady. The worry now is that interruptions in the Chinese supply chain will have a negative impact.”

Sales improved over last month and the current reading is as high as it has been in a year—even exceeding the 65.3 set in August. It is now at 65.7 after reaching 63.8 in January. The new credit applications data also improved to 61.4 compared to 60.2 the month prior. “The dollar collection numbers fell quite a bit (62.9 to 58.3). That is a concern going forward, but is still high and on a par with the numbers seen at the end of last year,” Kuehl said. The amount of credit extended improved from a reading of 61.3 to 62.8, which indicates continued substantial requests for credit.

The rejections of credit applications data improved from 52.5 to 53, a good sign when coupled with the increase in applications and the amount of credit extended. Kuehl noted it indicates that those looking for credit are creditworthy and not searching frantically for someone to offer it to them. The accounts placed for collection slipped very slightly, but essentially remained right where it was last month, and in the expansion zone (from 51.8 to 51.4).

The disputes number slipped quite a bit, which might suggest companies are getting somewhat concerned about their cash flow and credit position. It was at 52.5 and has now fallen into contraction territory with a reading of 48.9. The dollar amount beyond terms stayed almost exactly where it had been and is still in expansion with a reading of 54.2 compared to 54.3 in January.

The dollar amount of customer deductions also fell back into contraction with a 49.8 report after last month’s 51.1. This is still fairly close to expansion, but certainly trending in the wrong direction. The filings for bankruptcies number declined a little but remained firmly in expansion territory with a reading of 53.3 compared to 54.2 previously.

Manufacturing Outlook / March 2020

25

NORTH AMERICAN OUTLOOK

MARCH 2020

NORTH AMERICAN OUTLOOK

by ROYCE LOWE

The Institute of Supply Management PMI figure slipped back to 50.1 in February from 50.9 in January.

New orders are contracting from growing, production is growing slower, and employment is contracting slower; supplier deliveries are slowing faster and backlogs are growing from contracting.

Raw material inventories are contracting faster, customer inventories are too low. Exports are growing slower and imports are contracting from growing.

26

Manufacturing Outlook / March 2020

Of the 18 manufacturing industries, the 14 that reported growth in February — listed in order — are: Wood Products; Furniture & Related Products; Plastics & Rubber Products; Printing & Related Support Activities; Paper Products; Textile Mills; Primary Metals; Food, Beverage & Tobacco Products; Computer & Electronic Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Machinery; and Chemical Products. The three industries reporting contraction in February are: Petroleum & Coal

NORTH AMERICAN OUTLOOK Products; Transportation Equipment; and Nonmetallic Mineral Products.

Comments from the industry for the most part cite the effects of the coronavirus. Computer and Electric Products’ comments are particularly vehement. Plastic & Rubber Products, Furniture & Related Products, and Primary Metals all report a good month.

CANADIAN manufacturing saw its strongest overall improvement in business conditions since February 2019. Production was up at its fastest rate for three months and there was a renewed gain in export sales, particularly to the U.S. There was a modest gain in employment. Supplier delivery times lengthened in February. The Canadian PMI rose from 50.6 in January to 51.8 in February.

Canadian auto sales for February showed good results for Japanese and Korean companies, Nissan excepted. No sales for U.S. and European brands are available.

MEXICO saw a fractional production expansion in February, with total sales and exports on the up. The PMI for February was at 50.0, up from January’s 49.0. There is job shedding in Mexico and business sentiment is very low.

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Manufacturing Outlook / March 2020

27

METALS OUTLOOK

MARCH 2020

METALS OUTLOOK

by ROYCE LOWE

STEEL PRODUCTION INCREASED BY 2.1 PERCENT YEAR-OVER-YEAR IN THE MONTH OF JANUARY for the 64 reporting countries – which represent 99 percent of world crude steel production – to 154,436 MT. Primary Global Aluminum Production in January was reported at 5.451 million tons, with production in China, at 3.080 million tons, representing 54 percent of world total. Production was 508,000 tons in GCC; 350,000 tons in the rest of Asia; 284,000 tons in Western Europe; 330,000

28

Manufacturing Outlook / March 2020

tons in North America and 356,000 tons in Eastern and Central Europe.

U.S. crude steel production for January was 7.707 MT, up 2.5 percent year-over-year. Canada produced 1.090 MT of crude steel in January, down 6.5 percent year-over-year.

The UK produced 0.666 MT of crude steel in January, up 9.8 percent year-over-year. Crude steel production in Germany in January was at 2.845 MT, down 17.7 percent year-over-year; in Italy 1.874 MT,

METALS OUTLOOK down 4.9 percent year-over-year; in France 1.294 MT, up 4.5 percent year-over-year and in Spain 0.760 MT, down 34.0 percent year-over-year.

Russia’s crude steel production for January was at 6.000 MT, down 4.1 percent year-over-year; Ukraine’s was 1.843 MT, down 0.4 percent yearover-year.

CHINA produced 84.269 MT of crude steel in January, up 7.2 percent year-over-year; Japan 8.244 MT, up 1.3 percent year-over-year; India 9.288 MT, down 3.2 percent year-over-year and South Korea 5.753 MT, down 8.0 percent year-over-year. Taiwan produced 1.700 MT in January, down 14.6 percent.

Brazil’s crude steel production for the month of January was 2.680 MT, a decrease year-over-year of 11.1 percent.

From around $600 per ton in early February, the price of H.R. coil was at around $575 per ton at the end of that month. Cold-rolled fell from around $770 per ton in early February figure to around $760 per ton at the end of the month.

Copper showed little movement in February, moving between $2.55 and $2.60 per lb; Aluminum from $0.80 per lb in early February to $0.78 at month end, but spiking at $1.30 near month end; Nickel slipped from $5.70 in early February to $5.62 at month end; Zinc slipped from $1.02 in early February to $0.92 at month end.

THE HISTORY – AND FUTURE – OF BRITISH STEEL

In the late nineteenth century the world center of steel was Britain, more particularly England, more specifically Sheffield. Those were the golden days for steel in Britain, and they lasted until America started producing huge quantities of its own in Scranton, Pennsylvania, later near Buffalo, New York, using imported technology and many workers from Britain.

The story of America’s rise to become steel’s number one producer has been told on several occasions here, but Britain’s very weak performance over the past decades is associated in large part with the strength of union activity in the sixties and seventies, and an accompanying drastic reduction in the efficiency of Britain’s steel industry. Outdated technology added to the problems, and nationalization by Labor governments and denationalization by the Conservatives left British Steel Corporation closing plants, shedding jobs, and effectively, hindered by a recession in 1992, reducing the company to a shadow of its former self. A merger with the Netherlands’ Hoogovens in 1999 formed Corus Group - Europe’s largest steel company - which in 2000 was losing some $25 million per month.

The year 2007 saw the company bought by India’s Tata Steel, but high energy prices and cheap imports made life tough. Plant closures in 2015 and strikes over the employee pension fund, Manufacturing Outlook / March 2020

29

METALS OUTLOOK together with the unions blaming the government for all that was going wrong put the company on the verge of collapse.

In 2016, a private equity firm, Greybull Capital, purchased Tata Steel’s European Long Products Business for just over a dollar, and revived the British Steel name, offering a lifeline to 4,800 employees. It put together a $500 million investment package based at one plant in Northern England, while the bulk of the UK steel industry remained with Tata, including the UK’s largest steel plant at Port Talbot in Wales.

Greybull looked to expand, didn’t do it properly and went to the Government for around $150 million for European carbon emission credits, and damage from U.S. tariffs. Insolvency was the next step, following which a Turkish investment group looked like the knight in shining armour, but it walked away as terms could not be agreed upon.

30

Manufacturing Outlook / March 2020

Enter another knight in shining armor, in the shape of Mr. Li Ganpo, the chairman of Chinese conglomerate Jingye Group, offering a deal to rescue British Steel - again. Mr. Li went into business in 1994, a good time to catch China’s property and infrastructure boom. The company is headquartered in Hebei, China’s top steelmaking province, and it produced 11 million tons of crude steel in 2018, compared to just over 7 million tons for the UK as a whole.

The offer comes as the Chinese government continues a multi-year campaign to tackle excess steelmaking capacity, in part by pressing companies to move production away from industrial heartlands, which has made companies like Jingye turn more to international markets.

UK steel industry insiders and unions have raised doubts regarding Jingye’s ability to turn around British Steel after others have failed, in view of the high costs of labor and power in the UK,

METALS OUTLOOK

coupled with weak demand from Europe. With headwinds against him, Mr. Li, fully aware that further steelmaking capacity in China is not on the cards for him, looked abroad, pinpointed British Steel, and pledged an investment of some $1.55 billion, while hoping to cut costs and ramp up production. The purchase price (of the bankruptcy) is reported to be in the order of $65 million.

The British government, via its Department for Business, Energy and Industrial Strategy (BEIS) is also talking to the Turkish conglomerate Cengiz Holdings about them stepping in to buy British Steel in the event that the Jingye deal falls through. Cengiz enjoys close ties with the Turkish regime. BEIS wants rid of the business

as quickly as possible, a business that collapsed into bankruptcy in the Spring of 2019 and is losing around $1.3 million per day.

There is a problem with the Hayage plant in France, part of British Steel, that makes rails for France’s national railway. Jingye says it will invest 60 million euros ($70 million) in the French plant, but the French feel that Jingye wants the plant so it can sell steel in Europe.

The future of British Steel is still uncertain, but it looks as though it will end up in either Chinese or Turkish hands. In any event, it is doubtful that the newly-elected British government would let the name die.

Manufacturing Outlook / March 2020

31

AEROSPACE OUTLOOK

MARCH 2020

AEROSPACE OUTLOOK

by ROYCE LOWE

Boeing presently has a problem with its commercial-aviation division, namely the grounding of its 737 MAX. This is not news, but what may be is that Boeing executives have indicated that MAX production will restart before clearance by the FAA and other air-safety agencies, such as the European Air Safety Administration.

New flight control software for the 737 MAX has been developed to address the cause of two crashes that preceded worldwide suspension in March 2019. Boeing and the FAA, however, seem to be at odds over the schedule for the recertification flights necessary for FAA clearance.

The company sold no planes in January 2020, as in May 2019. It shipped only 13 jets in January, down from 46 a year earlier.

32

Manufacturing Outlook / March 2020

Boeing is remembered and renowned for the Minuteman intercontinental ballistic missile during the Cuban missile crisis and the B52 bomber, still in use today. Its space business, there at the time to put Americans on the Moon, is again trying to fly them into orbit. But the BDS, Boeing’s Defense, Space and Security Division, that should be there to bolster earnings and morale, is also suffering from neglect and is in slow relative decline.

Times are good for most American military contractors, helped along by upped defense budgets under Trump. The year 2019 saw an average 10 percent revenue increase at Lockheed Martin, Northrop Grumman and Raytheon, due in large part to fighter-jet and missile contracts. At BDS they fell by 1 percent.

AEROSPACE OUTLOOK Galactic’s last quarter results show a net loss of $73 million. It is the only publicly-traded space tourism group.

Elon Musk’s SpaceX and Jeff Bezo’s Blue Origin, together with Galactic, are in a race to send tourists into space. If all goes according to plan we’re in for an exciting year in space.

A recent Trump tweet stated that the president would allow G.E. to continue selling jet engines to China, even though - according to Bloomberg News - this was a contradiction of members of his administration who said that the move could pose a threat to U.S. national security should China reverse engineer the engines. China’s state airliner, Comac, already owns a dozen or so engines.

BDS is falling behind; it’s not winning the contracts and has no role in the F-35 fighter led by Lockheed, nor is Northrop’s long-range stealth bomber. It is reportedly not doing well on contracts it does obtain, and in one case, supply of airborne tankers to refuel planes, it was criticized by the Air Force. So long as Boeing is preoccupied with getting the MAX back in the skies, its defense business will continue to suffer. The company had a costly failure last December when attempting to dock its Starliner spacecraft at the International Space Station. Boeing faces a somewhat cloudy short-to-medium-term future, but the company is too big and too much of an American icon to be allowed to go under.

Trump implied that the “national security excuse” was overused - not mentioning steel and aluminum. In the recent phase one trade deal, China agreed to purchase billions of dollars of U.S. manufactured goods, including Boeing products and G.E. engines. Technology trade between the U.S. and China will be the subject of ongoing negotiations.

Mr. Calhoun, Boeing’s new CEO, has his work cut out, and he will be expected to come up with significant improvements in a relatively short space of time.

Meanwhile, still in space, Sir Richard Branson’s firm, Virgin Galactic, has said it will release more tickets for flights into space amid surging demand.

Galactic, which completed its first sub-orbital flight in 2018, said it had received almost 8,000 registrations of interest for future commercial flights, more than double the number it recorded at the end of September 2019. Inaugural flights, scheduled for later this year, have sold 600 tickets at $250,000 each. This news comes as Virgin Manufacturing Outlook / March 2020

33

AUTOMOTIVE OUTLOOK

JANUARY 2020

AUTOMOTIVE OUTLOOK

by ROYCE LOWE

34

Manufacturing Outlook / March 2020

AUTOMOTIVE OUTLOOK Automakers, including Honda, Toyota, and Hyundai, shut down their plants in China because of the coronavirus. Automakers manufacturing in Hubei province include GM, PSA, Honda, Nissan and Renault, together with automotive supplier Bosch. The plants are gradually restarting, but this is being complicated by a lack of workers, many of whom are either sick or quarantined. The supply chain has been disrupted and the effects of parts shortages will be most serious some 30-40 days after shutdown, according to an automotive consultant and ex-GM buyer. He sees “a wave of problems still a couple of months out.”

A recent report says German automakers and parts suppliers risk being hit more than other European suppliers because they have a higher percentage of sales in China. Daimler and BMW depend on China for 30 percent of their sales, VW for 40 percent.

The scheduling of parts production and shipment in and from China will be of the utmost importance, both during and after the present crisis. Availability of parts will be dependent upon prior availability of finished steel products among other things. It may be that flat-rolled and other steel products are not readily at hand, in spite of China’s oft-touted steel over-capacity.

The health of the automotive industry in China is a big question mark at the moment. GM, for its

part, in addition to its significant presence in China, is in the process of consolidating its presence throughout its manufacturing world.

GM is moving towards a consolidation of its production in its quest for the marketing of electric vehicles and autonomous vehicles. The company will close operations in Australia, New Zealand, and Thailand - to add to its already closed plant in India.

It will close Holden, its Australian brand, by 2021.

GM manufactured the Holden from 1948 until 2017, when it was sold as an import brand. GM will restructure its operations in South Korea and South America.

It will start a third shift and add 800 workers at its Lansing Delta Township plant to accommodate the demand for its popular mid-size SUVs. Lansing Grand River will hire 400 workers as a second shift to make Cadillacs. The new jobs at the Delta Township Assembly Plant are in addition to the $7.7 billion that GM pledged to invest as part of its agreement with the UAW. According to the Center for Automotive Research, GM is one of the largest investors in U.S. car manufacturing, having put $443 billion into the industry since 2000. At present GM looks like the healthiest of the Detroit Big Three. Its progress towards its various goals will be followed with interest.

Manufacturing Outlook / March 2020

35

ISSUES OUTLOOK

MARCH 2020

ISSUES OUTLOOK

by ROYCE LOWE

Now that Britain has finally left the EU, following the referendum vote of June 23, 2016, it will be looking to sign a free-trade deal with the EU, hoping that for the most part things will carry on as they were before the vote, with Britain looking to have its proverbial cake while eating it. Europe, particularly the French, think the UK is being somewhat of an upstart, hoping to have its own (trade) way without paying the EU membership.

Since the vote, there has been talk of businesses not born in the UK, particularly banks and automotive companies, relocating head offices in centers such as Paris, Frankfurt or Amsterdam. There was an air of uncertainty as to what might happen when the break by the UK was finalized. This was nowhere more prevalent than in the automotive business, where cars and parts might cross the channel several times during the ‘birth’ of an automobile.

There are two major schools of thought regarding Brexit; those who wish to take back control of the UK without “interference” from Europe, and those with

36

Manufacturing Outlook / March 2020

more level heads who predicted at the outset that the UK would suffer economically. To date, it is not possible to say if, or to what extent, the economy will suffer. The consensus says it will.

When it comes to the automotive business, Nissan is a case in point. Even though its problems go somewhat deeper than Brexit, vis-à-vis the recent ‘disappearance’ of Mr. Ghosn and his successor, the lack of a freetrade deal between the UK and the EU could spell virtual disaster for Nissan and for other automotive companies in the UK. Nissan’s plant in Sunderland, England, is the UK’s largest automotive plant, and a 10 percent tariff could apply in the event of no free-trade deal. The Sunderland plant makes models that account for the bulk of Nissan’s European sales. There has been, still is, an air of uncertainty about this whole scenario. This plant sends 75 percent of its product to Europe and a 10 percent tariff on cars and parts could spell its demise, and Nissan’s entire European strategy with it.

ISSUES OUTLOOK significantly if no freetrade deal were in the offing.

Nissan’s European chairman, Gianluca de Ficchy, says the European operation would not be viable. The company obviously wants to keep the Sunderland plant. They are looking to lower European sales in 2020, mostly due to the model range.

Nissan is perhaps not the best example of what may happen if Brexit “goes wrong” but any automotive company in the UK of outside origin would suffer

Negotiations between the UK and the EU will be long and hard. The deadline at present is December 31 this year. It is difficult to foresee there not being an agreement of a kind that will benefit both parties there really is too much to lose. The worst scenario would see Toyota, and Honda leaving the UK and setting up shop elsewhere.

With the investments already in place in the UK, the attendant costs of setting up elsewhere, and the huge production losses involved during any changeover, it is most unlikely that this scenario would be allowed to happen.

The British public was fed a pack of lies prereferendum, largely by the man who is now leading the country. Unfortunately no one else thought to outline all the things that might go wrong.

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Manufacturing Outlook / March 2020

37

ENERGY OUTLOOK

MARCH 2020

ENERGY OUTLOOK

by ROYCE LOWE

38

Manufacturing Outlook / March 2020

ENERGY OUTLOOK

The Americans drilled their first successful well in Saudi Arabia in 1938, when the Arabian American Oil Company was born. The company once had its headquarters in New York City; it was nationalized between 1973 and 1981.

Today, Saudi Arabia’s Aramco, which in December 2019 put 1.5 percent of its value in an Initial Public Offering (IPO) on the Saudi Arabian Tadawul exchange, has a valuation of $1.8 trillion, making it the world’s largest listed company. It is also the most profitable, with a net income in 2018 of $111 billion, almost twice that of Apple, and more than the combined earnings of the five biggest international oil companies: ExxonMobil, Royal Dutch Shell, BP, Chevron, and Total. In 2018, it pumped, as a company, 12.42 million barrels per day, or one barrel for every eight pumped in the world. This takes second place to the U.S., whose companies tallied between them 17.94 million barrels per day, or 18 percent of the world total, in that same year. Aramco is also the world’s cheapest producer, bringing up a barrel from beneath the desert for $3, less than any other company, and carbon emissions from the extraction of Saudi Oil are also very low. Aramco recently announced its intention to seek to list on other world stock exchanges.

The world has huge reserves of crude oil, the most in any individual country being found in Venezuela, where there are an estimated 300 billion barrels, compared with Saudi Arabia’s 270 million barrels and America’s 50 billion barrels. Venezuela, however, does not rank in the top ten producers

due to actual physical limitations of its extraction equipment. Third in the table is Canada, with some 170 billion barrels of a tar sands type that is difficult and costly to extract, and dirty at the end of it. The world’s top ten producing countries are responsible for lifting 71 million barrels per day; in fact, 71 percent of world total.

Oil accounts for almost 70 percent of Saudi’s exports, some 70 percent of which goes to Asia.

It also accounts for 30 to 40 percent of Saudi Arabia’s real GDP. Thus, Saudi Arabia is dangerously dependent on crude oil, something that its Crown Prince Mohammed ben Salmane (MBS) is anxious to change through a plan called Vision 2030, whereby emphasis will be placed on diversification of the economy, development of public service sectors including tourism, and increasing government spending on the military and on manufacturing.

America’s Energy Information Administration (EIA), within Trump’s energy department, expects the world to remain thirsty for oil, with demand rising until 2050. ExxonMobil feels likewise. Oil meets 40 percent of America’s energy needs, and its thirst for oil has been satisfied by the fracking boom, particularly in the Permian basin in Texas.

There is little or no doubt that crude oil will continue to hold onto its importance as an energy fuel, with a third of it going to propel cars and trucks which will, to some extent at least, be replaced by vehicles fitted with electric motors. This, as we all know, will take a great deal of time, how much nobody knows for sure at the moment. In the meantime, Aramco will continue to grow and to fund the plans of its Crown Prince.

Manufacturing Outlook / March 2020

39

GLOBAL PMI OUTLOOK

GLOBAL PMI OUTLOOK

by NORBERT ORE, DIRECTOR, HEAD OF INDUSTRIAL SURVEYS, STRATEGAS RESEARCH PARTNERS COVID-19 IMPACTING SUPPLY CHAINS FEBRUARY 2020 BUSINESS SURVEY INSIGHTS In February, we saw the degree that China has dominated global manufacturing in multiple ways exposed by the COVID-19 virus and its paralyzing impact on China’s workforce. There is no doubt that it has the potential to create supply chaos as customers and suppliers scramble to maintain their markets and speed the recovery. The “Year of the Rat” is off to a bad, bad start!

In February, bright spots were found in U.S. nonmanufacturing and small business growth. Non-

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Manufacturing Outlook / March 2020

manufacturing continued to grow, showing it can carry the U.S. economy. The scatterplot below indicates growth in eight of the 18 surveys we follow.

The U.S. non-manufacturing NMI (57.3, +1.8) accelerated again in February, showing signs of strength and reducing fears about a slowdown in the U.S. economy. The non- manufacturing sector is relying on expansion in business activity, new orders, and employment. Economic activity in the non-manufacturing sector grew in February for the 121stconsecutive month.

Drivers: New Orders (63.1, +6.9), Business Activity (57.8, -3.1), Employment (55.6, +2.5), and Supplier Deliveries (52.4, +0.7) supported the headline index.

The NMI components continued to portray a growing sector that is four times larger than manufacturing.

Prices: The Prices Index (50.8, -4.7) signaled stability as the month over month change was minimal and to a small degree favors buyers in the nonmanufacturing sector who purchase finished goods.

GLOBAL PMI OUTLOOK Pricing power at this level, with low inflation, indicates non- manufacturing is positioned to continue to lead economic growth in the U.S. Commodities Up in Price: Beef Products (3); Construction Contractors; Diesel Fuel*; Labor (2); Labor – Construction (2); Medical Supplies; Personal Protective Equipment (PPE); Pharmaceuticals (2); and Professional Services.

Commodities Down in Price: Cheese; Dairy; Diesel Fuel* (2); and Gasoline.

Commodities in Short Supply: Construction Contractors (4); Construction Subcontractors (26); Labor (17); Labor – Construction (47); Labor — Temporary (8); Medical Supplies; Personal Protective Equipment (PPE); Professional Services; Surgical Gowns (2); Surgical Masks; and Surgical Packs. Note: Parentheses indicate the number of consecutive months the commodity is listed. Asterisk indicates both up and down in price.

Sectoral Breakdown: Sixteen non-manufacturing industries reported growth in February: Accommodation & Food Services; Management of Companies & Support Services; Mining; Finance & Insurance; Real Estate, Rental & Leasing; Other Services; Construction; Health Care & Social Assistance; Public Administration; Wholesale Trade; Transportation & Warehousing; Educational Services; Professional, Scientific & Technical Services; Utilities; Information; and Retail Trade. Two industries reported a decrease: Arts, Entertainment & Recreation; and Agriculture, Forestry, Fishing & Hunting.

Manufacturing Outlook / March 2020

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EUROZONE OUTLOOK

GLOBAL OUTLOOK

EUROZONE

by ROYCE LOWE

IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) rose from 47.9 in January to 49.2 in February. Production and new orders continued in contraction but declined at slower rates. The downturn appears to be easing.

European car registrations were down 7.7 percent year-over-year in January, due largely to new binding EU emissions regulations that came into effect at the start of the year.

IHS Markit’s PMI for the UK rose from 50.0 in January to February’s 51.7. Production was up at the fastest pace since April 2019. Vendor lead times lengthened with supply-chain disruption. There is some easing of political uncertainty. There are

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Manufacturing Outlook / March 2020

delays in raw material deliveries. New orders are up for the second month, mostly domestic-based, with export demand down for the fourth successive month. Employment fell for the tenth month in the past eleven in February.

ASIA OUTLOOK

GLOBAL OUTLOOK

ASIA OUTLOOK

by ROYCE LOWE

CHINA saw both production and new orders down at the fastest rate since the survey began in 2004, with the PMI for February down from January’s 51.1 to 40.3. Supply chains were hit heavily. There was, however, a strong positive sentiment regarding an increase in production once the coronavirus - related restrictions are lifted. China’s vehicle sales for January were down for the nineteenth consecutive month, by 18.7 percent, to 1.94 million vehicles.

JAPAN saw its biggest drop in new orders since December 2012. There was a marked deterioration

in demand, hence cuts in production. Supply chains were disrupted by the COVID-19 virus outbreak. There were lower sales to China and some manufacturers had difficulty sourcing raw materials. This was the fifteenth successive monthly drop in export orders. The PMI for February fell from January’s 48.8 to 47.8.

INDIA saw a continued expansion with sharp increases in new orders and production.

Purchasing was up but job creation eased. There was a continuing strong demand for exports.

The PMI fell slightly from 55.3 in January to 54.5 in February.

Manufacturing Outlook / March 2020

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SOUTH AMERICAN OUTLOOK

GLOBAL OUTLOOK

SOUTH AMERICA

by ROYCE LOWE

BRAZIL saw solid expansions in both new orders and production in February. Sales were mostly domestic, with exports falling again. The PMI rose again, from 51.0 in January to 52.3 in February.

Employment was up for the second month in a row.

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) – suffered its steepest contraction in over a decade as the coronavirus hit supply chains and demand. It fell to 47.2 in February from January’s 50.4.

Global trade was down at the fastest pace since April 2009. Production and new orders took their

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Manufacturing Outlook / March 2020

sharpest drop since April 2009 and were at their quickest in China, where production and new orders fell at survey-record (since 2004) rates.

Manufacturing employment dropped for the third successive month in February, the fastest rate of job losses since August 2009. It will be noted that “future output” stays at the January level.

ANDREA OLSON

DIFFERENTIATION IS NOT ABOUT CUSTOMER NEEDS, BUT OBJECTIVES BY ANDREA BELK OLSON

There’s a constant push to differentiate in today’s competitive climate. Companies often invest in new products, services, and technologies to help shrink the divide and get a leg up on the competition. It’s a constant struggle and many organizations even create “innovation teams” and programs to discover that next “big idea”.

Most organizations focus on what might be considered the “low hanging fruit”. They examine what competitors are doing and work to create their own flavor of those products or services. They often believe it’s a safe bet and that they’ll simply “do it better” than their competitor, and the revenue will follow. Alternatively, companies will look to differentiate through a unique marketing campaign with a catchy slogan and creative promotions. Or they will conduct a series of internal discussions to identify what they believe customers want and select the most cost-conscious, easily implementable idea that pops out.

However, none of these things are real differentiation.

Differentiation, by definition, is to become distinct. Or rather, to develop unique and distinguishing characteristics.

And by that definition, differentiation clearly can’t be achieved by following others, applying a glossy veneer, or doing the things that are easiest for the company to do.

True differentiation comes from within the organization, through a deep, intimate connection with customers.

It would be simple for a company to be different based on what they want internally, but the goal is to become different and distinct for the customer. This requires a more comprehensive understanding of what customers’ needs, objectives, and challenges are than your competitors. In short, it’s about what the customer is trying to accomplish, rather than what the organization is trying to accomplish.

Companies struggle with this problem each and every day. No matter how many customer surveys, brainstorming sessions, journey maps, or competitive studies, differentiation remains elusive. And it remains elusive because these organizations seek the shiny object, rather than what’s relevant to the customer. Not every opportunity to differentiate is ground-breaking - the opportunities that have the most impact often are small, subtle, and most of all, relevant to the customer’s bigger objective.

Customers’ basic needs are often quite simple - such as wanting a mortgage application process to have minimal steps and be hassle-free. However, they actually have a

PREVIOUSLY POSTED ON LINKEDIN FEB 19, 2020

bigger objective, which is often not tied directly to that application process, and this is where most organizations miss the mark, and in turn, the opportunity to differentiate.

For example, if a customer is buying a house for the first time, one of their needs might be “getting a mortgage”, but their bigger objective is to “get a home”. This is a very important difference. By understanding the customer’s objective rather than simply a single need, there is almost an infinite number of opportunities to discover ways to differentiate and serve that customer on a whole new level.

With the “home” objective in mind, many related objectives can come forth, from getting homeowners insurance, to deciding on paint colors for the living room, to finding a contractor to put on a new deck. These “related objectives” are where companies can use their innovation and creativity to address those objectives and take control of a bigger portion of the overall customer experience.

This is why organizations must re-examine how they look at differentiation, and gain a better understanding of what’s relevant to the customers’ objectives, not simply individual, transactional needs or what the company internally wants to address. Customer objectives and their related objectives provide the opportunity for creating unique differentiation. In short, instead of simply hyperfocusing on addressing basic needs in a different way, focus on serving the unmet, bigger customer objective and related objectives, which might be tangential to your service or offering itself. These tangents must be relevant to the customer’s objectives, and go beyond simply an easy experience or a courteous follow-up from a customer service representative.

The most important thing about differentiation is customer objectives. You can invest in all the bells-and-whistles that your competitors may have, but likely you won’t see the revenue bump you’re seeking. Taking the time to examine a customer’s objectives and relevant objectives will help you uncover that elusive differentiation you’ve been looking for.

About the Author: This introspective essay was previously published on LinkedIn.com by Andrea Olson. In addition to writing and consulting, Andrea Olson speaks to leaders and industry organizations around the world on how to craft effective customer-centric organizations. More information is available on pragmadik.com or thecustomermission.com.

Manufacturing Outlook / March 2020

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COVID-19 BREAKING NEWS

ALL U.S. AUTOMOBILE PRODUCTION SHUT DOWN

by CRAIG ROVERE

Only days after the United Autoworkers Union announced it had a plan to scale back operations at the Big 3 manufacturing facilities in Detroit, it appears that all production will ceases in an effort to slow the spread of the COVID-19 virus.

This past Tuesday, General Motors, Fiat Chrysler, and Ford Motor said they had reached an agreement with the United Auto Workers.

The agreement involved the three companies to “review and implement…a rotating partial shutdown of facilities”, according to the union.

As of Friday, not only have General Motors, Fiat Chrysler, and Ford Motors decided to stop production entirely, other manufacturers throughout the country have followed suit.

Toyota, which had shut down production last week has extended its production suspension to April 3rd at all of its plants in North America.

Volkswagen is shutting down operations until March 29th, Nissan will stop production from until April 6th, Volvo is suspending production at its only U.S. plant from March 26th to April 14th and Subaru is shutting down its only U.S. auto manufacturing facility starting on March 23rd until March 29th as well.

This move mirrors production shutdowns already in effect in for most of these manufacturers in Europe. For Ford, this includes ceasing all

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Manufacturing Outlook / March 2020

production in Canada and Mexico as well. In a press release Friday the company indicated that the these facilities will be subject to thorough cleaning during the shutdown period.

In a statement release Friday, Rory Gamble, president of the UAW, said ”Today’s action is the prudent thing to do. By taking a shutdown and working through next steps, we protect UAW members, their families and the community.

We have time to review best practices when the plants reopen, and we prevent the possible spread of this pandemic.”

Tesla remains an outlier in all of this. Their automobile manufacturing facility is located in Fremont, California. This area is currently under a “shelter-in-place” order and all businesses that provide nonessential services must send all employees home. Tesla’s position is that they have not received any official word on whether to not their production fall under the definition of “essential”. Meanwhile, Alameda County Sheriff Department spokesperson Sgt. Ray Kelly states, “Our directive was clear”. Their directive was that the Fremont plant is not an essential business.

For more information on this and other breaking manufacturing-related news, listen to Manufacturing Talk Radio’s weekly podcast.

You can find the podcast on iTunes, Spotify, iHeartRadio or visit mfgtalkradio.com.

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