Manufacturing Outlook for February 2020

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PLUS MANUFACTURING TIDBITS

PICK-BY-VISION INNOVATION

AEROSPACE OUTLOOK

CORONAVIRUS: SUPPLY CHAIN MONITORING AND MITIGATION

AUTOMOTIVE OUTLOOK

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PAGE 28 PAGE 30

WHY ORGANIZATIONAL LEADERS OFTEN MISDIAGNOSIS PROBLEMS

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THE CREDIT MANAGER’S OUTLOOK

DECEMBER ISM PMI: 50.9%

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Released February 3rd -The Full Executive Summary Report On Business - Page 18

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Manufacturing Outlook / February 2020

The Manufacturing & Business Podcast Network

O U R

P O D C A S T S :

MFGTALKRADIO.COM

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

www.jacketmediaco.com

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

PUBLISHER’S STATEMENT

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

The aerospace industry

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THE SKILLS GAP PART 2

© 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.

AUTOMOTIVE OUTLOOK

Cover Story by Tim Grady

Auto industry news

MANUFACTURING TIDBITS

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Insights from inside manufacturing in action

10 PICK-BY-VISION INNOVATION

by Carsten Funke

12 CORONAVIRUS: SUPPLY CHAIN MONITORING AND MITIGATION

by Thomas R. Cutler

14 MODEX 2020 FEATURES

INTEGRATION WITH WMS, MES, AND ERP

by Nic Temple

16 MANUFACTURING OUTLOOK A look at manufacturing around the globe

18 ISM MANUFACTURING REPORT ON BUSINESS

22 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.

AEROSPACE OUTLOOK

A word from our publisher

Production Manager LINDA HOPLER Current Circulation 45,200

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

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ISSUES OUTLOOK Issues around the globe

34 ENERGY OUTLOOK Energy and the environment

36 GLOBAL PMI OUTLOOK

by Norbert Ore

38 EUROZONE OUTLOOK A look at Europe

39 ASIA OUTLOOK China, Japan and India

40 SOUTH AMERICA OUTLOOK Brazil in the spotlight

41 WHY ORGANIZATIONAL LEADERS OFTEN MISDIAGNOSIS PROBLEMS

by Andrea (Belk) Olson, MSC

METALS OUTLOOK The cost, making and treating of metals

Open call for...

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 manufacturing outlook concern at this moment is the 2019-nCoV, the new coronavirus that originated in China where it continues to spread, and has been carried to 26+ other countries. The questions in manufacturing pivot around the supply chain and the economic ripple effect.

China has already extended its New Year holiday; albeit, put much of the country on lockdown to contain the spread of the virus. It is not much of a Year of the Rat celebration. The results could be that the virus becomes well-contained and the holiday does not need to be extended more, or the virus continues to spread and China experiences significant delays in shipping exports from weeks (best case) to months (worst case). The Chinese government will make this call as their efforts to contain work or fail. As of February 14, 1,384 deaths and over 60,000 confirmed cases are reported by the World Health Organization.

Companies that shifted their supply from China because of the tariffs may be more fortunate than those who did not or could not. It is never simple – some U.S. companies built supply chain factories in China; not something you just abandon and rebuild in some other country or even re-shore to the U.S. quickly, easily, or cost effectively. And with many tariffs still in place and being paid for by the importing companies in the U.S., who will pass that added cost on to their customers or end consumers, the 2019-nCoV, novel coronavirus becomes a double whammy if it seriously restricts or shuts down the shipment of parts or products needed in the U.S. to fulfill orders.

The first quarter in many recent years took a production hit due to winter storms. In 2019, it was not significant. It looked like we might dodge the bullet in 2020 – until the coronavirus hit. Now, all bets are off until this tails off, although previous coronavirus outbreaks (SARS, MERS) lasted around 10-16 months, plus or minus. And the U.S. isn’t the only country buying from China, so the supply chain and economic ripple effect of this could impact economies struggling with recovery, pushing them into more recessionary territory. One domino does not fall alone.

We know our readers are on top of this, and supply chain managers are all over it. But there is so much that is out of their control. Sadly, it is just another wait-n-see situation that manufacturing did not need. Many have asked how 2020 would develop. Most reports said it looked like a moderate year for most with GDP averaging around 2. If the coronavirus is not contained, it is likely that the U.S. GDP could drop closer to 1% growth, and unlikely it will slip into recession. But forecasts are being modified and softened, for sure.

With that discussion out of the way, there is much more news in this issue of Manufacturing Outlook that is upbeat and informative. See what catches your eye in the Outlook sections, and let us know your thoughts on current of future content. By the way, we are always looking for talented contributing writers.

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 / February 2020

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COVER STORY

THE SKILLS GAP PART 2:

HUMAN RESOURCES

by TIM GRADY

It is somewhat odd that U.S. manufacturing has a labor problem, specifically a skills gap between what manufacturers need and available people in the general population. In any give month, the labor participation rate is in the 60-percentile, meaning that of all the adults 18+ able to join the workforce, only 63-67% are actually working right now. But it’s not quite that simple.

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Manufacturers are looking for individuals with a particular set of skills, and the labor pool candidates do not have those skills. And rather than blame or try to present why that has happened, we’ll focus on the potential solutions.

Previously, we wrote about training, and where unskilled workers can find it, pay for it, or get it.

COVER STORY Largely, it has and will likely continue to be a burden that manufacturing must bear, although some of it can be ameliorated by cooperation with local trade schools, trade associations, county colleges, universities, state or county labor programs, or government apprenticeship funding or grants.

That being said, what pools of people should manufacturing focus on? There are several we highlight here.

Veterans Everyone loves the idea of employing U.S. military veterans, who have been trained with a work ethic, attitude, and even highly specialized skills which could benefit many employers. What is surprising is the disconnect between military separation and workforce integration. The government allows G.I.’s to get training paid for by the military through the G.I. Bill, but it takes the offering institution up to 8 years to qualify to begin receiving G.I. Bill payments.

While this was well-intended when it was enacted in 1944, it is wildly out-of-step in 2020 – and no one is even talking about revisiting this so that G.I.’s can apply for funds for training programs of their choice.

Currently, it is a 1940’s solution to a 21st Century problem. If Washington D.C. wants to fix something in a bi-partisan effort – revisit and fix this! If an employer could receive G.I. Bill funds for training, how many G.I.’s do you think would get hired real fast?

High School Graduates

Each year, high schools across America graduate 3.7 million 12th grade students. Tragically, more than 20% cannot perform math or science at the 12th

grade level, and only 67% can read at the 12th grade level. Adopted in 2009, Common Core has been a disaster. The “new” math has been worse. And standardized testing has turned grades K-12 into process mills to just move students along instead of a “mastery model”. Virtually every college and university requires entering freshmen to take what amounts to remedial courses in math and English to prepare them for higher education. And, at least one-third of college students fail to graduate with any degree in anything. The American educational system is failing America, and now ranks 27th in the world – an appalling rank for the largest economy in the world.

Thus, high school graduates who cannot read at the 12th grade level, or perform basic “old school” onthe-job math, are not ready for the manufacturing work pool. The “re-learning” curve is just too steep and expensive for most manufacturers to undertake, which tragically leaves these American citizens in a lousy place in life. Yet, some high school graduates are ideal candidates for manufacturing – if – the company is willing to train them.

Former Inmates Most people do not want to talk about or maybe even consider hiring a felon. While that is understandable with violent or heinous offenders, there is a large pool of people with lesser offenses who can be trained, although they may be hampered by factors other than their criminal history. According to a report at huffpost.com, over 80% of the incarcerated are high school dropouts. And although the prison system touts rehabilitation, low level offenders exit prison with very limited workplace skills.

UNICOR, the dba of Federal Prison Industries, Inc., is a wholly-owned U.S. government corporation that touts its labor training programs for inmates.

Unfortunately, UNICOR competes directly with American manufacturers and wins contracts from employers because UNICOR does not have to pay competitive labor costs. And while their success rate with some former inmates may be encouraging, individuals who have been released after UNICOR work on the inside do not find jobs, or themselves, Manufacturing Outlook / February 2020

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COVER STORY well prepared for jobs on the outside. This often leads to personal frustration, the commission of another crime, and a return to prison. It is another national tragedy that 76% of former inmates are back in jail within 5 years.

Women in the Workforce

It is no secret that women are still under-represented in the workforce, and still underpaid across all businesses in general. Manufacturing may have a better balance, but corrective actions are still in a low gear. Quite possibly, the U.S. may have lost World War Two had some 6 million women not entered the U.S. workforce to build machines and supplies for the war effort.

Today, we are in a new war – what country will be the economic powerhouse in 2050? It may well be that China surpasses the U.S. by 2030 with a larger economy, a better educated workforce, and more technological advancement than the U.S. That may include military capabilities that exceed those of the USA. With a population over 1 billion as compared to the U.S. at 340 million people, they are a juggernaut with which it is difficult to contend.

If U.S. employers do not rapidly tap into women in the workforce on a level playing field, they may very well set up the USA to become a second-class economy, and if the U.S. finds itself in a conventional war, it may come out on the losing end with a

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decimated country and economy. The Rosie the Riveters proved their worth during WWII – they need prove nothing more.

Retirees With over 10,000 age 65+ individuals retiring every day at the present rate, America is suffering a massive brain-drain. However, retirement has changed, and many individuals would prefer to keep working, or even have to keep working to make ends meet. This provides an opportunity to transfer knowledge from the gray hairs to Gen X and the Millenials through apprenticeship programs, and the creation of knowledge bases and documented processes, things which many businesses have operated without because the need for capturing the skill information wasn’t compelling.

Today, it is not just compelling, it is critical to the survival of many businesses, both in the service sectors and manufacturing. Some of this knowledge will be transferred to robots or other automation tools, but some of it will remain in the hands and heads of humans – unless it falls through the cracks over the next 5 years.

Immigrants America was built on the backs and sweat of immigrant labor. Every ethnicity found integration in America difficult, and were faced with biases, prejudices, hatred and even extreme violence. We’re not sure that we can say it has improved much.

The U.S. immigration system has a choke-hold on legal immigration, allowing just over 1 million people to legally enter to live and work in the U.S. each year.

It is estimated that, if America threw open its doors, 186 million people would flood the U.S. within 10 years. Social, education, and government systems would likely collapse under the economic weight of such an event. The skills gap would quickly close and the U.S. unemployment rate would predictably skyrocket. We do not see a similar flood of people trying to move to any other country on Earth in even a fraction of that number. Capitalism and freedom are the systems hundreds of millions of people want to live within.

COVER STORY Yet there are over 10 million people already in this country illegally.

Do we really believe that such a vast number will voluntarily leave or the U.S. will throw them out? The fact is that the U.S. immigration system has been broken for more than 50 years, and while many administrations during electioneering touted fixing it, exactly none have done it, regardless of who controlled the House, Senate or White House.

They have given it lip service, or presidential executive orders, none of which addressed the simple reality that the people here need a pathway to citizenship.

The Homeless They are not all crazy, violent, or drug addicts. Some become homeless because they cannot recover from circumstances beyond their control, like losing everything in the Camp fire in California, floods in southeast Texas, PTSD from war, or escape from an abusive relationship, as a few examples. Others lack transportation, and/or have a criminal record. One-fifth of the homeless are children, many going to school each day and returning to a cardboard shelter at night. Single mother’s experiencing homelessness may have more than one child with them.

States with the highest homelessness, such as California, New York, Oregon, and Washington, are spending billions of dollars annually on homeless programs, yet the problem keeps getting worse. Sadly, the homeless are often pitied and reviled at the same time, but help is complex and difficult.

Programs that address the problem as if the issues can be resolved as a group have simply failed. It takes a one-at-a-time process to address the individual hurdles each person faces, and a job is certainly part of the solution. So is daycare, transportation, abstinence from drugs, home budget education and other issues that can only be tackled one person and their situation at a time. The training and other corrective resources are so disjointed that this potential pool of workers remains in limbo.

Summary In summary, the U.S. Skills Gap isn’t a people-problem; it is a training problem (homelessness aside). There are more people available who desire a good career and favorable future than there are jobs for them.

The focus needs to shift from finding “skilled” workers to developing skilled workers. Training is back in vogue!

Author Profile: Tim Grady is a host on Manufacturing Talk Radio, the Editor-in-Chief of Manufacturing Outlook, and an industry consultant with more than 30 years of business experience working with hundreds of companies on their strategic issues from the executive offices to the loading dock doors.

Manufacturing Outlook / February 2020

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MANUFACTURING TIDBITS

MANUFACTURING OUTLOOK: Eliminating costly mispicks There is not a warehouse manager unaware of the costs of mispicks. Researchers discovered that a single mispick costs an average of $22. While that may not seem all that expensive, costs quickly add up to $390,000 annually for the typical business.

Perfect picks generate significantly reduced error rates, and Picavi considers smart glasses a personal assistant for fast, simple, and error-free picking.

Assisted Reality, expanding reality with contextdependent digital information, is becoming increasingly common in the logistics sector. The system keeps both hands free and provides enough battery life for at least one full shift. By guiding users visually, it offers greater flexibility and prevents fatigue.

Other savings are realized in pick-by-vision as these technologies are easy to learn. Since human beings process 80% of information visually, pick-by-vision is one of the most significant developments in intralogistics.

Pick-by-vision has arrived and will be on display at MODEX 2020 in Atlanta, March 9 - 12 Booth 5485 Productivity and ROI pick-by-vision data Customers who use smart glasses report efficiency increases up to 30%, depending on the starting situation. Improved performance means a pickby-vision system quickly pays for itself. Hands-free picking is achieved by using smart glasses to enable continuous material flow and uninterrupted shift operations in the warehouse.

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Pick-by-vision = 100% employee acceptance Frequently, new technologies meet with resistance; not the case with pick-by-vision glasses which captures 100% acceptance among employees. The use of icons and images minimizes the amount of text on screen, as well as solving language barriers, since icons and images are universally understood.

This solution also prevents fatigue and provides a greater degree of flexibility.

At the start of their shift, the warehouse worker logs into the system by scanning their personal barcode.

Picavi then transfers the first order to the smart glasses. The smart glasses’ user-friendly interface gives the picker an overview of all the important information in real-time, and also keeps their hands free to pick up the goods.

MANUFACTURING TIDBITS

PICK-BY-VISION INNOVATION

by Carsten Funke

Guided by the smart glasses to the storage location, a selection of Bluetooth-Ringscanners scan all 1D and 2D barcodes. They are connected via Bluetooth to the glasses. The confirmed pick does not require anyone to handle a hand scanner or paper list. This leads to employee satisfaction, retention, and value since the company is providing effective, ergonomic, and efficient tools for success.

In order to ensure efficient order processing, Picavi works closely and consistently with ERP (Enterprise Resource Planning) and WMS (Warehouse Management Systems) vendors. Deviations are optimized in real-time and only a smooth and accurate picking process remains.

Pick-by-vision = happy customers who reorder In an Amazon world, nothing is more important than keeping customers happy and re-ordering.

Warehouse operations have been using the Picavi pick-by-vision since 2015. Smart glasses provide clarity in the warehouse, critical since warehouse work involves a lot of movement. The smart glasses do not slip, tip to one side, or sit heavily on the nose.

Using them is clear, simple, and intuitive.

The Picavi Cockpit features make it easy to wirelessly install smart glasses, no matter how big the project.

The simple One-Scan-Setup process brings smart glasses to life, incorporating them into warehouse operations. (The Picavi Cockpit will be on full display at MODEX 2020 booth number 5485.)

Good communication is the basis for successful cooperation. Perfect integration allows for fast and reliable data transfer between the smart glasses and warehouse management.

Author Profile: Carsten Funke is the Chief Sales Officer for Picavi. Since early 2019, Funke took the position of CEO at the US subsidiary, Picavi U.S. Inc., the North American pick-by-vision solution.

Manufacturing Outlook / February 2020

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MANUFACTURING TIDBITS

CORONAVIRUS: SUPPLY CHAIN MONITORING AND MITIGATION SOLUTIONS

by Thomas R. Cutler

CNBC reported that the impact of the Coronavirus is greater as it coincides with an already slowing Chinese economy. It comes at a time when American companies were already shifting supply chains from China to elsewhere due to new tariffs and trade tensions. The virus will serve as another reminder for companies to rapidly diversify supply chains.

Following “phase one” of the trade deal with the United States, the Coronavirus undermines the

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bilateral trade optimism that had buoyed markets.

It has quickly changed the narrative and increased the odds of a global market downturn in 2020. First quarter growth figures in China could fall to 2% yearon-year – which would be the lowest in decades, and down from 6% in the last quarter of 2019.

Nearly 300 supplier sites within the area of Wuhan, China, have been impacted by the government’s

MANUFACTURING TIDBITS

response to the outbreak. Many factories and business have been shut down due to workers being ordered to stay home or remain on vacation. The government extended the Chinese New Year holiday to deal with the crisis. Transportation systems are shut down, keeping factory workers at home.

Businesses should expect supply chain disruptions for approximately three to six months (perhaps longer depending on containment), similar to the 2009 swine flu disruption. More will be known once recovery rates of patients affected by the virus are provided by health organizations.

PRSA: pandemic readiness supplier assessments allow manufacturers to collect assessments from suppliers along with immediate communication readiness.

Tracking real-time data from hundreds of thousands of suppliers is critical; manufacturers with primary and sub-tier suppliers in the region plan for a range of scenarios, such as generating time horizons and reviewing inventory levels among suppliers; it is a cautionary warning of what can happen when a pandemic or natural disaster occurs.

Industries most affected by the disruptions include aerospace, automotive, general manufacturing, consumer goods, consumer electronics, food and beverage, life sciences, and industrial chemicals.

Manufacturers must anticipate these scenarios, looking outside the organization to suppliers and subcontractors to ensure readiness. Critical communication internally and externally must be a natural and consistent process along with employee training and supplier verification. Manufacturers are only as strong as the weakest supplier.

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 / February 2020

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MANUFACTURING TIDBITS

MODEX 2020 Features Integration with WMS, MES, and ERP via Robot Computing Systems

by NIC TEMPLE

While there will be many AMRs on display at MODEX 2020, only ForwardX provides a Visual Autonomous Mobile Robot. Rather than relying on LiDAR SLAM (Simultaneous Localization And Mapping) like most competitors on the market, ForwardX’s robots depend on a sensor fusion solution with Global Award-winning Computer Vision (CV) being the primary source for localization and obstacle avoidance with LiDAR, Encoder, and IMU data as secondary feedback to the control loop. LiDAR is 2D, so 3D CV technology offers a richer source of data, and a more robust solution far better-suited to everchanging warehouse, distribution center, and cellular manufacturing environments.

Given the proliferation of warehouses, distribution centers, direct to consumer (D2C) business models, fleets of AMRs (Autonomous Mobile Robots), questioning the validity of innovation is worthy of examination. Unlike in prior years when attendees would walk the show floor for days, many are using the MHI MODEX app and visiting for just a single day. For that reason, a compelling innovation from ForwardX (Booth 1207) should be the first stop for serious AMR decision-makers.

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Integration with WMS, MES, and ERP via Robot Computing Systems Another innovation element that will be on display at MODEX 2020 will be ForwardX’s Edge/Cloud based architecture. At the edge, Robot Computing System (RCS) includes the multi-sensor fusion, computer vision based deep learning, local path planning ability based on V-SLAM and reinforcement learning. In the cloud resides the Robotic Process Manager (RPM). The RPM includes a multi-agent cluster scheduling system. It receives tasks from operators, such as Warehouse Management Systems (WMS), Manufacturing Execution Systems (MES) and ERP (Enterprise Resource Planning).

The robots holistically assign global tasks and intelligent paths for the robots, greatly increasing efficiency, improving throughput and reducing downtime.

The AI innovation critical for fleets of AMRs For smaller operations with one or two AMRs, perhaps Artificial Intelligence (AI) could be less important. When there are 10 to 100 AMRs navigating a large material handling operation AI is not an option.

MANUFACTURING TIDBITS becomes more intelligent. This means the robots will start to predict what the next delivery solution might look like and therefore be better prepared to accommodate peaks and troughs of delivery requirements. For the user, this simply means a more efficient delivery system with a lower cost per delivery or more deliveries made per hour.

Applicability Visual AMRs with Deep Learning improve pick time and double UPH in any goods to person or person to goods application within ecommerce, manufacturing, and order fulfillment even in a retail environment and can be installed and running in one week, performance guaranteed, as well as an average 30% cost reduction in picking costs.

The ROI calculation ROI (return on investment) in less than two years allows for affordable large mass deployment of innovative technologies. The rapid ROI includes a full turn-key solution, supplying not only the technology, but also a team of deployment engineers and project managers to ensure rapid, effective, and efficient delivery. The innovative technology is backed by agreed upon UPH improvements needed to make an investment in a fleet of AMRs.

ForwardX robots depend on V-SLAM with Deep Learning techniques for positioning and navigation.

This allows the robot to adapt more readily to changing environments that LiDAR-only based robots cannot handle. The ability to “learn on the fly” allows the big data gathered to predict velocity and direction of obstacles using Deep-Q-Learning and Asynchronous Advantage Actor-Critic techniques.

This creates a more intuitive nature in these robots which drives a more collaborative and efficient local path planning.

Furthermore, by analyzing the paths that are typically taken in a facility, the neural network

Author Profile: Nic Temple is the Vice President of Sales for the Americas at ForwardX Robotics, a vision based autonomous mobile robot (AMR) and technology company. For 15 years and counting, he develops relationships with customers to address their business’s performance improvement requirements by applying world-class cutting-edge technology. Temple helps guide them through potential pitfalls of being early-adopters to ensure that they are successful and ultimately increase their competitiveness in the market. He holds a BSME from Virginia Tech and an MBA from the Australian Graduate School of Management (AGSM).

Visit Nic at MODEX 2020, Booth 1207.

Manufacturing Outlook / February 2020

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MANUFACTURING OUTLOOK

FEBRUARY 2020

MANUFACTURING OUTLOOK GLOBAL

by ROYCE LOWEMANUFACTURING PMI AT NINE-MONTH HIGH. U.S. BACK INTO EXPANSION. EVEN EUROPE STIRRING A LITTLE. BUT NO TIME FOR CELEBRATION YET.

by ROYCE LOWE

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Manufacturing Outlook / February 2020

MANUFACTURING OUTLOOK The year 2020 may be said to be getting off on a better foot than that on which 2019 ended. There’s a China-U.S. trade deal which may help some and a USMCA trade deal which possibly will too. Are there green shoots in Europe? It’s a long way back. There’s talk of Boeing having sent in the clowns. It’s a long way back for this company too, along with an $18 billion bill for the two 737MAX disasters.

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

The ISM PMI figure for U.S. manufacturing rose back into expansion from 47.2 percent in December to 50.9 percent in January, after five consecutive months in contraction. The overall economy grew for the 129th consecutive month. Tim Fiore, committee

Honda has pledged to train 50,000 workers by 2025.

Time for a few others to pledge likewise.

The Bureau of Labor Statistics reported February 7th that total nonfarm payroll employment rose by 225,000 in January, and the unemployment rate was little changed at 3.6 percent. Notable job gains occurred in construction (rose by 44,000), in health care (added 36,000 jobs in January), and in transportation and warehousing (increased by 28,000). Manufacturing employment changed little in January (-12,000) and has shown little movement over the past 12 months. Motor vehicles and parts lost 11,000 jobs over the month. Employment in other major industries, including mining, wholesale trade, retail trade, information, financial activities, and government, changed little over the month.

The change in total nonfarm payroll employment for November was revised up by 5,000 from +256,000 to +261,000, and the change for December was revised up by 2,000 from +145,000 to +147,000. With these revisions, employment gains in November and December combined were 7,000 higher than previously reported. After revisions, job gains have averaged 211,000 over the last 3 months.

chair for the Manufacturing Report on Business® issued by the ISM reports on Manufacturing Talk Radio [https://mfgtalkradio.com/ism-jan2020/] that we may see some above and below readings for the Purchasing Manager’s Index in the months ahead.

The big unknown is containment or spread of the new coronavirus 2019-nCoV. For the moment, it will slow production in China, a global source of supply.

IHS Markit’s remarks on the U.S. showed manufacturing growth slowing at the start of the new year, with a fall in exports and the PMI at a threemonth low. A modest improvement showed slight production growth and a mild increase in new orders.

There was only a slight increase in employment.

The household unemployment rate, at 3.6 percent, and the number of unemployed persons, at 5.9 million, changed little in January. Among the major worker groups, the unemployment rates for adult men (3.3 percent), adult women (3.2 percent), teenagers (12.2 percent), Whites (3.1 percent), Blacks (6.0 percent), Asians (3.0 percent), and Hispanics (4.3 percent) showed little or no change over the month. The number of persons employed part time for economic reasons, at 4.2 million, was essentially unchanged in January.

The Bureau of Economic Analysis recently released its ‘advance’ estimate for the annual rate of Real GDP growth in the fourth quarter of 2019, putting it at 2.1 Manufacturing Outlook / February 2020

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ISM REPORT OUTLOOK

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

BREAKING NEWS

ISM PMI at 50.9% for January ISM PMI for the past 5 years

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Manufacturing Outlook / February 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 January, and the overall economy grew for the 129th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

This report reflects the recently completed annual adjustments to the seasonal factors used to calculate the indexes. The January PMI® registered 50.9 percent. The New Orders Index registered 52 percent, an increase of 4.4 percentage points from the December reading of 47.6 percent. The Production Index registered 54.3 percent, up 9.5 percentage points compared to the December reading of 44.8 percent. The Backlog of Orders Index registered 45.7 percent, up 2.4 percentage points compared to the December reading of 43.3 percent. The Employment Index registered 46.6 percent, a 1.4-percentage point increase from the December reading of 45.2 percent. The Supplier Deliveries Index registered 52.9 percent, a 0.7-percentage point increase from the December reading of 52.2 percent. The Inventories Index registered 48.8 percent, a decrease of 0.4 percentage point from the December reading of 49.2 percent.

The Prices Index registered 53.3 percent, a 1.6-percentage point increase from the December reading of 51.7 percent.

Of the 18 manufacturing industries, eight reported growth in January — listed in order — are: Furniture & Related Products; Wood Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Miscellaneous Manufacturing‡; Nonmetallic Mineral Products; Chemical Products; and Fabricated Metal Products. ISM ‡Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

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ISMMAGAZINE.ORG

PMI 50.9% ®

PMI

Manufacturing expanded in January, as the 2018 2019 2020 PMI® registered 50.9 percent, an increase of 3.1 percentage points from the seasonally adjusted December reading of 47.8 percent.

The PMI® expanded in January after contract50.9% ing for five straight months. Four of the big six 50% = Manufacturing Economy industries expanded, compared with two in Breakeven Line December. Six of the PMI®’s 10 subindexes 42.8% = Overall Economy Breakeven Line recorded expansion, a marked improvement from the final months of 2019. 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

Jan Index

Dec Index

% Point Change

Direction

Rate of Change

Trend* (months)

PMI®

50.9

47.8

+3.1

Growing

From Contracting

1

New Orders

52.0

47.6

+4.4

Growing

From Contracting

1

Production

54.3

44.8

+9.5

Growing

From Contracting

1

Employment

46.6

45.2

+1.4

Contracting

Slower

6

Supplier Deliveries

52.9

52.2

+0.7

Slowing

Faster

3

Inventories

48.8

49.2

-0.4

Contracting

Faster

8

Customers’ Inventories

43.8

41.1

+2.7

Too Low

Slower

40

Prices

53.3

51.7

+1.6

Increasing

Faster

2

Backlog of Orders

45.7

43.3

+2.4

Contracting

Slower

9

New Export Orders

53.3

47.3

+6.0

Growing

From Contracting

1

Imports

51.3

48.8

+2.5

Growing

From Contracting

1

Overall Economy

Growing

Faster

129

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.

This report reflects the recently completed annual adjustments to the seasonal factors used to calculate the indexes.

Commodities Reported Commodities Up in Price: Aluminum Products* (2); Fabricated Metal Products; Oil; Scrap Metals (2); Steel — Cold Rolled; and Steel — Hot Rolled (3).

Commodities Down in Price: Aluminum Products*; Caustic Soda (4); Freight (4); Natural Gas (2); Polyester; and Polypropylene (3).

Commodities in Short Supply: Fabricated Metal Products; and Labor — Temporary.

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 / February 2020

19

ISM REPORT OUTLOOK

ISM Report On Business ®

®

manufacturing

January 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

2020

New Orders ISM’s New Orders Index registered 52 percent. Of the 18 manufacturing industries, 10 reported growth in new orders in January, in the following order: Wood Products; Furniture & Related Products; Primary Metals; Miscellaneous Manufacturing‡; Computer & Electronic Products; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Chemical Products; Fabricated Metal Products; and Machinery.

52.% 52.5% = Census Bureau Mfg. Breakeven Line

Production (Manufacturing) 2018

2019

2020

Production ISM’s Production Index registered 54.3 percent. The seven industries reporting growth in production during the month of January — listed in order — are: Furniture & Related Products; Wood Products; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Computer & Electronic Products; Fabricated Metal Products; and Chemical Products.

54.3% 51.7% = Federal Reserve Board Industrial Production Breakeven Line

Employment (Manufacturing) 2018

2019

2020

ISM’s Employment Index registered 46.6 percent in January, an increase of 1.4 percentage points compared to the December reading of 45.2 percent. Of the 18 manufacturing industries, four reported employment growth in January: Wood Products; Furniture & Related Products; Paper Products; and Computer & Electronic Products.

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

46.6%

Supplier Deliveries (Manufacturing) 53.1% 2018

Employment

2019

2020

Supplier Deliveries The delivery performance of suppliers to manufacturing organizations was slower in January, as the Supplier Deliveries Index registered 52.9 percent. The nine industries reporting slower supplier deliveries in January — listed in order — are: Furniture & Related Products; Textile Mills; Food, Beverage & Tobacco Products; Computer & Electronic Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing‡; Fabricated Metal Products; Chemical Products; and Machinery.

52.9%

Inventories (Manufacturing) 2018

2019

2020

48.8% 44.3% = B.E.A. Overall Mfg. Inventories Breakeven Line

‡Miscellaneous

Manufacturing (products such as medical equipment and

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

20

Manufacturing Outlook / February 2020

Inventories The Inventories Index registered 48.8 percent in January. The seven industries reporting higher inventories in January, in the following order, are: Wood Products; Furniture & Related Products; Miscellaneous Manufacturing‡; Nonmetallic Mineral Products; Transportation Equipment; Plastics & Rubber Products; and Chemical Products.

ISM REPORT OUTLOOK

ISM Report On Business ®

®

manufacturing

January 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 43.8 percent in January, which is 2.7 percentage points higher than the 41.1 percent reported for December, indicating that customers’ inventory levels were considered too low. Of 18 industries, the three reporting higher customer inventories in January are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; and Transportation Equipment.

43.8%

Prices (Manufacturing) 2018

2019

2020

Prices The ISM Prices Index registered 53.3 percent in January. The 10 industries reporting paying increased prices for raw materials in January — listed in order — are: Textile Mills; Primary Metals; Fabricated Metal Products; Wood Products; Nonmetallic Mineral Products; Petroleum & Coal Products; Computer & Electronic Products; Miscellaneous Manufacturing‡; Machinery; and Chemical Products.

53.3%

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 45.7 percent. Five of the 18 industries reported growth in order backlogs in January: Wood Products; Primary Metals; Furniture & Related Products; Paper Products; and Computer & Electronic Products.

45.7%

New Export Orders (Manufacturing) 2018

2019

2020

New Export Orders ISM’s New Export Orders Index registered 53.3 percent in January, an increase of 6 percentage points compared to the December reading of 47.3 percent. The six industries reporting growth in new export orders in January, in the following order, are: Wood Products; Computer & Electronic Products; Plastics & Rubber Products; Miscellaneous Manufacturing‡; Paper Products; and Chemical Products.

53.3%

Imports (Manufacturing) 2018

2019

2020

51.3%

‡Miscellaneous

Imports ISM’s Imports Index registered 51.3 percent. The eight industries reporting growth in imports in January — listed in order — are: Wood Products; Printing & Related Support Activities; Furniture & Related Products; Computer & Electronic Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing‡; Plastics & Rubber Products; and Machinery.

Manufacturing (products such as medical equipment and

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

Manufacturing Outlook / February 2020

21

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 It is hard to decide what the latest lesson from the Credit Managers’ Index would be. Is it that 2019 ended on a more promising note than was expected or is it that 2020 is starting out to be a better year than had been anticipated? Given that credit managers tend to think in the future this month’s good data may be seen as a harbinger of things to come. Not that everything is likely to come up roses in the next several months but for the time being the threats seem a little more distant than they had been expected to be.

The numbers this month are up and by substantial margins and that tends to contrast with the numbers that have been released by the Institute for Supply Management and Markit in their purchasing managers’ indices. The overall score for the CMI moved up from 54.6 to 56.4 and that is the highest reading seen in almost three years.

The good news was reflected in both the favorable and unfavorable categories. The favorable readings returned to the 60s with a reading of 62.2 compared to last month’s 59.3. The numbers for the favorables have not been this good since May of last year. The combined unfavorable numbers also jumped as they went from 51.5 to 52.6. This is another three-year high and by a substantial margin.

The details in the sub-categories were also showing real progress. The sales numbers reached 63.0 – nearly as high as the levels reached last

22

Manufacturing Outlook / February 2020

August when the reading was 64.4. This is one of the real surprises given that the first of the year is not generally seen as an active time for consumers or business. The new credit applications reading was at 61.1 and last month it was at 59.4. This takes the category back to where it was in November when it hit 61.2. The dollar collection data also moved into the 60s with a reading of 61.7 as compared to 57.9. The amount of credit extended kept pace with a reading of 62.9 while last month it stood at 61.1. All four of the categories were in the 60s and this had not been the case since last August.

There was similar good news as far as the unfavorable categories are concerned. The data for rejections of credit applications stayed as it was the month prior and that is not a bad thing given that the numbers stand at 52.0. This is positive news as it comes at the same time that applications are up. This means that there are good applications coming in. The accounts placed for collection improved a little as well and most importantly they stayed above the 50 line with a reading of 50.6 as compared to 50.3 in December. The disputes numbers also jumped up and by quite a bit as they went from 50.8 to 52.4. The data for dollar amount beyond terms made the biggest gains. It now stands at 54.2 and was at 51.0. This is perhaps the most significant reading of them all. There has been a desire on the part of many companies to go into 2020 with a reduced set of credit obligations in order to be

CREDIT MANAGERS’ OUTLOOK better protected should there be some kind of slowdown. This is showing up in the credit data with reduced slow pays and improved dollar collections. There was also improvement as far as the category of dollar amount of customer deductions. It moved from 51.3 to 52.2 and that took the reading back to what it was in September. There was a nice rise in the filings for bankruptcies data with a new reading of 54.4 as compared tom 53.4 in December. For the second month in a row the numbers for this index were all in the expansion zone and by a substantial margin. There has not been a two-month period like this in over three years.

It is the sworn duty of a dismal scientist to point out that good news months can easily be followed by bad news months and there have already been several of these shifts. May of last year was even stronger in some respects than this one and by mid-summer the numbers had fallen precipitously. For now, we can enjoy the data and hope for a third straight month of these gains Manufacturing Sector The manufacturing sector was supposed to be in pretty bad shape by this point. There have been any number of head winds to contend with over the last several months after all. There have been tariffs that made steel and aluminum more expensive to buy and then there were the tariffs that all but killed trade between the US and China and reduced US export activity as global trade in general faltered. Add in the GM strike, problems at Boeing and a sense that 2020 was likely to be a slower year and the manufacturing sector has been buckling down for a rocky 2020. Then we get these numbers in the latest CMI – some of the best we have seen in well over two years. Is this just a one-month anomaly or is the sector in better shape than many had expected?

The combined score for manufacturing hit 56.5 and that is substantially higher than readings collected over the last couple of years. In August it hit 55.7 and in May it was at 55.5 but January takes the crown. The index of favorable factors moved into some rarified territory with a reading of 62.0 – the first time the readings have been in the 60s since August and only the sixth time in the

last twelve months. This is also the highest reading in close to three years. The index of unfavorable factors jumped a little from last month with a reading of 52.7 compared to 52.0 in December. The more interesting news is that this number is higher than it has been in a year.

The sales data surged back into the mid-60s with a reading of 63.8 after one of 57.9 last month. In August it hit 65.3 but January’s reading is the next highest. The new credit applications numbers slipped a bit but stayed in the 60s with a reading of 60.2 compared to the 61.2 in December. The data for dollar collections improved as well – going from 57.5 to 62.9 and that tracks well with some of the data in the unfavorable categories. The amount of credit extended moved from 59.1 to 61.3 and that means that all the favorable readings have entered the 60s for the first time since May of 2019.

The rejections of credit applications slipped a bit but stayed in the expansion zone with a reading of 52.5 as compared to the 53.0 notched in December. It is interesting that both the number of applications and fell and rejections were up. This signals that some sectors of manufacturing are struggling more than others. The accounts placed for collection numbers improved slightly from 51.1 to 51.8 but the important factor is this category has been out of the contraction zone for the last two months after spending most of the last two years in the doldrums. The disputes category also improved a little – going from 51.0 to 52.5 while there was a bigger improvement in the dollar amount beyond terms. It went from 52.4 to 54.3 and the dollar amount of customer deductions slipped a little from 52.6 to 51.1. The filings for bankruptcies improved quite a lot from 51.8 to 54.2 and with that the entire sector was above the 50 line and in expansion territory. This is the second month in a row for this kind of reading and that has not happened in well over three years.

These readings are not necessarily spectacular although there have been few months in the last couple of years that have been better. The important aspect of these readings is that nothing like this kind of performance had been expected given all the gloom and doom that has surrounded the manufacturing sector. This can all change in a heartbeat and there have been times in the last year when there has been such a flip but for now the news is quite encouraging.

Manufacturing Outlook / February 2020

23

NORTH AMERICAN OUTLOOK

FEBRUARY 2020

by ROYCE LOWE

The Institute of Supply Management PMI figure came out of contraction, from 47.2 percent in December to 50.9 in January.

New orders and production are growing from contracting, and employment is contracting slower; supplier deliveries are slowing faster and backlogs are contracting slower. Raw material inventories are contracting faster, and customer inventories are too low. Exports and imports are growing from contracting.

Of the 18 manufacturing industries, eight reported growth in January, and listed in order

24

Manufacturing Outlook / February 2020

NORTH AMERICAN OUTLOOK

they are: Furniture & Related Products; Wood Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Chemical Products; and Fabricated Metal Products.

The eight industries reporting contraction in January — listed in order — are: Printing & Related Support Activities; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Textile Mills; Transportation Equipment; Primary Metals; and Machinery.

NORTH AMERICAN OUTLOOK

Comments from the industry are more positive than they were in December.

Computer & Electronic Products report considerable business pick up and Fabricated Metal Products say the year is starting well.

Transportation Equipment and Machinery are less positive.

CANADIAN manufacturing’s PMI recovered slightly from a four-month low of 50.4 in December, to 50.6 in January. Production rose marginally and there was a slight improvement in new orders.

There was a fall in employment for the first time since April 2019.

Business optimism was the highest since July 2019, amid hopes of an improvement in global trade conditions.

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Manufacturing Outlook / February 2020

25

METALS OUTLOOK

FEBRUARY 2020

METALS OUTLOOK

by ROYCE LOWE

Linked you will find the 2020 FORGING Business Outlook Survey, as described in 28 graphs and charts, an overview of where those people who run the U.S. forging business forecast where it will be during this possibly very challenging year.

Click Here For The 2020 FORGING Business Outlook Survey STEEL PRODUCTION INCREASED BY 4 PERCENT YEAR-OVER-YEAR IN THE MONTH OF DECEMBER for the 64 reporting countries – which represent 99 percent of world crude steel production – to 152,151 MT.

26

Manufacturing Outlook / February 2020

For the year 2019, the total world production was 1.848 billion tons, up 3.5 percent year-over-year.

This was effectively due to increased production in Asia.

CHINA produced 84.265 MT of crude steel in December, up 11.6 percent year-over-year. It was the only major steel producing country to show a significant increase in production in December.

Japan’s production was 7.784 MT, down 8.0 percent year-over-year; India 9.281MT, down 0.8 percent year-over-year and South Korea 5.876 MT, down 4.7 percent year-over-year. Taiwan produced 1.740 MT in December, down 14.6 percent.

METALS OUTLOOK U.S. crude steel production for December 2019 was 7.477 MT, down 0.3 percent year-over-year.

Canada produced 0.985 MT of crude steel in December, up 0.4 percent year-over-year.

Brazil’s crude steel production for the month of November was 2.604 MT, a decrease year-overyear of 10.5 percent.

The UK produced 0.558 MT of crude steel in December, up 4.2 percent year-over-year.

Crude steel production in Germany in December was at 2.850 MT, down 11.7 percent year-overyear; in Italy 1.413 MT, down 17.2 percent yearover-year; in France 0.918 MT, down 18.4 percent year-over-year and in Spain 0.760 MT, down 27.6 percent year-over-year.

Russia’s crude steel production for December was at 6.000 MT, down 3.0 percent year-over-year; Ukraine’s was 1.561 MT, down 17.2 percent yearover-year.

AN UPDATE ON ALUMINUM Primary Global Aluminum Production in December 2019 was reported at 5.435 million tons, with production in China, at 3.046 million tons, representing 54 percent of world total. Production was 499,000 tons in GCC; 368,000 tons in the rest of Asia; 294,000 tons in Western Europe; 324,000 tons in North America and 357,000 tons in Eastern and Central Europe.

Aluminum, along with Alcoa, is in the news of late.

The number one U.S. producer has had a bad year, with four straight quarterly losses, and sees a prediction that global aluminum production in 2020 will exceed demand by as much as a million tons as an impetus for a cost-cutting drive. The company will sell non-core businesses to generate as much as $1 billion.

The company states that aluminum prices have slipped amid trade tensions and a slowdown in global manufacturing, and suggests that the market may fall even further. The aluminum price has actually been on a slide since the spring of 2018, when it spiked at around $1.15 per lb. On January 31, 2020 it stood at 0.78 per 1b.

There is no doubt that there is a problem and that it is mostly caused by a surplus in China, where their own slowdown has prompted them to flood

the world with semi-finished products. A growth in worldwide demand in 2020 forecast at 1.4 to 2.4 percent will hardly serve to alleviate the situation.

Alcoa has its work cut out.

MEPS, a steel consultancy, says its world average price for all steel products was up approximately 4 percent in January, mostly on the back of increases in raw material costs. Mill profitability, however, is at low levels. End-user demand is improving in many steel-consuming sectors, but at a relatively slow pace in most markets.

In early January, Nucor Corp., the number one U.S. steel company, announced price increases for the fifth time since late October. ArcelorMittal and Russia’s NLMK also announced to their customers that they had upped prices at around the same time. The magic figure was (a minimum) $40 per ton on hot-rolled, cold-rolled and galvanized coil.

Price increases following Trump’s initial imposition of tariffs were not announced, merely effected.

From around $575 per ton in early January, the price of hot-rolled coil was at around $600 per ton at the end of that month. Cold-rolled has hardly moved from its early January figure of around $780 per ton.

The steel price that customers are willing to pay will obviously depend upon ongoing demand.

Imports are back in the picture, as witnessed by Vietnam’s permission to ship to the U.S. providing they can prove they’re not shipping Chinese steel.

Meanwhile, Wilbur Ross, the U.S. Commerce Secretary, thinks it would be a good idea to put tariffs on such steel and aluminum products as nails, staples and electrical wire, these somehow being a threat to national security.

Copper slipped from $2.80 per lb in early January to $2.55 in early February; Aluminum from $0.81per lb in early January to $0.78 in early February; Nickel slipped from $6.40 in early January, to $5.70 in early February; Zinc slipped slightly from $1.05 in early January to $1.02 in early February.

Manufacturing Outlook / February 2020

27

AEROSPACE OUTLOOK

FEBRUARY 2020

AEROSPACE OUTLOOK

by ROYCE LOWE

A recent test shows SpaceX can safely abort a mission if something goes wrong after take off, thus clearing its last major hurdle to a historic first crewed flight for NASA, possibly in the first half of this year.

Elon Musk says the hardware for the first launch with astronauts is probably in place for the end of February and that the “collective wisdom” among his colleagues points to the possibility of an inaugural flight in the second quarter of 2020.

All tests went according to plan. Americans have not flown into space aboard a U.S. craft since the end of the shuttle program in 2011. Elon Musk’s eventual aim is to transport people to the moon and Mars.

28

Manufacturing Outlook / February 2020

NASA awarded SpaceX and Boeing a combined $6.8 billion in contracts in 2014 to revive America’s ability to fly to the space station without buying seats on Russian Soyuz capsules. Since then, NASA and both companies have suffered delays that have put the program over two years behind schedule. In December, Boeing’s Starliner failed to dock with the station because of a software problem. NASA and Boeing are investigating and the agency will decide if Boeing needs to perform a second flight without crew.

Meanwhile, a little further down to earth; although there is as yet no definite date when the 737 MAX will fly again, Boeing’s 777-9 airliner recently made its almost-four-hour maiden flight after several

AEROSPACE OUTLOOK a 747 and is the first twin-engine jet built to haul a similar load of travellers, 426 people in a two-cabin layout. It’s also pricey, at $422.2 million before the usual discounts. Airlines were lining up to buy this jet at its 2013 unveiling, but sales have stalled since the initial orders, and there is this feeling that it is just too big for most markets.

The 777-9 will be around for quite some time, though. Emirates have quite a few on order, and deliveries haven’t even started yet. This will be another interesting episode in the future history of Boeing. delays. This test flight was reported as successful and productive.

This jetliner was originally unveiled at the 2013 Dubai Airshow, and is an advance on the engineering and interior innovations of the 777 and 787 Dreamliner. The key, and a very interesting innovation of the 777-9, is its lightweight wing design based on a composite spar made from over 400 miles of carbon tape aired in a specially-built autoclave. This allows a wingspan of 235 feet (72 meters) - a span so long that the wings have folding sections at their tips to allow the plane to fit in a conventional boarding gate.

There is some concern, however, that the plane is simply too big for today’s airlines. It is longer than

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Manufacturing Outlook / February 2020

29

AUTOMOTIVE OUTLOOK

JANUARY 2020

AUTOMOTIVE OUTLOOK

by ROYCE LOWE

30

Manufacturing Outlook / February 2020

AUTOMOTIVE OUTLOOK There are several interesting automotive projects on the global drawing boards at the moment. Foxconn, the main assembler of Apple iPhones, will form a 50/50 joint venture with Fiat Chrysler, to develop and make electric vehicles in China. Foxconn will be responsible for design, components and supply chain management; Fiat Chrysler will do car assembly. Foxconn, which has supplied some components to Tesla, was eager to transfer some of its expertise to conquer the world’s largest market for electric vehicles.

GM’s Detroit-HaMTramck factory will idle operations at the end of February to begin producing allelectric vehicles by the end of 2021. This factory, which presently produces the Cadillac CT6 and the Chevrolet Impala, will initially produce an as-yet unnamed electric pickup truck, followed by the autonomous Cruise Origin. The factory will see upgrades to paint and body shops, conveyors, controls and tooling, to some $2.2 billion. GM says that once the plant is in full operation, it will create over 2,200 manufacturing jobs.

A re-tooled electric Hummer is also in the cards.

This heavy SUV model was discontinued in 2010 when gas prices rose to levels where nobody wanted to, or could afford to, run a Hummer.

Funding for this plant was part of the UAW-GM deal made last year following a 40-day strike, a deal that also included funding for a battery plant JV with LG Chem in Lordstown, which GM says will power the Detroit-made trucks.

Along with the good, progressive news, comes word that GM, Ford and FCA are all looking to a slow year for auto sales. They are slowing factories and sending workers home, with FCA and Ford looking to a 5 percent production cut, and GM a 2 percent cut. Honda is looking to an 11 percent cut in production, Toyota to a slight production increase.

TESLA IN GERMANY

In a stretch of forest near Berlin, in a place called Gruenheide, Tesla is taking up an area the size of 200 football fields to build its next factory(ies.)

There will be initial checks to clear up any lurking ammunition; all this is the first stage to prepare a site that could churn out as many as 500,000 cars a year, employ 12,000 people, and throw up a challenge to VW, Daimler, and BMW. There will be public meetings to discuss and surely approve the project, and trees will be cleared before the end of February, before migrant birds nest. Once Germany’s red tape is cleared, construction is expected to start mid2020. The plant will make batteries, powertrains and vehicles, including the Model Y crossover, the Model 3 sedan and any future cars. The factory hall will include a press shop, paint shop and seat manufacturing in a building that will be 744 meters (2,440 feet) long. There will be space for four such facilities. It should be noted that this project has the support of the highest levels of the German government.

If all goes well, and Tesla vows to protect wildlife in the area, the first Teslas will roll out of Gruenheide in July 2021.

Manufacturing Outlook / February 2020

31

ISSUES OUTLOOK

FEBRUARY 2020

ISSUES OUTLOOK

by ROYCE LOWE

A “phase one� trade deal has recently been signed with China, that will lead to some tariff cuts on Chinese imports, and to a Trump visit to China for further negotiations. Trump is expected to hear complaints from U.S. firms about their troubles in China, but what he is less likely to hear is how surprisingly well they are still doing there.

Some firms are suffering from a backlash arising from the trade war, but its overall effect on most U.S. firms has been exaggerated. American companies on average get only around 5 percent of their revenues from China, according to the bank Morgan Stanley. Though the technology, automobile, and consumer goods sectors have greater exposure, for others, China is an afterthought.

32

Manufacturing Outlook / February 2020

ISSUES OUTLOOK China’s west, where officials stand accused of abusing Uighurs, China’s largest Muslim group. Kraft Heinz, Coca-Cola and Nike are reported to have supply chains that stretch into Xinjiang.

A third of respondents to a survey by the U.S. China Business Council (USCBC), a trade group, said they have been subjected to “increased scrutiny from Chinese regulators as a result of bilateral trade tensions.” But foreign executives say that local governments have been very welcoming of late, and thanks, in part, to such efforts, the number of American firms claiming their local operations had been hurt by ‘Made in China 2025’, an innovation scheme America is wary of, dropped significantly from 2017 to 2019.

There is rising nationalism in China, stirred up by Xi Jinping and embraced by mainland citizens. This may prove to be a bigger problem than trade tensions.

There is Hong Kong, there is Taiwan and there is increasing international concern over Xinjiang in

Despite such complications, most U.S. firms remain committed to the Chinese mainland. The latest survey by the American Chamber of Commerce in Beijing sees China remaining in the top three as a global investment destination for 62 percent of its members, up from 56 percent in 2016. Some 87 percent of member firms tell the USCBC that they plan to keep doing business in China.

The Chinese mainland remains a huge and growing market for most industries, and American firms are still making good money there. One Asian investment firm argues that China is “the world’s best consumer story.” In dollar terms, retail sales in China are almost as big as those in America, but they were up by 6 percent last year compared with a 2 percent rise in the U.S. Chinese real incomes are up 120 percent in the past decade compared to 17 percent in the U.S. American multinationals are benefiting from this. This is all good for American firms in China.

There may be a threat from politics that is probably overblown, but there is a genuine cause for concern for American firms on the mainland, namely market competition. Both Chinese smartphone makers and domestic auto manufacturers have seen significant increases in market share over the past few years.

This is said to be due to innovation rather than subsidies. Only 9 percent of American firms complain that local private firms get unfair advantages such as tax breaks, licensing approvals, and subsidies.

Political rows dominate the headlines today, but the longer-term challenge for American firms may prove to be the rise of China Inc. Manufacturing Outlook / February 2020

33

ISSUES OUTLOOK

FEBRUARY 2020

ENERGY OUTLOOK

by ROYCE LOWE

34

Manufacturing Outlook / February 2020

ISSUES OUTLOOK just 1 percent of the value of its first nuclear plants came from domestic firms, a figure that is now 85 percent.

The U.S. generates 30 percent of worldwide nuclear electricity, and in 2018 generated 807 billion KWh, or approximately 20 percent of U.S. electrical output.

Two reactors are forecast to come on line by 2021.

There are 98 reactors in the U.S., in 30 states, operated by 30 different power companies.

In a recent survey in China, only about 40 percent of the public supported the development of nuclear power in the country. The accident in Fukushima, Japan, in 2011, spread a moratorium on the technology for a good few years, since when stringent new safety regulations have been introduced. The Chinese government, however, has decided to forge ahead with nuclear energy and is making significant progress.

In 1996, with the help of Framatome, a French firm with a lot of nuclear history, China built a reactor at Ling Ao, 60km from Hong Kong. Part of this deal was that Framatome would share its knowhow, and it helped a local firm that had previously made boilers learn how to make the meter-thick vessels that can safely contain a nuclear reaction and the high-pressure, high-temperature steam that they produce. That firm became Dongfang Heavy Machinery Company (DFHM), and as well as the main reactor vessels, it also makes the steam generators which turn the nuclear heat into something which can drive turbines and make electricity. DFHM’s management today consider their products to be competitive with those of Framatome.

In the past twenty years, China has built nuclear plants faster than any other country. Its nuclear industry has gained experience quickly. Only the U.S., with 99GW, and France with 63GW, have greater nuclear capacity than China, with 43GW, but China’s is the only capacity that is growing. In 1996,

There is always a fear in some quarters regarding the safety of nuclear power, particularly in view of the three major tragic accidents that have occurred over the last decades, namely Three Mile Island, Chernobyl and Fukushima, but the World Nuclear Association (WNA) argues that these three major accidents are, in fact, the only three that have occurred in over 17,000 cumulative reactor-years of commercial nuclear power operation in 33 countries. The WNA estimates that 11 percent of the world’s electricity is generated by some 450 nuclear power reactors. Some 60 more reactors are under construction around the world.

China has the unenviable industrial work-related accident record of some 128 per day, but authorities are adamant regarding the safety of their nuclear reactors. They can boast no major accidents in 3 decades of operating nuclear plants, and claim safety levels among the world’s highest.

The technology for reactors is expensive and will take much time to build, in spite of China’s determination.

China is the world’s largest emitter of carbon dioxide, and this is due to its dependence on coal for power generation. By 2030, the figure for nuclear generation will increase from 2 percent to 10 percent, while a similar percentage will come from renewables, wind, and solar. This will still leave an awful lot of coal to be burned in China.

In the U.S., renewable energy, led by solar and wind, is projected to be the fastest-growing source of electricity for at least the next two years. The world will watch closely as China builds nuclear reactors at home and exports its technology around the world.

It will be interesting to see whether the U.S. will extend its nuclear program.

Manufacturing Outlook / February 2020

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GLOBAL PMI OUTLOOK

GLOBAL PMI OUTLOOK

by NORBERT ORE, DIRECTOR, HEAD OF INDUSTRIAL SURVEYS, STRATEGAS RESEARCH PARTNERS In January, we saw a global economy poised for recovery thanks to huge trade agreements being finalized and the actualization of Brexit. However, the coronavirus can potentially heavily weigh on the speed of recovery, particularly in Asian manufacturing.

In January, the bright spots were found in U.S. manufacturing and non-manufacturing. The ISM manufacturing index jumped 3.1 percentage points with a strong assist from production, driving the headline index above the 50mark for the first time since July 2019. Non-manufacturing continued to grow at a rather torrid pace as the ISM NMI® index (55.5, +0.6) matched 2019’s average of 55.5. The scatterplot below indicates overall recovery in the surveys that we follow.

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Manufacturing Outlook / February 2020

Eurozone: The Eurozone PMI (47.9, +1.7) failed to grow for the twelfth consecutive month during January.

Germany (45.3, +1.6) led the decline again. However, Germany’s rate of decline continued to slow as it rose above the 45-mark for the first time after ten months below that level. On a positive note, the eight EZ countries that we follow collectively registered their highest reading since April 2019. Significant growth was found in Greece (54.4, +0.5) while Ireland (51.4, +1.8) and France (51.1, +0.7) posted above the 50-mark.

Netherlands (49.9, +1.5), Austria (49.2, +3.2), Italy (48.9, +2.6), and Spain (48.5, +1.0) were below the neutral mark.

United Kingdom: Brexit has finally occurred! In January, planning was aided by the demarcation and investment uncertainty was lessened as risk was better defined. The UK PMI (50.0, +2.5) indicated that the “new UK” is starting 2020 at the same level as it ended for the “old UK”. The UK PMI averaged out at the breakeven point (50.0) in 2019 with growth primarily in Q1 and contraction dominant in 2H. Post-Brexit, the U.K. PMI is starting out at the midpoint. Going forward the PMI will be a valuable tool in helping assess the change.

GLOBAL PMI OUTLOOK relationship between the PMI and the overall economy indicates that the PMI for January (50.9) corresponds to a 2.4-percent increase in real gross domestic product on an annual, according to the ISM press release.

China: China’s Official Report, the CFLP PMI (50.0, -0.2), fell back to the mid-point indicating negligible change for the manufacturing sector. The Caixin Manufacturing PMI (51.1, -0.5) continued to gather momentum and posted a sixth consecutive month of expansion. The coronavirus can change the PMIs in February though. The spread of the virus could have significant impacts on Chinese and global manufacturing as supply chains are disrupted. It is too soon to call out the sectors of concern. There is already a shortage of surgical gowns and syringes.

The number of items in short supply could grow significantly during February.

India: India’s PMI (55.3, +2.6) was expansionary for the 30th consecutive month. India’s Mfg PMI averaged 52.3 for 2019 so the current print indicates a good start to 2020.

South Korea: The PMI (49.8, -0.3) contracted marginally during the month. December had marked the first monthly reading above the 50-mark since April 2019.

The PMI averaged 48.6 for 2019.

Japan: January’s PMI reading (48.8, +0.4) was below 2019 average (49.3). Deceleration began in January 2018 from a high of 54.8.

North America: Canada’s PMI (50.6, +0.2) averaged 50.6 in 2019 while Mexico’s PMI (49.0, +1.9) averaged 49.7 last year. Both indexes indicated little change in the overall manufacturing sector for North American trading partners. USMCA ratification will result in greater movement of goods across North America’s borders.

The ISM PMI® In January, the U.S. manufacturing PMI (50.9, +3.1) reversed a five-month contraction. The past

Drivers: Production (54.3, +9.5) pulled the headline index above 50 as the change added two percentage points to the headline number. In most recoveries there is a surge in New Orders before the improvement in output. So this may amount to expectations for improved demand given the success of the trade agreements. Supplier Deliveries (52.9, +0.7) and New Orders (52.0, +4.4) were also additive. Employment (46.6, +1.4) and Inventories (48.8, -0.4) contracted at a slower rate. The PMI sub-indexes are consistent with a manufacturing sector that has bottomed and moving to the acceleration stage where backlogs increase and lead-times extend as companies balance inventories to improving operating levels.

New Orders Minus Inventories: This key manufacturing measure (3.2, +4.8) shows New Orders are widening the gap with Inventories. Compared to the average gap (+7.0 pp beginning in 2011), a significant inventory correction is beginning to take place.

Customers’ Inventories: Three industries reported higher customer inventories in January: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; and Transportation Equipment. 10 industries reported customers’ inventories as too low: Paper Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Plastics & Rubber Products; Furniture & Related Products; Computer & Electronic Products; Chemical Products; Fabricated Metal Products; Miscellaneous Manufacturing; and Machinery. Five industries reported no change in customer inventories.

Prices: The Prices Index (53.3, +1.6) signaled stability as 70.5% of companies report prices as unchanged.

Commodities Up in Price: Aluminum Products* (2); Fabricated Metal Products; Oil; Scrap Metals (2); Steel — Cold Rolled; and Steel — Hot Rolled (3).

Commodities Down in Price: Aluminum Products*; Caustic Soda (4); Freight (4); Natural Gas (2); Polyester; and Polypropylene (3).

Commodities in Short Supply: Fabricated Metal Products; and Labor — Temporary *Indicates both up and down in price. (Note: The number of consecutive months the commodity is listed is indicated after each item.)

Manufacturing Outlook / February 2020

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EUROZONE OUTLOOK

GLOBAL OUTLOOK

EUROZONE

by ROYCE LOWE

IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) continued in contraction, but at the slowest rate of contraction since April 2019. The PMI rose from 46.3 in December to 47.9 in January. There were slower falls in production, new orders and purchasing. Business confidence was up to its highest in January for 16 months. Employment was down, but not as marked as in December. All countries in the survey showed an increase in PMI in January.

Car sales in Western Europe for the year 2019 were up 0.7 percent on 2018’s total. This includes the UK, whose sales for 2019 were off 2.4 percent, and the lowest since 2013.

IHS Markit’s PMI for the UK rose to 50.0 in January from December’s 47.5. There were mild recoveries in new orders and business confidence amid “reduced

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levels of political uncertainty.” New exports fell for the third straight month, and business optimism was at an eight-month high. Brexit is still shadow of uncertainty. Employment was broadly unchanged during January, halting a nine-month sequence of job losses.

ASIA OUTLOOK

GLOBAL OUTLOOK

ASIA OUTLOOK

by ROYCE LOWE

CHINA saw both production and new orders expand at slower rates in January, and employment down for the first time in three months.

Business confidence was at its highest level for 22 months, coincident with an easing of trade tensions. Their PMI for January was at 51.1 versus 51.5 in December.

China’s sales of passenger cars and commercial vehicles were down in total by 0.1 percent in December, at 2.658 million units. Total vehicle sales for the year 2019 were off 8.2 percent at 25.769 units.

JAPAN again saw declines in new orders and production. Export demand dipped but the downturn here shows signs of easing. Business confidence is at its highest level since August 2018.

Their PMI for January rose slightly to 48.8 from 48.4 in December.

INDIA saw a booming start to 2020 with the PMI climbing to a near eight-year peak. New orders and production were up at sharper rates, along with job creation. Exports and input buying were also up. Consumer goods were the bright spot, with both intermediate and investment goods in expansion. Their PMI rose from December’s 52.7 to 55.3 in January.

Manufacturing Outlook / February 2020

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SOUTH AMERICAN OUTLOOK

GLOBAL OUTLOOK

SOUTH AMERICA

by ROYCE LOWE

BRAZIL saw manufacturing conditions up from December’s five-month low, with the PMI at 51.0 in January from 50.2 in December. There was a mild improvement in new orders and production, and employment rose at the quickest pace since September 2019. New exports continued to decline. Business confidence is up.

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) – rose to a nine-month high in January of 50.4 from December’s 50.1.

Production and new orders were up at an increased pace, and there was a tendency for new

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Manufacturing Outlook / February 2020

export orders to stabilize. Consumer goods rose at the fastest pace for nine months, and there was growth in intermediate goods for the first time since December 2018. Business optimism improved to a near eighteen-month high in January. However, all increases noted may be described as modest.

A SKILLS GAP SOLUTION

WHY ORGANIZATIONAL LEADERS OFTEN MISDIAGNOSIS PROBLEMS BY ANDREA BELK OLSON Every leader wants to fix the problems in their organization. The issue is that most leaders have a hard time diagnosing those problems correctly.

It isn’t the case of a lack of seeing the problem, experience, or capability to correct it. The real issue is two-fold: being too close to the problem, and looking at the problem the wrong way.

We all know the challenge of being too close to a problem, examining the symptoms, rather than the cause. Addressing the resulting, downstream issues in a reactionary way, instead of fixing the thing that’s making them occur. Sometimes, this is due to not seeing that root cause, but other times, it’s because that root cause seems too intimidating to tackle.

And this is the first issue of being too close to the problem.

When we’re too close to a problem, we can see the mountain of obstacles and rigor we face in turning it around. So instead, leaders often go to the “easy button”. For example, when different departments aren’t communicating effectively, we put in a process or software system to correct it. Or if a project is stalled, we increase pressure on the team, rollout an architecture of milestones, and impose hard deadlines.

While this might seem all good and well, it’s likely not addressing the real problem. Why are the departments not communicating? Lack of tools (i.e. email, phone, meetings, etc.), is not likely the problem. Why is the project stalled? Awareness of urgency and deadlines is not likely the problem, either. It’s something else. Something deeper, which takes us to the issue of looking at the problem in the wrong way.

Leaders often want a “quick fix” to issues because their plate is full, and they are under the gun to “get things done”. So with the rollout of processes, procedures, and pressure, leaders can show that they are “taking action” to address the issue. However, these “solutions” are more frequently than

not, ineffective. When leaders don’t take the time to properly diagnose an organizational problem, they end up throwing good money after bad. They look at the problem through the lens of symptoms, rather than causes.

Let’s go back to our example of departments not communicating. While a leader might look at the high-level lack of communication (symptom), the real issue (cause) is likely something much more systemic. The cause could range from internal culturally-driven “silo” behavior to lack of employee empowerment and rampant micromanagement.

When leaders jump to conclusions on the cause of an issue, they also jump to conclusions on solutions.

People not communicating? Let’s get them a tool to do so - which creates another project, uses more resources, uses more money, and doesn’t fix the real problem.

Leaders need to shift their mindset from “fixing problems” to “diagnosing problems”. It’s not about finding a solution, but understanding the problem completely and holistically first. Too many organizations spend countless hours and dollars trying to fix problems they don’t really have because it’s not really the problem. As leaders, we must focus on consciously stepping back from the problem, and take the time to examine it in a new way - with an assessment rather than a solution approach. It will not only save time and money but actually help ensure that the real problem is being corrected.

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 / February 2020

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