The Dun & Bradstreet Small Business Health Index (SBHI) for the Manufacturing sector has been steadily declining through the latter part of the past year. The key factors for the continuous deceleration seem to be the strong dollar, making U.S. manufactured products more expensive and thus harming exports, and the declining demand from Energy companies for mining equipment in the wake of descending oil prices.

Although more recent SBHI numbers point to some stabilization, there has been nothing seen as yet that signals a sweeping recovery of this sector. The year-over-year growth in the Industrial Production Index (IPI) for Manufacturing has been revolving around the zero mark since November 2015 and remains there today. Expectations that a successful OPEC deal limiting oil production would create a slight upward pressure on oil prices have not been realized. The dollar, still going strong after the conclusion of the U.S. presidential election, has not helped.

However, a falling Industrial Production Index may not solely be the result of the above issues. While these issues have certainly done their part, the lack of any upturn in capital spending is also a major cause of the weakness in the Manufacturing sector. Some of the drop in capital spending/business investment may be emerging from the oil price tumble, but it hardly explains the recent precipitous drop since Q1 2015. This drop probably reflects a broader sluggishness in the U.S. and possibly the global economy.

Despite these headwinds, due to its resiliency and its relative importance for U.S. economic performance, the manufacturing sector remains highly focused on growth. However, with below robust economic growth expected in most markets, both developed and emerging, the only way for manufacturers to grow is to evolve, invest in innovation, and build (and capture) new markets.

Innovation can come in many forms in this highly versatile sector: adoption of new and innovative business models, development of cutting-edge products, or implementation of advanced manufacturing technologies. Innovation in one or more of these ways will help manufacturing businesses increase operational and resource productivity and value recovery through transformed supply chain management systems. New products produced by these new agile systems will create innovative use cases that will expand markets, give rise to unexplored opportunities, and give way to supplementary innovations. This will most certainly lead to growth.

The American Express and Dun & Bradstreet Middle-Market Power Index: A Detailed Look at Top Industries report finds Manufacturing to be a popular sector among middle-market firms. With 18% of all middle-market businesses belonging to the Manufacturing sector, these businesses might benefit from some economies of scale or other advantages from operating within this space.

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A closer look at the middle-market Manufacturing subsectors provides further insight. The two sub-sectors with the highest concentration among middle-market firms are Industrial and Commercial Machinery and Computer Equipment, home to 15% of middle-market manufacturers compared to 10% of all manufacturing firms, and Fabricated Metal products, where 14% are middle-market manufacturers, but just 4% of all manufacturers. Among these, the former – manufacturers of industrial, commercial, or computer equipment – have experienced record growth in the past five years. Dun & Bradstreet proprietary metrics also indicate that other sub-sectors like Printing and Publishing have seen some deterioration due to development of new technology and the rise of digital media, but seem to be stabilizing with innovative measures like successfully monetizing electronic editions of their content.

The reason behind the progress experienced by these sectors is that they have been kept up-to-date with smarter and newer products and the Internet of Things (IoT) – such as products with embedded sensor technologies. The middle-market segment possesses the better size for adaptation of agile methodologies compared to its larger counterparts. They are also more stable and creditworthy than their small-business counterparts, and can make the sizable investments necessary to implement new systems.

Successful deployment of these new products helps businesses solve complex challenges in unique business and consumer spaces, and extend their scope far beyond their established territories both in terms of industry and geography. The lean and agile firms that are able to adapt to the current headwinds and ride the wave of innovation have been able to register growth despite several obstacles and stay active for several years to come.

Although Manufacturing is a relatively small portion of the overall economy, revival of the sector remains critical, given that the U.S. economy seems to be running on one engine – the Consumer segment – which has been doing its fair share, albeit in a very lackluster way. In order to take the U.S. economy on a comprehensive growth projectile, all segments of it must contribute equally.


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