March 14, 2019 U.S. Manufacturers Optimistic Despite Challenges

Volume 22 | Issue 1

LBMC/LEA Manufacturing Survey highlights 2019 key business trends including expected revenue growth, improving profitability, growing sales.

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What does 2019 look like for the manufacturing industry? LBMC and Leading Edge Alliance conducted the LBMC/LEA 2019 National Manufacturing Survey Report, an international survey with 350 manufacturing executive respondents from across the United States and five countries. The report collected responses to determine a baseline of optimism and strategy preferences over the past 12 months and the coming 12 months.

In the third annual National Manufacturing Outlook and Insights report, manufacturers expressed significant optimism overall that 2019 revenue and hiring will increase despite possible hurdles on the horizon.

Looking ahead, manufacturers expect raw materials, labor costs, lack of available talent, and competition to be significant challenges in 2019. The tariffs implemented by President Trump provide productivity issues; however, an increase in spending on big data and business intelligence will deliver innovative technology helping to minimize productivity concerns.

The largest group of manufacturing respondents (71%) were most optimistic about their regional economies, followed by the national economy (69%) and global economy (56%).

Priorities for 2019 highlighted by manufacturing respondents taking the survey in October of 2018 focus on growing sales (81% believe they will increase in 2019), improving profitability (54% cited this), and addressing workforce shortage (43% indicated this is their top priority).

Sales and Revenue Expectations

Manufacturing shows an improving picture, with almost 61% expecting their sector to expand in 2019, which more than doubled from just two years ago when only 30% expected their sector to grow. Optimism is highest among manufacturers within the energy sector, with 88% being optimistic.

Notably, 81% of manufacturing executives think their revenue will increase in 2019, while only 5% believe it will decrease. Among the manufacturers expecting revenue growth, 13% anticipate a 20% increase this year. Those with two to four locations believe their revenue will grow between 10-20%.

Since 2017, strategic acquisitions have been a growing strategy for manufacturers year over year, and that trend will continue in 2019.

The top opportunity for 44% of manufacturers in 2019 is organic growth in the United States, which represents a 5% increase from 2018. This is especially prevalent among 39% of machine and industrial manufacturers, followed by 12% of those involved in the construction materials sector.

Executive Priorities for 2019

Marketing and R&D are top priorities for capital spending in 2019, along with investments in acquisitions, new locations or new facilities.

Executives also plan to leverage technology to reduce risks and build a competitive advantage, with 76% noting they will investigate/prioritize cybersecurity in 2019 and 43% saying they will prioritize Big Data/ERP/IoT.

In addition, they emphasize investments to improve existing systems, and about 14% are exploring technology innovations such as artificial intelligence and robotics.

Addressing Workforce Shortages

As in past years, labor remains a significant challenge. More than half of survey participants identified the labor shortage as the greatest risk or barrier to growth, and 34% of manufacturers cited competition as a top risk to growth.

Given that assessment, it’s not surprising that 62% said they planned to increase hiring in 2019, and 59% expected to pay more for employee wages.

Jeff Otto, an executive manufacturing recruiter for LBMC Staffing Solutions, believes the survey results reflect what he has been seeing in the market in the Southeast as well as nationally the past couple of years when it comes to competition for labor.

“There’s a national talent shortage in manufacturing, and manufacturing executives need to be flexible and creative when it comes to putting together compensation packages, especially as salaries continue to increase,” Otto said.

“If you find a great fit, try meeting in the middle on negotiations and be willing to add a perk or two. For example, if a desired candidate is used to four weeks of vacation and the company only planned to offer two, giving an extra two weeks is a small price to pay to get the right person. Or, if the salary is lower than the candidate expected, consider adding a sign-on bonus to help compensate.”

There are considerations beyond the compensation package as well.

“Management candidates want to know they will have a voice in the company, be able to make contributions and be part of identifying and implementing solutions,” he noted.

State of Manufacturing Industry

In spite of numerous challenges in recent years, the manufacturing industry still accounts for roughly 12% of the overall U.S. economy in terms of GDP. The majority of manufacturing executives responding to the survey were from companies with annual revenue less than $50 million, so their optimism may be due, in part, to their smaller size. Larger corporations could be more vulnerable to a global downturn.

And while there is a sense that manufacturing still has room for expansion, it’s tempered by concern that any one major event from Washington could change this outlook overnight. Already, in the first quarter of 2019, CEO’s and CFO’s are openly discussing reduced hiring and capital expenditures for expansion in wake of uncertainties.

Tax reform implications will bring new changes as well, so there will be a stronger need for dramatically different tax planning and compliance. Through all the potential changes, working with a team of industry-experienced advisors to provide insight and answers continues to be important.

Although the challenge of gaining a competitive advantage remains critically important, I believe the resilience and success our manufacturing clients have created for themselves will help alleviate the major concerns for 2019.

Click here to download the full report.

ABOUT THE AUTHOR
John Mark McDougal, CPA, is Shareholder-in-charge for the accounting and assurance services and lead shareholder in the manufacturing/distribution industry at LBMC. He can be reached at jmcdougal@lbmc.com or 615-309-2474.

ABOUT LBMC
LBMC is a Top 50 firm in the country and the largest professional service solutions provider based in Tennessee, serving more than 10,000 clients with diverse needs across a spectrum of industries. Today, we’ve become industry leaders in financial, human resources, technology, information security, and wealth advisory services. For more information, visit www.lbmc.com.

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