2023 Economic Outlook: The Manufacturer’s Forecast
Preparing for a “soft landing” seemed to be the key theme of the economic forecast provided to members of our NC Manufacturing Council by Chad Moutray, chief economist for the National Association of Manufacturers, this week.
While some are trying to talk us into a recession, manufacturers are busy – employment is robust, wage growth continues to be solid, and everyone is fighting for talent.
The NAM surveys its membership quarterly providing a pulse on the industry nationwide – NC Manufacturing Council members and their guests agreed that many of the trends seen in the survey data rang true for North Carolina’s manufacturing community as well.
Closing out 2022, nearly 70% of manufacturers had a positive outlook, about 20 percentage points lower than a year prior. The war in Ukraine, supply-chain challenges, and inflation all contribute to worries about overall outlook and Moutray warned it could drop further in the Q1 survey. He cautioned against losing perspective though, saying, “the reality is a slowing in overall growth rate, not negative growth in terms of sales and production or any of those measures, this is just a slowing or weakening of activity.”
Manufacturers cite attracting and retaining quality workforce as their top concern with supply chain and inflation coming in behind that to round out the top three.
Manufacturing is Resilient
While 62.4% of manufacturers expect us to slip into a recession in 2023, Moutray feels we are talking ourselves into it. He is watching the slow drip of layoffs in the tech sector but said several times that the risk of a soft landing is better than we think.
Overall demand weakened as we ended 2022 and began 2023, and we saw the same in manufacturing production data, where there were broad-based, solid declines, with only three sectors reporting positive growth in production – aerospace, primary metals, and nonmetallic mineral products.
That said, the manufacturing sector has displayed tremendous resilience. Manufacturing production was solid, showing overall numbers we have not seen since 2008 as companies spent time working to increase overall capacity in the last several years – manufacturing construction is not far from an all-time high.
It is clear that manufacturers are long-sighted as even those who think we are heading into a recession expect it to be mild. They are positioning their organizations for success in 2024 and 2025 as evidenced by strong capital spending, as organizations make investments in IP, new equipment, and people.
Talent Likely to Remain a Top Concern
Moutray cited the January jobs report as a bright spot in the economy. “No one was expecting the 517,000,” said Moutray. The unemployment rate fell to 3.4%, marking its lowest point since May of 1969. It is already tough to find workers and full employment is only exacerbating that, though Moutray said he expects it to cool in the coming months, with unemployment potentially drifting over 4 percent. That is still a long way off from the Great Recession when unemployment peaked at 10 percent. Moutray shared that 45% of NAM members have reported turning away work because they don’t have enough workers.
Labor force participation continues to be well below where it was pre pandemic. Many are still on the sidelines due to accelerated retirements, child care, immigration, and entrepreneurship. We have not figured out how to get them back into the workforce and Moutray does not expect to see us return to pre-pandemic levels of labor participation.
The manufacturing sector has experienced very solid job growth over the last couple years and stands just shy of 13 million workers. Job openings continue to be elevated and churn is slowing.
Talent challenges are not going anywhere as Moutray reminds us that there are more job openings than people actively looking for work with 11 million job openings in the U.S. and 5.7 million unemployed Americans. This is pushing up wages, particularly at entry level, as every sector struggles for workers.
In January, the average manufacturing production worker nationally earned just shy of $26/hour.
Last year closed with solid GDP numbers, up 2.1% overall and Moutray is estimating 1.3% this year, with softer growth that he expects us to come out of toward the end of the year.
Thank you to Chad Moutray for sharing his expertise with our Manufacturing Council. The NC Chamber is proud to be North Carolina’s NAM affiliate. For more information on the NC Manufacturing Council and what the NC Chamber does for manufacturers, click here.