With the Fed announcing its first interest rate hike in seven years and projecting more hikes in 2016, the price of business loans to invest in new factories should start to increase, which could lead to a decrease in manufacturing construction. The hope is that this will be more than offset by the economic boost produced by the higher rates.
Janet Yellen, head of the Federal Reserve, noted in a press conference that, though the economic recovery has come a long way, it is not yet complete and “things may be uneven across regions of the country and different industrial sectors.”
Manufacturing Challenges of 2015
The manufacturing sector has faced stronger headwinds than many others over the past several years. According to the Alliance for American Manufacturing (AAM), “The U.S. Department of Labor’s new jobs projections through 2024 scuttle the goal set by President Obama of creating 1 million new manufacturing jobs.”
Instead, AAM points out that the Bureau of Labor Statistics now forecasts a decline in U.S. manufacturing jobs of 0.7% each year for the next ten years, for a total of 790,000 manufacturing jobs lost by 2024.
The Financial Times reports that the manufacturing sector is struggling and may continue to do so through 2016. In a survey of companies such as industrial suppliers Grainger and Fastenal, and diesel engine maker Cummins, the paper reports manufacturers are facing a “tough industrial economy,” possibly even a recession.
This negative outlook is reinforced by the slight growth in manufacturing employment (0.09% from Sept. 2014 through Sept. 2015, according to BLS). The labor force participation rate continues to hover around a 30-year low, and quite a few workers remain jobless, in spite of an official employment rate of 5%.
According to Don Norman, of the Manufacturers Alliance for Productivity and Innovation (MAPI) Foundation, U.S. manufacturers have faced an uphill climb due to the strong dollar, which puts U.S. companies at a competitive disadvantage, along with uncertainty in China’s economy and the recent dramatic decrease in oil prices.
“Given these challenges, the fact that manufacturing production is up even mildly is a positive sign,” Norman said.
In MAPI’s recent report on the industrial outlook through 2018, manufacturing growth is forecast to increase from a disappointing 1.8% in 2015 to 2.6% in 2016, and up to 3.0% in 2017.
Manufacturing industry is going through an inventory adjustment that has reduced production to avoid the impact of falling prices. On the optimistic side these inventory swings are temporary, this swing has probably already behind us and has run its course. But it won’t be a straight forward path according to Dan Meckstroth, chief economist of the MAPI Foundation, according to Meckstroth, who says that manufacturing is “still in the recovery phase of the economic cycle.”
Specifically, MAPI forecasts total machinery production declining 1% in 2016, including agricultural, construction, and drilling equipment, as well as engines, turbines, and metalworking machinery. These industries will begin to recover with moderate growth rates in 2017 and beyond, the Foundation predicts.
Though MAPI does not specifically break out statistics on robotics and automation equipment, these would be included in several of the manufacturing categories covered by the report.
Robotics Growth in 2016 and Beyond
In contrast to the mediocre manufacturing outlook, the Robotics Industry Association (RIA) reports that the first nine months of 2015 saw record sales of robots in several industrial sectors, including semiconductors, life sciences, and automotive components. Through September, 6% more units were ordered compared with the same period in 2014, the previous record.
RIA estimates that 236,000 robots are in use in U.S. factories, second only to Japan.
“Demand for robots is at an all-time high, and companies of all sizes in all sectors of the economy are realizing the benefits of automation,” said Jeff Burnstein, President of RIA.
Industrial robots have been widely applied in a broad range of fields such as automated assembly production, packaging, welding and spray painting to increase productivity and lower labor rates. The use of advanced industrial robots will ensure new developments that will power productivity growth in many industries according to new research by The Boston Consulting Group (BCG).
In fact, a Dec. 2015 survey of 250 senior U.S.-based manufacturing executives by (BCG) points to advanced technologies like robotics and automation as contributing to an American manufacturing revival by helping to make it “more attractive than economies whose chief advantage is cheap labor.”
According to a BCG release, 56% of respondents said lower automation costs have improved the competitiveness of U.S.-made products compared with similar goods sourced from low-cost countries; 71% said advanced manufacturing technologies will improve the economics of local production; and 75% said they will invest in additional automation or advanced manufacturing technologies in the next five years.
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