Manufacturers Expect Business to Improve By the End of This Year

Manufacturers and distributors are battling through the toughest recession in decades, but a new survey finds some are predicting improvement.

The study, commissioned by RSM McGladrey, found that while 40 percent of the respondents said business was declining, 46 percent said they were expecting a rebound by the end of the year — and 44 percent said they expect it next year.

“In some cases, we have clients reporting things are better,” said Tom Murphy, RSM McGladrey’s executive vice president for manufacturing and wholesale distribution.

The Minneapolis-based consulting firm, which has offices in Phoenix, polls manufacturing and distribution leaders every year. More than 920 executives responded this year.

Manufacturing has taken heavy losses during the recession, and the Valley is no exception. Several semiconductor manufacturers, including Phoenix-based ON Semiconductor Inc., have announced plant closings and layoffs.

Still, the survey finds the mood in the sector is much the same as that displayed by companies around the Valley: that the bottom is near and things likely will start to improve, said Marc Osborn, a lobbyist with the Arizona Manufacturers Council.

“I get the sense that everyone in the AMC is tightening their belt, but it’s not in a crisis kind of mode,” he said.

While some industries have struggled, others have fared well. The state’s unemployment rate in June hit 8.7 percent, and the Valley is doing slightly better at 8.0 percent, according to the Arizona Department of Commerce.

The state still is losing manufacturing jobs, with close to 12,000 cut from June 2008 to June 2009. The state’s aerospace industry bucked that trend, adding about 800 jobs in the past year, according to the department’s most recent statistics.

In the Valley, manufacturers shed about 8,300 jobs during the period, but aerospace again was a bright spot, picking up 400 jobs.

Murphy said some sectors, such as medical devices and the food and beverage industry, have fared well nationally.

Job growth still may be months off. High unemployment figures typically linger following recessions, according to analysis of rates going back through the past several cycles. Manufacturers likely aren’t going to start hiring again until they are confident their businesses are growing, which likely will be in 2010 and beyond, Murphy said.

By the time they begin hiring, they believe they will have trouble finding employees who have skills they require.

“That’s the challenge we have — that soon we won’t have the workers capable of filling those spots,” Murphy said.

Arizona is in the same position, with high-tech manufacturers constantly scouring the horizon for potential employees, Osborn said.

“I don’t know a high-tech company that isn’t concerned about work force development and what’s coming in the pipeline,” he said.

The biggest question will be whether the state is poised to take advantage of a recovering economy, Osborn said.

“I think the interesting thing is whether we’ll be positioned to take off once the economy starts, or whether we’ll be one of the ones that lags behind,” he said.

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RSM McGladrey: www.rsmmcgladrey.com
Arizona Manufacturers Council: www.azchamber.com/amc