Manufacturing Survey: Crisis May be Coming Soon

Representatives from the National Association of Manufacturers, at the recent National Manufacturing Week show in Chicago, announced the results of a survey of their membership. The responses were not encouraging.

By Consulting Specifying Engineer Staff March 14, 2003

Representatives from the National Association of Manufacturers, at the recent National Manufacturing Week show in Chicago, announced the results of a survey of their membership. The responses were not encouraging.

“Three-fourths of our members today believe that in light of current economic conditions, the United States is facing a major manufacturing crisis,” says NAM President Jerry Jasinowski. “This is the most uncertain time in recent economic history.”

Specifically, NAM feels four major factors are prohibiting U.S. manufacturers from rebounding any time soon: rising health-care costs; an overly litigious environment, particularly relating to asbestos claims; an unfair trade imbalance with China; and finally, spiraling energy costs.

“Without a doubt, we’ve slipped off a cliff,” says Tony Raimondo, CEO of Behlen Manufacturing, a Kansas City-based producer of metal-engineered buildings. “The costs of health-care are like a locomotive out of control.”

In fact, nearly 90% of the survey’s respondents said these costs were a “major threat” to manufacturing, and two-thirds said their health-care costs have increased 21% or higher over the last two years.

“For my company, our health-care costs only increased 17% over this period, and we actually applauded this as good news because we projected the costs to be closer to 25%,” says Raimondo. “But when this kind of news makes you happy, something’s really out of perspective.”

Energy costs, notably natural gas, have particularly affected IMC, a Chicago-area manufacturer of concentrated phosphates and potash crop nutrients. “In just the past two weeks alone, natural gas prices have hit record highs,” says Doug Pertz, the company’s CEO.

In fact, he adds costs are three times higher than what his company was paying last year. Of course, Pertz admits costs will vary by the type of operation, but for a company like his, which uses a tremendous amount of natural gas, such cost spikes are bad news. For example, he says IMC had to shut down 45% of its ammonia-related business until gas prices came back in line.

Furthermore, Raimondo notes that many businesses, like his, can’t simply pass these costs along. “We do a lot of galvanizing and use a lot natural gas. But due to severe pricing competition, especially overseas, we can’t pass along prices, so that means we have to reduce the number of employees or cut back production.”

The rest of NAM’s surveyed membership concurs, with some 63% noting it was “very important” that the Bush Administration and Congress enact some kind of mid-year economic growth plan that will include some kind of tax relief for business.

Pertz acknowledges business has a role in this process as well, and that they’re trying to be proactive. For example, IMC does practice heat recovery and cogeneration, “as do most others, and if we had more money we’d add more,” he

Jasinowski points out capital spending has been down eight straight down quarters. For 2003, that number is expected to rise to a grand total of 2.5% to 5%. And even though this number is very low, he maintains it is still a positive. NAM was also encouraged that factory orders, although down again for the December-January period, did experience an uptick at the end of the cycle.

This is why he argues it’s so critical to get some kind of financial assistance from the government.

“Manufacturing is still at the heart of our economy,” says Pertz. “It has been historically, and likely will be the agent that again pulls us out.”

The pending possibility of war with Iraq, of course, may mean a drastically different landscape. According to the survey, most NAM members felt military action, if it’s swift, won’t have a damaging impact on the recovery process. However, if it becomes drawn out, that’s another matter.

Casting a further pall is the notion of when the war might come. “The generals I’ve talked to in D.C. say that if we don’t go in by May, it’s too late,” says Jasinowski.

NAM has drafted a resolution to Congress calling for action on tax relief, trade, tort and health-care reform.

“We hope Congress will pay attention to this grassroots call for higher economic growth,” says Jasinowski. “The past few years have made clear that we’re going to remain hobbled without a tax policy that enhances economic growth and encourages productivity through technology and investment incentives.”

For results of the full survey visit