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Deloitte: Manufacturing at risk for disruption.

As the risk of a global economic downturn grows, the industrial manufacturing industry faces a challenging landscape in 2020 replete with trade tensions, muted job growth, supply chain volatility and an ongoing skilled talent shortage.

These are among the findings of Deloitte's 2020 Manufacturing Industry Outlook. The report also suggests that despite these headwinds, industry leaders are rapidly developing coping strategies--not only to weather the brewing storm, but to thrive in spite of it.

Paul Wellener, Deloitte's U.S. Industrial Products and Construction practice leader, shares insight into these and other topics in the report.

Key highlights include:

Divesting to invest: Manufacturers are streamlining and realigning around key markets and customers to get their "houses in order" as financial markets increasingly reward focus in core businesses over diversification. Next year is expected to yield lower overall M&A deal volume, but higher value deals for those that do occur.

Building digital muscle: Continued trade uncertainties are driving manufacturers to reevaluate their supply chain and distribution networks in 2020. To build resiliency into their networks, many are adding digital technologies (e.g. AI and robotics that increase visibility and transparency) that enable them to respond to market-based threats or opportunities and flex production and resources as necessary. Smart factory leaders are also partnering with suppliers, channels and customers to drive productivity.

Doing good is good business: More than 25% of manufacturers have expressed a genuine commitment to improving the world, including evaluating how renewable energy sources can help deliver on sustainability goals. And doing good can improve the bottom line; 40% of those who expressed that commitment say CSR initiatives have helped them generate new revenue streams.

The report indicates 2019 began with the United States and global manufacturing sectors experiencing continued growth, though recently the manufacturing sector has slowed as the risk for a downturn in global manufacturing increases. The global purchasing manager's index (PMI) in September recorded its fifth month below 50, which is the level that symbolizes the divide between expansion and contraction. While U.S. manufacturing indicators have been positive through the first two quarters of 2019, in August the U.S. PMI joined the global trend with its first below 50 reading (49.1) in more than three years.

Deloitte projections based on the Oxford Economic Model (OEM) anticipate that modest annual manufacturing GDP growth levels may be tapering for 2019/2020, with projections of 2.7% for 2019 and 1.3% for 2020, lower than our prior projections of 3.7% for 2019 and 2.0% for 2020.

As Deloitte indicated in its 2019 Outlook, the historically tight labor market was a potential constraint on the industry's momentum. This year has seen muted job growth in the manufacturing sector, adding an average of 6,000 jobs per month to date in 2019, compared with an average of 22,000 jobs per month in 2018.

Even with the slowdown in hiring, manufacturers still report difficulty filling critical jobs. Another often-discussed constraint to continuing manufacturing's momentum has been the ongoing uncertainty in tariffs and their subsequent impact on trade flows. Costs throughout the manufacturing value chain are seemingly impacted every day.

The uncertainty appears likely to continue into 2020, and thus manufacturers' optimism has experienced a noteworthy setback. Compared with the 2018 Manufacturers' Outlook Survey report, which noted 93.9% of manufacturers had a somewhat or very positive outlook on business, the latest report shows that just 67.9% are optimistic, with the remaining 32.1% having a negative outlook.

This mixed view of the sector is expected to be the prevailing sentiment for 2020.
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Title Annotation:MANUFACTURING
Publication:Modern Materials Handling
Date:Dec 1, 2019
Words:598
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