Minneapolis – Minnesota’s manufacturers are more confident in their firms’ future than at any point since 2009, according to the sixth annual The State of Manufacturing, a survey research project sponsored by Enterprise Minnesota and partners. Healthcare costs, government policies and regulation, and the ability to attract and retain qualified workers also top the list of growing concerns among manufacturers.
Overall, 84% of executives say they are confident about the future of their firms, which is the highest recorded mark in the survey’s six-year history. The number of manufacturers who claimed they were “very” confident in their company’s future jumped eight points from 28% in 2013 to 36% this year. And, confidence is especially high (96%) among companies with more than $5 million in annual revenue.
This optimistic outlook extends to the economy as a whole. Only seven percent of manufacturers have recessionary concerns for 2014. Fifty-four percent expect a “flat” economy in 2014 and 37% anticipate economic expansion.
The cost of healthcare is once again the top concern among manufacturers at 59%, followed closely by government policies and regulations at 55%. The ability to attract and retain qualified workers continues to be a growing issue statewide with 34% of respondents listing it as a key concern, a 20-point jump since 2011. In Greater Minnesota that number jumps to 43%, while in the Metro area, 28% of manufacturers consider worker shortages a key concern.
Minnesota’s business climate is increasingly seen as unfavorable by manufacturers, with 51% saying the state is on the wrong track, the highest total since 2010. Forty eight percent of respondents said issues “such as taxes, regulations, and policy uncertainties” might negatively impact their firm’s growth. Rising healthcare and insurance costs were seen as the next largest potential growth inhibitors at 31%.
The full results of The State of Manufacturing will be revealed at a series of briefings with manufacturers, business leaders, educators, policymakers, and media throughout Minnesota until June 13 in Minneapolis, Eveleth, Brainerd, St. Cloud, Alexandria, Mankato, Albert Lea, Winona, Red Wing, Owatonna, Rochester, Elk River, Litchfield, and Fergus Falls.
Pollster Rob Autry from Alexandria, Va.-based Public Opinion Strategies (POS) conducted phone interviews with 400 manufacturing executives, representing a geographically proportional cross-section of Minnesota between February 28 and March 13. The poll has a margin of error of ±4.9%. The research was complemented by 14 focus groups of manufacturing executives from around the state.
“It is clear that Minnesota’s manufacturers are more confident about their future today than they have been at any point since the start of the recession,” said Enterprise Minnesota President & CEO Bob Kill. “The looming concern, however, is that many manufacturers are having difficulty finding qualified workers to remain competitive and sustain their growth. This challenge is significantly acute in Greater Minnesota.”
Statewide sponsors for the State of Manufacturing include: Baker Tilly; BMO Harris Bank; Doherty; Granite Equity Partners; Gray Plant Mooty; Marsh & McLennan Agency; and MRA.
Growth: Manufacturing executives are slightly more optimistic about the revenue projections of their own companies than they were in 2013, with 45% expecting an increase in gross revenue, up from 41% last year. In terms of profitability projections, 35% of respondents anticipate an increase in profits, up from 32% in 2013. Overwhelmingly (76%) manufacturers said that this growth would come from new customers. The number of manufacturers expecting an increase in capital expenditures remains flat at 27%.
Worker shortage: Virtually all (97%) of Minnesota’s manufacturers expect to maintain or grow their workforce in the year ahead. About a third (30%) expect their firms to grow, split proportionally between companies in the Twin Cities and Greater Minnesota. The “ability to attract and retain qualified workers” continues to grow as an increasingly chronic concern for manufacturers. Two-thirds (67%) say it is difficult to attract qualified applicants to fill vacancies, the highest mark in the survey’s history. This problem is especially pronounced in Greater Minnesota (75%), which is a 33-point jump from just four years ago and notably higher than the Metro area (61%). Companies with over $5 million in revenue are feeling this problem even more acutely, with 82% reporting trouble finding qualified applicants.
A majority of executives expect to increase wages for the first time since the recession. Fifty-four percent said that on average, wages over the last two years have gone up, an 11-point increase from 2013. A whopping 62% expect wages to increase in 2014, a 14-point upsurge from those polled in 2013. Greater Minnesota firms are more likely to say their wages are going up (66%) than those in the Metro. A quarter (25%) of the manufacturers surveyed predicted they would “invest more in employee development as a% of payroll” in 2014, seven percent higher than last year. This interest is greatest (42%) among companies with more than $5 million in revenue and/or more than 50 employees.
Healthcare: This is the sixth year in a row that healthcare costs were listed as the top concern of manufacturing executives at 59%, down from 67% in 2013. Companies over $5 million in revenue were the most anxious about healthcare costs at 66% followed closely by companies in Greater Minnesota at 64%. Manufacturers also continue to state that healthcare is the dominant factor in recruiting the best talent over salary and wage expectations by almost 20 points (51% to 32%). The cost of healthcare coverage was also named the most important factor (59%) when it comes to attracting and retaining qualified workers.
Trade: Nearly one quarter (23%) of manufacturers said they ship 11% or more of their products internationally. This represents an 11-point increase over last year and signifies the highest level we’ve reported in six years. The top potential market for future business remains Canada at 17%, while Europe moves past China into the number two spot at 13%.
“Home-sourcing” or “reshoring,” the trend of OEMs bringing their supplier work back from foreign sources, has benefitted 24% of Minnesota manufacturers statewide, 34% for companies with more than $5 million in revenue. Of those benefitting from home-sourcing, 31% said that “shorter lead times” were the primary reason the supply-chain relationships changed.
The value of strategic planning: Companies that engage in formal programs regarding marketing, strategic planning and quality management processes exhibited sharply better revenues and profitability than those that don’t. Roughly half the companies surveyed engage in formal processes for marketing (48%) or strategic planning (50%). About 37% of companies have a formal quality management system, such as ISO. Companies that have a formal marketing process expect an increase in gross revenues by a 2-to-1 margin (60%-31%) over those that don’t. These companies also expect better profitability (46%-26%).
Source: Enterprise Minnesota