Manufacturing’s Hiring Funk

Just how rough has it been in America’s manufacturing sector? For seven straight months (and 23 of the past 24), manufacturers, as a group, have been taking fewer orders, drawing down existing inventories, paring back their workforces, and otherwise shrinking their business. In October, 20% of firms reported having lower head counts than they had in September, while nearly 30% reported fewer new orders. 

Erik Olson, Korn Ferry’s senior client partner and the firm’s industrial manufacturing lead, can sum the sector pretty easily: “It’s stagnated,” he says.

Even as the artificial-intelligence and consumer-products sectors make business headlines, core industries—including automobile manufacturers, textile mills, appliance makers, plastics producers, and fabricated-metal producers—have quietly been in a funk for years. And it’s taking a toll on the job market: Companies are leaving a huge number of roles open while they wait hopefully for business to pick up. At one point in 2023, 55% of advertised US manufacturing roles were vacant, according to the World Economic Forum (the percentage has marginally declined over the past year).

Experts attribute the sluggishness to multiple factors. Uncertainty around trade and the US election has convinced some manufacturers to slow down expansion plans, says Seth Steinberg, a Korn Ferry senior client partner specializing in global supply chains. The bigger reason, however, is the high-interest-rate environment. For more than a year, the rate on ten-year T-bills, which many companies use as a benchmark when taking out loans to finance projects, has hovered at around 4%. That’s a high cost of capital, Olson says, compared to five or 10 years ago.

The election is over, of course. And the Federal Reserve has already cut rates twice this fall. But experts say several more cuts would be needed to bring financing rates low enough to make manufacturers consider taking out additional money for expansion.

On the bright side, food and beverage makers—the firms that produce the stuff sold at grocery stores and served at restaurants—have been on a tear, with US consumer spending holding steady over the last couple of years. Meanwhile, computer and electronics production (specifically, semiconductor manufacturing) has seen a surge in investment, thanks to billions in US government subsidies in order to invigorate domestic production. But even semiconductor manufacturers are facing issues; for instance, the industry could have expanded even faster if there hadn’t been a shortage of highly skilled employees. “If you need a couple of hundred electricians or machinists to finish building a factory, you’re going to have a really hard time finding them,” says Paul Fogel, a Korn Ferry sector leader specializing in software roles.

Experts say that manufacturers should not wait for business to pick up before embarking on innovation projects. Multiple new technologies, including artificial intelligence, could bring more efficiency to factory floors while also helping workers to brainstorm new products. But while high-tech sectors are pushing innovation, many other manufacturers are not. In a recent Chicago Business Bulletin survey, only 14% of petroleum producers said they were engaging in innovation activities. Fewer than half of paper companies, metal producers, and printers made similar claims. Given that only 20% of manufacturers were able to bring new products to the market over the last year, that lack of innovation is already showing up.

Olson says that declining interest rates might spur some investment and innovation, but few firms are being particularly aggressive at the moment. “A lot of people are sitting on cash,” he says.

Learn more about Korn Ferry’s Manufacturing consulting capabilities. 

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