Manufacturing’s Hiring Funk

Just how rough has it been in American’s manufacturing section? In seven straight months—and 23^rd time in 24 months)— manufacturers, as a group, have been taking fewer orders, drawing down existing inventories, paring back their workforces, and otherwise shrinking their business. In October, than 20% of firms reported having lower headcounts than they had in September, while nearly 30% of firms 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.

It may be artificial intelligence and consumer products that make the business headlines, but core industries, including auto, textile mills, appliance makers, plastics producers, and fabricated metal producers has quietly been in a funk for years. And it’s taking toll on the job market, with companies are leaving a huge number of roles open, waiting 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 point to multiple reasons for the sluggishness. 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. The rate on 10-year Treasury, which many companies use as a benchmark for loans they need to take to finance projects, has hovered around 4% for more than aa year. That’s a high cost-of-capital, Olson says, when compared to what financing cost five or 10 years ago.

The election is over, of course. And the Federal Reserve has cut rates twice this fall. But   experts say it would take several more cuts to bring financing rates low enough for many manufacturers to consider taking out more 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 as US consumer spending has held steady over the last couple of years. Meanwhile, computer and electronics production—namely semiconductor manufacturing—has seen a surge in investment thanks to billions in US government subsides to invigorate domestic production. But even semiconductor manufacturers are facing issues --the industry might have expanded faster could it find enough high-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 be waiting 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 brainstorm new products. But while high-tech sectors are pushing innovation, many other manufacturers are not. In a survey by the Chicago Business Bulletin, only 14% of petroleum producers say they are engaging in innovation activities. Fewer than half of paper companies, metal producers, and printers said they were innovating as well. That lack of innovation is already showing up. Only 20% of manufacturers were able to bring new products to the market over the last year.

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

Learn more about Korn Ferry’s Manufacturing consulting capabilities. 

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