Manufacturing firms bemoan interest rates, talent shortage

Optimism in the manufacturing sector remains low, as industry leaders struggle with rising interest rates, poor economic conditions, and an ongoing talent shortage, according to a study from the Chicago consulting firm Sikich.

The firm found that more than half of manufacturers (57%) rated their optimism about business prospects over the next six months at a seven or lower on a scale of one to 10. That is a similar ranking to the same time last year when that figure was 53%, Sikich said in its latest “Industry Pulse: Manufacturing and Distribution” report.

Compounding these challenges, manufacturers have had to increase wages to meet labor needs and support employees through an economic slump. More than half (53%) of manufacturers have increased wages by 5% to 8% in the past 12 months, and nearly one-quarter (22%) have increased wages by 9% or more. Thirty six percent of manufacturers reported that wage increases over the past 12 months are significantly higher than increases over the past five years. 

Despite those hurdles, buoyant consumer demand is keeping the economy afloat. On a positive note, nearly half of survey respondents (43%) reported consistent or increased customer demand and 34% noted improvements to the supply chain. In comparison, in October 2022, 43% of manufacturers had reported supply chain issues.

The results come from surveys of manufacturers and distributors conducted multiple times throughout the year on a range of business topics to create industry benchmark data. In March, Sikich surveyed more than 130 executives from manufacturing and distribution companies across sectors including industrial equipment, wholesale and distribution, metal fabrication, food and beverage, apparel, footwear and textiles, and transportation.

“While manufacturers are working through turbulent economic conditions, customer demand remains consistent – putting an even bigger strain on labor challenges,” Jerry Murphy, partner-in-charge of manufacturing and distribution services at Sikich, said in a release. “Manufacturers that invest in talent strategy differentiators today will be able to meet customer demand and weather the economic storm, setting themselves up for long-term success.”

To keep up with customer demand, manufacturers are focused on talent acquisition. Half of manufacturers plan to increase their workforce within the next 12 months. Of those companies, two-thirds plan to increase their workforce by more than 5% and nearly 20% plan to increase their workforce by more than 10%. 

Manufacturers have also reported that talent acquisition is easier than it was this time last year. While only 20% of manufacturers are able to fill an open role in less than 30 days, 79% say they are able to fill open roles in the same amount of time or faster than they were able to last year. Factors contributing to improved hiring efforts include a larger available talent pool (reported by 77%), enhanced compensation and benefits packages (reported by 31%), and streamlined recruitment and hiring processes (reported by 26%). 

“In addition to increasing wages and benefits, we’ve seen some manufacturers get creative when it comes to their talent acquisition strategies,” Laura Fischer, a managing director on Sikich’s human capital management and payroll consulting team, said in a release. “Offering alternative work schedules, strengthening employer branding initiatives and working with external recruiters are all effective strategies to attract and retain a high-performing workforce.”

One area where manufacturers can improve their talent strategies is pay transparency. As defined by WorldatWork, pay transparency is the degree to which employers are open about what, why, how and how much employees are compensated and to what degree they allow employees to share that information with others. Less than one third (32%) of survey respondents already have or plan to have pay transparency policies in the next 12 months. Further, of manufacturers located in states with proposed pay transparency legislation, only 28% have or plan to implement pay transparency policies.