What lies ahead for Midwestern manufacturing?

Jan 4, 2012

Just before you get to the factory floor of Chicago White Metal Casting, there’s a grainy, mural-sized picture of what the floor used to look like in the 1930s, when the business started by CEO Eric Treiber’s grandfather.

Back then, it was on the second floor of Chicago’s Fulton Street Fish Market.

Today, the family-owned company operates further north of the city, just west of O’Hare International Airport.

Chicago White Metal makes aluminum, zinc and magnesium die casting for a variety of industries, from automotive sector to health care. Die casting involves creating small metal parts – in this case, everything from the rearview mirror mount for cars to components for inside a MRI machine or a tractor.

Treiber said he’s happy that 2011 was brought much more stability for the company. With revenue growth of about four percent, it’s an improvement over 2010.

“Output according to the Chicago Fed Midwest Manufacturing Index was actually quite strong,” said Bill Strauss, a senior economist with the Federal Reserve Bank of Chicago.

As measured by the Chicago Fed, Midwest manufacturing output has had 28 months of growth – at an annualized rate of six percent. That’s much better than the rest of the economy.

But there are a few caveats about these good manufacturing numbers. Strauss likes to use a tennis ball as an analogy, helping to explain that the growth numbers look so good because things were so bad before. In other words, the ball bounced pretty low before it went back up.

Now, Strauss said we’re seeing “great demand” at manufacturers, especially for machinery made right here in the Midwest – and not just automobiles.

“Whether it’s from Caterpillar, Deere, or Case New Holland, they are doing extremely well, especially for Caterpillar with those heavy mining equipment that they sell,” Strauss said, adding that demand especially from Canada and Russia is very strong.

Heavy mining equipment – some of which weigh more than 1 million pounds – in turn requires a lot of steel. That helps that industry, too, Strauss said.

In all, Strauss says about 60 percent of the manufacturing output lost during the downturn has come back.

So why don’t the job numbers add up?

One out of every four jobs lost during the recession was in manufacturing – that’s 2.3 million jobs. As of last November, we’ve added back just 308,000 of those jobs.

Remember the mantra “produce more with less?”. Many manufacturers practically perfected that during this recession.

Take Chicago White Metal Casting. Trieber says it had to be focused on productivity in order to stay competitive with business that was moving out of the country. By focusing on training workers, improving machine efficiency and updating equipment, he estimates they’ve had a 29 percent productivity increase between 2008 and 2010. And Treiber is actually hiring. But he’s looking for a few people, such as die cast machinists, especially repair men.

And that, in a crux, is the labor market problem right now with manufacturing – the need is for workers who are much more skilled. So why can’t you hire back those 2 million people out of work?

Strauss said it seems that many of those 2 million people who worked in manufacturing lack the skills that employers now want. He’s also quite optimistic about the future of manufacturing this coming year – as long as there are workers.

I’ll be reporting more on the skills gap later. In the meantime, if you were one of those 2 million people who were laid off, what are you doing now? Feel free to weigh in the comments section.