Exploring Regional Variations of the Manufacturing Sector

May 15, 2015

The manufacturing sector saw, at 3.4 percent, stronger year-over-year wage growth than the average 2.7 percent across all industries, according to the ADP Workforce Vitality Index. But there is considerable variation in the conditions facing manufacturers depending on geographic area.

In recent months due to the increased strength of US dollar, though employment growth in manufacturing has slowed down somewhat, still it has seen a considerable growth, both in wages and employment, in the Midwest. Wages were up 3.3 percent while employment climbed 2.6 percent.

In general, manufacturing has been recovering along with the economy, according to Fariborz Ghadar, professor of global management, policies, and planning at the Smeal School of Business at Penn State. But an additional factor has been lower energy prices. "Anybody who uses gas is basically going to be ecstatic about moving operations to the States," Ghadar says. That includes automobile, fertilizer, and chemical manufacturing, much of which is in the Midwest.

Part of the higher growth in the Midwest may also owe to how badly it was hit during the recession. "Automotive is probably the best example," said Howard Sosoff, manufacturing and distribution practice leader at BDO USA. "Consumers weren't spending; business was holding back with capital spending. Production today is almost double from what it was in its lowest years in the 2008 - 2009 timeframe."

Employment growth in the South is a result of expansion, said Mel Redman, CEO of manufacturing and logistics company, Redman and Associates, which opened a new manufacturing facility in January 2014. "In our area of northwest Arkansas, employment opportunities are great," Redman said. "Wages are going up, particularly in manufacturing, distribution, and logistics." But experienced manufacturing workers are in short supply. Redman has had to entice people from other parts of the country at times, and competition for talent is high, providing upward pressure on wages.

Not only could employment growth further increase wages, but could also increase competition for talent. The following strategies could help manage the impact of this double expansion:

  • Control Hiring Costs — the average age of manufacturing employees is higher than most other industries, which could mean hiring for current and future turnover. Finding skilled labor complicates the problem. As manufacturing continues to recover from the recession, companies will also need additional hiring. That may mean increased recruiting and hiring costs, including advertising, screening candidates, onboarding and training them. Reducing those costs through more efficient hiring and onboarding, or offsetting them with tax credits for hiring and training could help reduce the impact.
  • Business Recovery — as recovery for the sector continues, a growing economy typically translates into more opportunity for everyone, spurring increased consumer activity and retail growth. Companies may open additional facilities or even consider moving locations to different geographic areas to benefit from state and local incentives. This could lead to increased cost and complexity to comply with laws and requirements of new jurisdictions. Automation of manual tasks often associated with compliance may help reduce the cost and complexity in multiple jurisdictions.
  • Increase HR efficiency — whether hiring, retaining, or managing employees with unique talents, efficiency and cost-effectiveness of processes will become critical in establishing and maintaining competitiveness. Disparate systems and manual tasks could be replaced with unified solutions and increased automation to help improve efficiency as processes are burdened with more hiring and turnover.
  • Leverage Data — increasing wages and increasing hiring would typically add cost directly to the bottom line, thus increasing cost of goods and reducing profit margins. Organizations that mine internal and external data and turn it into actionable insights may be able to reduce these costs by making better and faster decisions about when, where and who to hire.

As wages put pressure on manufacturing during its recovery period, companies will have to watch carefully to preserve profit margins while obtaining the levels of critical talent they need to create products.

About the Report: The ADP Workforce Vitality Index is a comprehensive, quarterly measure of U.S. workforce dynamics that looks at key labor market indicators, such as employment growth, job turnover, wage growth and hours worked. This report yields deeper insights into workforce dynamics and trends than previously available.

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For media inquiries about the ADP Workforce Vitality Report, please call 201-400-4583 or email Allyce Hackmann.