Industrial manufacturing activity is recovering from the economic turmoil induced by the pandemic, according to recent survey data from the Institute for Supply Management, but manufacturing employment has not rebounded at the same pace.
After dropping to an 11-year low of 41.5 in April, the ISM’s manufacturing index – a key indicator of industry activity – rose for four months in a row to an August reading of 56 (readings above 50 indicate expansion, while readings below 50 indicate contraction). Manufacturing activity expansion continued in September, though growth was smaller than in August.
Growth in new orders and production has driven the increase in manufacturing activity in recent months, ISM data shows. While manufacturing employment has also been improving since April, it is still contracting; the ISM’s employment index in September was 49.6. More than 322,000 manufacturing jobs have still not been recovered compared to pre-pandemic employment levels, according to data from the Bureau of Labor Statistics.
“Long-term labor market growth remains uncertain, but strong new-order levels and an expanding backlog signify potential strength for the rest of the third quarter,” ISM Manufacturing Business Survey Committee Chair Timothy Fiore said in the organization’s August report. “Survey comments indicate that more panelists’ companies are hiring or attempting to hire compared to actively and passively reducing their labor forces.”
But many industrial companies have announced significant layoffs during the pandemic, and some businesses are turning previous worker furloughs into permanent layoffs. Considering that there was a shortage of manufacturing labor before the pandemic (there was less than one person available for every manufacturing job opening, according to BLS data), it is possible that these layoffs were not purely on account of excess capacity.
As inventories decline and production recovers, employment may also recover. But companies may already be adopting more technologies that improve labor efficiency and require fewer labor hours on the plant floor, especially considering investment priorities in certain manufacturing technologies like 3D printing and robotic automation.
Manufacturing, even before the pandemic, has been in the midst of a technological transformation. The pandemic and its disruptive effects on operations and supply chains may have accelerated the adoption of some of these technologies, especially robotics and automation.
The CEO of the industrial automation solutions provider Rockwell Automation said during the company’s third-quarter earnings call that the pandemic “is accelerating the need for industrial automation and digital transformation solutions that address manufacturing safety as well as operational flexibility and resiliency.”
More discussions on reshoring supply chains and decentralizing manufacturing may also be driving some of the interest around investment in domestic capabilities and infrastructure, where technology plays the key decision variable. Crises like the current pandemic put longer-term technology investments on top of companies’ priorities.
History indicates that generally, after recessions, companies increasingly adopt technologies that improve labor efficiency to manage costs, which in the longer term may eliminate some of the labor. In a 2018 report on robotics, Oxford Economics estimated that for every single robot installed in a manufacturing facility, 1.6 manufacturing workers are displaced. Outside the shop floor, there is increased adoption of robotics in warehousing operations as a solution to reduce human contact in a pandemic impacted environment.
The pandemic may eventually go away but companies may not want to pivot back to a traditional labor solution for a variety of reasons – including but not limited to decreasing reliance on a human workforce.
Whether the gap between recovery in manufacturing unemployment and manufacturing activity is only a short-term phenomenon, the broader discussion about technology’s implications on labor – especially for lower-skilled workers, and ensuring required skills are available for the future of manufacturing – remains relevant.