Frustration with Washington continues to hang like a cloud over manufacturers; however, optimism has begun to break through in some areas. It is hard not to be disappointed with the sluggish growth in the first half of 2014, with real GDP up an annualized 1% largely due to weaknesses in the first quarter.

Manufacturing activity has rebounded, and manufacturers remain mostly upbeat about the coming months. Indeed, the Institute for Supply Management’s purchasing managers’ index stands at a three-year high, and manufacturing production climbed 4.9 % year-over-year in August. In addition, capacity utilization nears pre-recessionary levels—a positive sign that the sector has finally emerged from the sharp downturn that began in December 2007.

Based on the survey results, we can attribute the more-optimistic outlook from manufacturers to confidence in their business rather than in Washington. The survey results also show that manufacturers continue to face significant challenges due to policies emanating from Washington and remain extremely frustrated by the political gridlock (Figure 1).

A majority of survey respondents, 77.1%, again cite rising health insurance costs as their top challenge. In the manufacturing sector, businesses see benefit costs rising an average of 6.3% over the next 12 months (a new question starting with this report), with health insurance premiums anticipated to increase 9.6% on average in 2015. While most firms probably do not yet have actual premium figures for next year, the fact that more than half of them predict increases of at least 10% spurs considerable concern. In addition, more than 85% of those taking the survey said they believe their health care costs will increase by 5% or more—a harmful reality, particularly for small businesses.

Figure 1: Primary Current Business Challenges, Third Quarter, 2014

Note: Respondents were able to check more than one response. Therefore, responses exceed 100%.

We asked manufacturers about changes they might make to their health insurance coverage next year, particularly in light of expected premium increases (Table 1). More than half of those responding said they would have to increase copays and deductibles (55.8%) and/or increase the share of premiums paid by employees (54.4%); however, 36.7% would be able to offer the same plan. In keeping with manufacturers’ long-standing tradition among sectors with the highest offer rates, only 6.6% anticipated narrowing their provider networks, with only 1.8% intending to stop covering their workers.

Table 1: Special Question Regarding 2015 Health Insurance Plans 

Assuming you offer health insurance to your employees, do you expect to make any changes for the next plan year? Please check all that apply.

Percentage Saying Yes

Increase copays and deductibles


Increase employee share of premiums


Keep offering the same plan


Narrow provider networks


Stop providing coverage


Note: Respondents were able to check more than one response. Therefore, responses exceed 100%.

The second most-pressing issue for manufacturers remains the business climate, noted by 73.1% of those taking the survey this quarter (Figure 1). This reflects back to the idea that manufacturers believe they are experiencing success in spite of Washington policies. These policies include the need for comprehensive tax reform and a desire to reduce regulatory burdens, among other issues. A number of respondents provided additional context to their answers in the sample comments that appear in the appendix to this report. Many of them mentioned “skyrocketing” regulatory compliance costs, or challenges in complying with “complex” tax rules. Beyond those issues, roughly half of these survey respondents cited difficulty in attracting and retaining new workers. In fact, workforce development worries have been noted for some time, and as job creation opportunities continue to increase, skilled worker shortage issues will follow suit.

This quarter’s survey also delved deeper into frustrations with new labor regulations being proposed by the Administration. Among the more high-profile actions, President Barack Obama has issued an executive order that would potentially blacklist contractors with labor and safety infractions from the previous three years, the National Labor Relations Board (NLRB) is set to finalize a regulation to speed up the union election process, and the Department of Labor (DOL) is revising overtime regulations in the Fair Labor Standards Act.

Manufacturers expressed at least a moderate degree of concern regarding many of these changes. For instance, we asked them to rank on a scale of 1 to 10 their level of concern regarding DOL’s plan to change overtime regulations (with 1 being no concern and 10 being extremely concerned), and the average was 6.7. Roughly 45% of those completing this ranking scored their concern levels at 8, 9, or 10, placing a sizable percentage as highly concerned. Respondents had similar concerns about the President’s new executive order regarding federal contracts and labor law violations (with an average score of 6.2) and the new OSHA rules on injury and illness disclosure reporting (with an average score of 6.6).

Most importantly, many of these changes could have a chilling effect on the market. Roughly one-quarter of those responding said they would be less likely to hire in the coming 12 months because of the proposed overtime regulations, with essentially the same percentage noting that they would be less likely to bid on federal contracts. When asked about their biggest obstacles to bidding on federal contracts in general (Table 2), manufacturers overwhelmingly cited the rules and regulations required in the procurement process as their top reason (75.6%). Other concerns include the process length (41.3%) and the difficulty in learning about new contracts (29.4%).

Table 2: Special Question Regarding Obstacles for Manufacturers in Federal Contracting  

What do you consider to be the biggest obstacles to bidding on a federal contract? (Check all that apply.)

 Saying Yes

Rules and regulations


Process takes too long


Finding out about available contracts


There are no obstacles


Note: Respondents were able to check more than one response. Therefore, responses exceed 100%.