Economic Recovery Underway, But Ohio Manufacturers Face Challenges

Oct. 26, 2010
Experts encourage more exports, training and education, political action

The U.S. economy has turned upward toward recovery, but it will be a long, slow climb for Ohio manufacturers. That message came from four experts who spoke to 65 attendees at BCG & Companys 2010 Impact Manufacturing Forum at the Akron Hilton in September.

"We are seeing a sub par recovery, and it's not surprising," said Jack Kleinhenz, a principal and chief economist of Cleveland-based Kleinhenz & Associates. "We've had an unusual recession. We're going to have an unusual recovery."

According to Kleinhenz, formerly with the Federal Reserve Bank of Cleveland, signs of recovery came much later in this recession than in past recent recessions because wages and salaries are not growing as they fast as they did in past recoveries; and credit is not being extended as much.

Manufacturers have been spending impressively on capital, but that won't contribute to a "jobs recovery" anytime soon, he said, because of mismatched skills between openings and unemployed workers; the immobility of many unemployed homeowners with underwater mortgages; and healthcare benefits costs for employers, which are growing at 7%.

Other industries face the same challenges, and so sluggish hiring will be a major factor slowing full recovery.

"If we added 250,000 jobs a month, it's going to take five years to get back to where we were before the recession began in 2007."

William Sinn, who owns Sinn & Company and helps U.S. businesses set up export pipelines to China, said increasing exports could not only prompt a faster economic recovery but would also strengthen the U.S. economy in the long term. Specifically, Sinn said companies need to continue to invest in education; and governments need to offer export assistance and keep the R&D tax credit.

China, he said, is the hot export market because government investment in physical infrastructure and social spending is aimed at drastically increasing consumption. As Europe struggles with the same economic issues as the United States, China is growing in population by 6%, and the government is building what equates to a city the size of Houston every month. This offers tremendous opportunity for export growth for U.S. companies.

"China's growth is not helping the U.S. recovery because U.S. investment in China is tiny compared with other countries -- only 5%. Most investment is coming from other Asian countries. We really dont sell there, and [in general] U.S. companies dont have aggressive plans to sell."

Two of his clients have doubled their annual revenues within two years by starting to sell in China: One Indiana company grew from $200 million to $400 million within two years; and another from $3 million to $6 million in 1.5 years.

"If you are only selling in the U.S., you are only selling to 10% of the world. If you are going to sell to anyplace else in the world, China is the place."

M. Judith Crocker, leader of MAGNET's education and training initiatives, said Ohio manufacturers -- like their counterparts in other states -- will continue to face a workforce skills shortage caused by high high-school drop-out rates; massive worker retirements; increasing global competition; the evolution of a smaller, more mobile world; and waning student interest in pursuing science, technology, engineering and math fields.

MAGNET, the region's manufacturing extension partnership, is addressing this challenge by implementing The National Association of Manufacturer's (NAM) Dream It! Do It! program to improve the image of manufacturing and grow the pipeline of advanced-manufacturing workers; partnering with Lorain County Community College to implement the NAM-endorsed Skills Certification System; developing pathways with educational partners from non-credit, credit, and certificate and degree programs to meet employer needs; and by running an ambassador program, which connects manufacturers with educators through plant tours, internships, externships, and classroom speaking engagements.

In addition to the workforce challenge, Ohio manufacturers face an increasingly hostile regulatory environment, according to speaker Pat Grischow, owner of Pat Grischow Consulting and a former HR executive at The Timken Co.

On a federal level, the Dept. of Labor (DOL) is changing from a culture of cooperation with employers to a culture of punishment, Grischow said. DOL is hiring hundreds of new inspectors and is seeking additional funds to implement a worker-misclassification initiative (full time vs. contract labor.)

DOL also is considering an extension the Family and Medical Leave Act to workers who need to take care of children who are not biologically theirs; is scrutinizing how 401k plans are run; and is pushing the Employee Free Choice Act.

This act would make it easier for unions to be voted into a location. Currently, they are voted in by secret ballot with unions taking hold with a majority vote. The proposal would change that to a union being voted in if a majority (50% plus one) of employees sign authorization cards (no secret ballot).

"You can go home Friday night and come back Monday morning and have a union without 49% of your employees voting," Grischow warned.

In Ohio, expect to pay more for unemployment compensation, she told the crowd. The state fund has an $8 billion shortfall of its $50 billion budget and has borrowed $6 billion from the federal government. The state will need to pay that back, and theyll look to businesses for that money.

She urged the audience to be more politically aware and active.

"It is imperative for employers to be aware of what's happening in Washington and Columbus. If you don't, these things are going to hit you upside the head and affect your business."

Jason Tuma, CPA, is a Senior Manager in our Assurance Services department and Leader of the firms Manufacturing Industry Practice Group.BCG & Company is a full service, regional certified public accounting and business consulting firm that provides comprehensive financial and tax services, as well as management and technology consulting. The company hosts the Impact Manufacturing Blog.

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