Building blocks set for manufacturing growth, study reveals

Easier credit lending standards, lower interest rates and high profitability could be setting the stage for a manufacturing boom, according to a study by Wells Fargo Securities.

Manufacturing has rebounded considerably since the recession. After-tax profit of manufacturing activities currently average around 8.5 cents per dollar, according to the Wells Fargo report, which is higher than pre-recession levels. Furthermore, debt restructuring and lower interest rates have relieved the burden of debt for many companies. Coupled with an increased cash-flow from higher profits, manufacturing firms are finding themselves in a good position to reinvest in their businesses.

Banks are also helping to make conditions more favorable. The total amount of commercial and industrial loans has been increasing since 2010, and a survey of senior loan officers revealed that standards have been loosening for medium and large businesses, according to Wells Fargo. The net percentage of banks loosening standards is 18.1 percent, meaning manufacturing firms are starting to have easier access to financing.

If the conditions are ripe, then what's stopping a boom from happening now? Studies reveal that while companies have higher cash flow, many are weary to immediately reinvest it. Currently, the internal funds to outlays ratio rests around 1, meaning that corporations spend as much as they hold. Such a rate implies increased caution among corporations.

Labor pool difficulties
Despite the favorable financial conditions, the number of manufacturing jobs has only increased slightly in recent years. As of September, just under 12 million people are employed in manufacturing in the US, according to the Department of Labor Statistics. That number has been increasing since 2010, but it still remains below pre-recession levels. Based on the data, some may suspect that companies are waiting for more financial security before expanding operations and hiring more employees. But this is not a complete portrayal of the current job situation.

In reality, many businesses could be looking to expand, but are held back by a shortage of skilled workers. The average U.S. manufacturing worker is in their late 40s or 50s and will be retiring in the next decade or so, according to Manufacturing Business Technology. Coupled with low recruitment levels for younger generations, the employment trends point to a crisis now or in the near future.

As industrial fields have become more technological, the need has grown for engineers and skilled technicians. Corporations who need positions filled immediately will likely turn to engineering recruiters who specialize in matching firms with experienced workers.