Analysis: U.S. manufacturing is booming -- but not for these guys
18/11/2020 11:00
By Timothy Aeppel
Nov 18 (Reuters) - Jim Kirsh initially thought his
family-owned foundry in southeastern Wisconsin might stay busy
during the pandemic.
Kirsh Foundry Inc, a cluster of buildings nestled in Beaver
Dam, a city of 16,000 about an hour's drive from Milwaukee,
entered the year with a bulging order book, thanks in part to a
big customer bringing casting work back from China.
This was quickly followed by an urgent call to make parts
for a ventilator being built by General Electric Co GE.N in
response to the coronavirus.
By summer, however, business started to dry up. Today it
remains depressed, emblematic of a U.S. manufacturing economy
that, for all its apparent resilience, has notable pockets of
weakness.
Broad measures of manufacturing activity, such as the
Institute for Supply Management's purchasing managers' index,
suggest the sector has snapped back from the springtime slump
delivered by COVID-19. But the revival is uneven. The Federal
Reserve reported Tuesday that while output by consumer goods
producers has largely recovered to pre-pandemic levels, those
who make things for other businesses have not.
Indeed, some U.S. factories are booming, and there are even
shortages of some popular consumer goods. Americans stuck at
home or hesitant to get on airplanes are snapping up trucks,
appliances, recreational vehicles and boats.
But a large swath of the U.S. industrial economy consists of
companies like Kirsh's - which sell goods to other companies
-and many of those firms remain crimped by soft demand.
Caterpillar Inc CAT.N , seen as an economy bellwether,
reported sales fell by at least 20% in its three main businesses
in the latest quarter, while 3M Co MMM.N reported sales down
in half of its business lines compared with a year ago.
Aerospace giant Boeing Co BA.N is mired in a deep slump.
A new surge of COVID-19 across the Upper Midwest, where many
of these companies have large operations, is the latest
challenge. If officials move to curb economic activity again to
halt the spread of the virus, it would prolong the downturn for
equipment makers and others dependent on strong business
spending.
"At this point, I'm just figuring all of 2021 will be awful,
regardless of who's the president," said Kirsh, whose
grandfather founded the business in 1937 amid the Great
Depression.
'OPEN-ENDED' DOWNTURN
There are few more basic industries than foundries. These
factories, which produce metal castings, are a good gauge for
the health of the larger manufacturing sector.
Nine out of every 10 durable goods contain metal castings,
which are made by pouring liquid metal into forms to create
parts that are then trimmed and polished before they move on to
other factories. While castings are found in many consumer
goods, including cars and washing machines, a core use is metal
parts that go into things like bulldozers, cranes and
airplanes.
Kirsh estimates his sales will be down 11% this year - a
decent result considering that at one point they were down by
half. He has laid off a third of his 115 employees, a
combination of hourly and salaried staff, and halted all capital
projects.
His 12 largest customers, which include Caterpillar, Deere &
Co DE.N , and engine-maker Cummins Inc CMI.N , have curbed
orders and given little indication of when orders might return
to pre-covid levels, he said. One hopeful sign, he said, is a
strong uptick in orders in recent weeks, led by Deere.
What makes this downturn so unsettling, said Kirsh, is its
"open-ended" nature. "Even in 2008 and 2009, after a certain
point, you could see things start to turn. You knew things would
get back to normal," he said. "This is not a normal economic
downturn."
Now he is struggling to ship the orders he does have because
the virus has hit the foundry directly.
In September, one of his supervisors tested positive - after
the supervisor spent time talking to 12 workers around the
plant. Then the scheduler - another key employee - tested
positive, which meant the shipping supervisor who works closely
with her also had to quarantine.
At one point the foundry had 19 employees - about a quarter
of their reduced workforce - either sick or in precautionary
quarantine. That number is now down to just one. But Kirsh's
calculations of how many workers he needs are complicated by
figuring out a buffer to account for COVID-19-related absences.
He's now trying to hire workers again, in part to compensate for
the absences as well as the recent upturn in orders.
Kirsh is part the Grey Iron Founders Association, a group of
16 small foundries that meets once a quarter in Chicago to talk
about business conditions. At the latest meeting, most reported
similar conditions. "Most of us have business down in the 30%
range," he said.
Thomas Teske, general manager of EJ, a foundry in East
Jordan, Michigan, said its business has held steady - mainly
because it specializes in making castings for government
infrastructure projects.
"The only state that shut down construction was Pennsylvania
- and that was just for a couple of weeks," said Teske. "But our
concern is going forward," given how heavily state
infrastructure projects rely on tax revenue.
"Funding is going to be an issue," said Teske, "so it's
tough to see what the future holds."
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U.S. manufacturing - an uneven recovery https://tmsnrt.rs/3f7ZYlI
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(Reporting by Tim Aeppel in New York; Editing by Dan Burns and
Cynthia Osterman)
((Daniel.Burns@thomsonreuters.com;))