The new year is usually a time for new beginnings. However, when the clock struck midnight this New Year’s Eve, at least two things stayed unchanged: The government remained partially closed, and manufacturing remained on a positive march.
This would seem to contradict some of the more dire predictions for business and our economy we’ve heard lately, but when I travel around the country, meeting with manufacturing leaders, they often tell me about how good business is right now.
Sales are up, hiring is robust, the overall outlook is strong, and — with the right policies out of Washington in 2019 — we can help ensure things remain this way.
{mosads}Manufacturing has been a bright spot in the economy over the past few years. 2018 marked the strongest year of manufacturing job growth since 1997, with the economy adding nearly 24,000 manufacturing jobs per month on average, including 32,000 in December.
Moreover, the most recent quarterly Manufacturers’ Outlook Survey from the National Association of Manufacturers (NAM) showed 2018 as the best year ever for manufacturer optimism.
Today, about nine in 10 manufacturers are optimistic about the future, and other sentiment releases have reflected similarly positive assessments. Manufacturing leaders feel upbeat about future growth in new orders, output and employment.
Why is this? A primary driving factor has been a new attitude out of Washington in recent years. Rather than putting their foot on the economic brakes, Washington officials decided instead to help our economy grow with policies like tax and regulatory reform.
The U.S. economy will likely have expanded by 2.9 percent in 2018 once the new year-end data is released, the fastest pace since 2005, according to my estimates, with a fourth quarter reading of 2.6 percent. Moreover, there are more job openings in the United States than people actively looking for work.
Accordingly, manufacturing’s top problem in recent quarters has been that there are more manufacturing jobs (more than 500,000) than there are enough skilled workers to fill them. For the fifth consecutive quarter, manufacturers cited the workforce crisis as their top concern in the latest NAM’s Manufacturers’ Outlook Survey.
More than three in four manufacturers reported having unfilled positions at their company that they were struggling to fill. This workforce crisis is a real problem, and organizations like the NAM and its social impact and workforce arm, The Manufacturing Institute, are working hard to solve it.
There are other economic headwinds on the horizon as well. Financial markets began 2019 much as they ended 2018 — with a lot of volatility.
In addition, daily headlines continue to stress slower global growth and downside risks for this year, and there is some sense that businesses are hesitating on some investments due to economic uncertainties, including trade tensions, rising interest rates and even the partial government shutdown.
While all those concerns pose challenges to the U.S. economy, it is important to keep it all in perspective. For the most part, the forecasts for this year call for slowing, not declining, growth in real GDP, and while the risk of a downturn rises as the year progresses, a recession is not necessarily in the cards for 2019.
For instance, I would peg the risk of a recession over the next 12 months at around 20 percent, increasing to about 40 percent by year’s end and into 2020. Those chances are not insignificant, but they also suggest that a recession is not imminent.
So, here’s a reality check. In short, despite some challenges, the overall picture for manufacturing and our economy remains largely positive. Policymakers’ challenge now is to keep this momentum going.
According to manufacturers in the United States, that means, as a next step, approving the U.S.–Mexico–Canada Agreement (USMCA), which our latest survey shows an overwhelming majority of manufacturers in America support.
With additional reforms to the tax code and regulatory system, bold infrastructure investment and a sound trade policy — and, of course, getting the government back up and running with a solution both sides can agree to — we can keep on a positive track and build on the strong job and wage growth over the past two years.
Chad Moutray is the chief economist for the National Association of Manufacturers.