Engineering Inc. - May/June 2016 - (Page 4)

MarketWatch BY G E R RY D O N O H U E Manufacturing/Industrial Prospects Fluctuate Along With Growth T he manufacturing/ industrial sector has been one of the hottest markets for engineering firms over the past four years, growing at an average annual rate of more than 14 percent. Rising from the depths of the recession and fueled by low energy prices and swelling consumer demand, manufacturers have built new facilities and upgraded old ones at a furious pace. Looking forward, that pace is not sustainable, but market analysts and firm leaders differ markedly on what the future holds for engineering firms working with industrial/manufacturing clients. "Over the past few months, global economic uncertainty has clouded the picture," says Sam Claassen, president and CEO of SEH in St. Paul, Minn. "Some of the factors that suggested continued strong growth-such as manufacturers coming back to the U.S.- aren't as clear as they were, yet we know our population is growing and consumer demand is evident, which means we can also expect growth." 4 ENGINEERING INC. MAY / JUNE 2016 That uncertainty can be attributed to a passel of conflicting trends, half of them stomping on the brake pedal and the other half pressing down on the accelerator. Slowing Down Perhaps the biggest drag on the manufacturing sector is the overall economy. With the nation's gross domestic product growth forecast to hover below 3 percent annually through 2018, it's hard to find a rationale for the manufacturing sector continuing to do substantially any better. In fact, the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation, forecasts about 2.8 percent annual growth in manufacturing output through 2018. Manufacturing capacity utilization rates are hovering around 78 percent, which is the historical average, suggesting there is not a lot of pressure to expand production lines. Employment in the manufacturing sector has increased for the past four years to more than 12 million, and manufacturers are struggling to find skilled workers in an economy with an unemployment rate of less than 5 percent. And the re-shoring of American manufacturing production, which was propelled by falling energy prices and rising foreign labor rates, has slowed. This is because many global companies have already brought back the output that made financial sense and because of unfavorable currency fluctuations. "In mid-2014, the U.S. dollar began to appreciate significantly against our major trading partners, as those economies began to weaken," says Dodge Data & Analytics Senior Economist Richard Branch. "As the U.S. dollar gains strength, U.S. exports become less competitive in the global marketplace." Speeding Up At the same time, forecasters can point to several reasons for optimism. Consumer spending is the biggest driver in the U.S. economy, and American consumers are spending again-and in record numbers. "Consumer products manufacturing grows with the population," says Justin Mitchell, business development manager for Burns & McDonnell's Food and Consumer Products Manufacturing Construction Put in Place (Annual Percentage Growth Forecast) 2016 5% 2017 6% 2018 7% 2019 7% Source: FMI Group. "We're expecting double-digit growth in our segment over the next two to three years." He adds that consumers are also demanding increasingly cheaper products and faster delivery, so manufacturers are looking to build more regional facilities. "Our customers are analyzing their supply chains, looking to put low-cost production facilities near large population centers. If they don't already have one there, they'll build a new one. And in places where they have an existing footprint under roof, we'll work with them to expand production." In the global marketplace, many manufacturers are facing intense competitive pressure and are turning to technology to gain an advantage. As a result, many existing facilities have become functionally obsolete, forcing the companies to either retool or build new. "They have to find continued efficiency to be profitable and maintain their desired level of growth," says Larry Denton, president of the Process Group at Ghafari Associates in Detroit. "There's a lot of opportunity for us there, helping them maximize their

Table of Contents for the Digital Edition of Engineering Inc. - May/June 2016

Engineering Inc. - May/June 2016
Contents
From ACEC to You
Market Watch
Legislative Action
2016 Convention Wrap-Up
ACEC 2016 Engineering Excellence Awards
The Winner’s Circle
Setting the Standard
Mergers and Acquisitions
Members in the News
Business Insights

Engineering Inc. - May/June 2016