A Look at the Costs and Challenges Impacting the Manufacturing Industry in 2023

During the pandemic businesses across the globe were hit with supply chain issues and increased inflation. Though our supply chain issues have been largely mitigated, thanks to the reopening of states and countries post-pandemic, we are still dealing with inflation even as the Fed tries to combat it with increased rates. This can impact different businesses and industries across the world, but we wanted to highlight in particular how it has affected manufacturing in America.

Supply Chain Issues and Lingering Inflation

Again these supply chain challenges have somewhat been diminished in 2023 thankfully; however, the lingering impacts can still be felt as supply and demand forces continue to push and pull. At first there was a drastic drop in demand for manufacturing products, as projects were canceled or delayed and businesses prepared for losses of income due to this drop. Once states and countries started to return to some semblance of normalcy, and pandemic rescue funds began flowing to companies and individuals alike, demand began to spike for products such as wood, metal, and other manufacturing goods.

What happened at this point though is that many companies had not been producing these materials to the same extent due to the lack of demand. Likewise companies like China, who had a much longer, more severe lockdown than most countries, were primary providers to companies across the world, and thus there were incredibly long delays for their goods. Thus prices began to spike, and since companies needed the materials and had more cash, they were willing to pay those higher prices. This is in effect what drives inflation, and so the costs of materials continued to increase. This is parallel with what was happening with consumer goods as well.

Supply chains have balanced out once again, though some have shifted for better, and for worse, but no longer do we see such incredible delays for products, goods, and materials anymore.

Inflation alas has continued to linger on, even as the sources of inflation have started to dissipate. Though Fed Chair Jerome Powell, and his cohorts, are continuing to fight inflation, while hoping to avoid tipping the country into recession, people, businesses, and yes manufacturers, are having to navigate this new world.

As such we wanted to highlight some of the areas that are most concerning to manufacturers now, and what continues to impact the industry and its pricing for all variety of manufactured products.

Hiring and Retaining Workers in a Hot Labor Market

At the start of the pandemic many of the most-at-risk workers were the doctors and nurses of course, but also included among them were the service industry workers, and essential industry employees, who day in and day out would continue working throughout much of the lockdowns.

As the risk lingered on, and companies struggled for employees, higher wages became standard for some businesses. On a micro level this is incredible for people looking for wages to support their families. On a macro level this can still be a positive; however, it also can further increase inflation as employers earn more money to spend on products, while also leading employees to move out of low-wage industries or low-wage jobs for higher wages. The shift in workers impacted some industries in particular, such as service and retail, and these shortages helped slow down the delivery of some goods. Even industries not as directly impacted though still had to raise wages to compete, and for manufacturing companies some of those raises could impact costs of services.

More recently the work of the Fed to increase interest rates appears to have cooled down the labor market somewhat; however, it’s still a gradual process and one that must be planned delicately so as to not tilt the country into a recession. What will result from these interest rate hikes ultimately is yet to be seen as of this writing.

Cost of Vehicles: New and Used

One cost increase that has been felt across the board, for consumers and businesses, is the high price of new and used vehicles. Story after story of consumers trying to take their car for every mile they can have become commonplace, and this is true for business as well.

However even an existing fleet of vehicles can impact a business, as the cost of repairs is not light either. Especially when running a business, such as a manufacturing company, where materials may need to be moved or installed with an existing fleet, those costs can add up.

Cost of Materials: Mixed

Steel Costs 2009-2022: source: tradingeconomics.com

One positive we have seen, though it can and has fluctuated, in manufacturing in particular is that we have witnessed the cost of certain products such as wood and steel largely returning to lower, pre-pandemic prices.

Cost of Fuel: Still High

According to the U.S. Energy Information Administration the average cost of retail gasoline prices bottomed out at the start of the Great Recession and at the start of the pandemic only to then climb dramatically in the months since. Thus the price reached its peak height of 5.05 per gallon in June 2022, and though it’s gone down since it’s still higher than it has been since 2015. Fuel costs can have an impact not just on workers, who have to commute to their jobs, but also on the businesses truck costs. Even if they’re using a third party company to handle shipping these added fuel costs will often be passed on to the business.

What’s Next for Manufacturing

Currently as of this writing the debt ceiling debate lingers large on the economy. Whether America defaults may have a substantial impact on our economy.

In addition to that though we also have high interest rates, set by the Federal Reserve to lower borrowing, and we have continued international uncertainty with the war in Ukraine, the strained relationship with China, and always the potential for uncertainty around the world.

On the more positive side, for manufacturing in particular, there’s been a boost over the last two administrations to make products in America in a way that’s not been the case in generations. With recent bipartisan bills such as the CHIPS act, the revised NAFTA agreement, and the Infrastructure Investment and Jobs Act, the focus has been on prioritizing American industry and workers. This hopefully will have a positive impact on manufacturing and on the country as a whole.

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