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Friday, April 19, 2024

Some good signs on manufacturing jobs front

I was talking with Laura Ullrich, a Richmond Fed senior regional economist, on Friday about manufacturing jobs in North Carolina. After growing pretty steadily over the past dozen years, they hit a plateau.

The state lost 2,100 manufacturing jobs in October, seasonally adjusted, according to the government employment report Friday. The loss of those jobs was one reason that, overall, North Carolina lost 7,700 jobs in October.

During our conversation, Ullrich emailed me an encouraging chart showing the surge in new private manufacturing construction in the country. There were two lines, both headed up. One showed manufacturing construction investment, rising over the last couple of years from around $80 billion to $200 billion. The other one showed the computer electronic and electrical sub sector of manufacturing construction, which alone had gone from less than $20 billion to around $100 billion.

“This is one chart that I’ve been showing in my presentations,” said Ullrich, “about what’s going on with manufacturing construction right now.” Computer electronic and electrical manufacturing construction is “through the roof.”

“This includes everything EV related, and everything related to data centers,” she said. “A lot of that is going on in your neck of the woods. With these big economic development announcements we had in both North and South Carolina, much of it being in the EV space. VinFast, Toyota, all these companies.”

“A lot of what you’re seeing in that chart is coming from the CHIPS Act and the Inflation Reduction Act,” which has funneled a lot of money into battery and semiconductor plants.

Ullrich

“So, in theory, if this all plays out the way these companies want it to play out . . . then that construction should turn into manufacturing jobs. These require different skills then furniture manufacturing. It may be a bumpy transition. It may not be the same people.”

So the manufacturing slowdown in our state may be temporary. They’re building the VinFast (7,500 jobs), Wolfspeed (1,800) and Toyota battery (5,100) plants in Chatham and Randolph counties. That could be 14,400 jobs. So far this year, the state has announced another 20 new manufacturing plants and expansions, totaling 4,000 jobs.  

Manufacturing is hard

Building up our manufacturing job base is hard economic development work. Large manufacturing complexes require a lot of land, good roads, water, sewer and power. You also need a skilled workforce. Low-skill jobs went overseas or were automated years ago.

Most of that damage was done by the early 2000s, a decades-long cycle of tobacco, textile, apparel and furniture factory closings that reduced the state’s manufacturing employment by 400,000 jobs. By 2010, manufacturing employment here dropped to around 429,000. It started growing again after the Great Recession, getting up to 480,000 in 2019. The pandemic shut down a lot of manufacturing, but by last summer, employment had recovered almost to 2019 levels, and then it started dropping again, to 471,200 last month.

One reason is that shoes still drop. Pactiv Evergreen closed its pulp and paper operations in Canton, costing 1,100 jobs. International Paper in Riegelwood is laying off 200. Klaussner Furniture of Asheboro shut down, laying off nearly 900 North Carolina workers. And Mitchell Gold+Bob Williams, a Taylorsville furniture company, closed, laying off 500 (although it may reopen).

The monthly numbers

Even though the state lost those 7,700 jobs – nonfarm, seasonally adjusted –  in October, the unemployment rate is still low, 3.4%, same as September. Not crazy low like Maryland (1.7%), but you have to go back to the dot-com bubble of 25 years ago to find lower N.C. rates.

Here are some other numbers from Friday’s report: Gains: Leisure and hospitality services, 2,400 jobs; education and health services, 700; trade, transportation and utilities gained 500. Losses: Professional and business services, 4,900 jobs, construction, 2,100; government, 1,400; information, 700, and financial activities, 400.

Ullrich said the decline in professional/business services seemed to be in services to buildings, which may reflect problems with commercial real estate. The construction losses seem to be hitting subcontractors, said Ullrich.

The Charlotte MSA lost 8,000 jobs, seasonally adjusted  Ullrich went deeper into that by looking at past non-seasonally adjusted October numbers. In 2019, Charlotte added 11,000 jobs that October. In 2018, it was 14,000 jobs, and 2017, 10,000.  This October, Charlotte added 1,000 jobs. “So adding just a thousand is so much lower than what would be expected in October,” she says, and when the seasonal adjustments were made, it came out as a loss of 8,000.  

There’s a possibility, post-pandemic, that seasonality formulas are a little haywire, and need to be tweaked as more data is collected. For example, changes in when people take vacations because of remote work may be affecting the leisure and hospitality numbers and seasonality formulas haven’t caught up.  

“We’re seeing some weird seasonality things going on,” said Ullrich.  “Some of the typical seasonal patterns aren’t holding as much as they used to.”

The outlook

The national employment numbers for October showed the economy gained 150,000 jobs, and that was despite an auto workers’ strike. Normally, the economy needs to add between 80,000 and 100,000 jobs “to basically not be expansionary or contractionary,” said Ullrich. “So if I see something over 100,000 jobs, I think of that as expansionary.”

It is challenging to build next year’s budget with much confidence, something companies are finishing up now. How much business are we going to do next year?

Right now, we are in the middle of the fourth quarter, and estimates are that the economy is growing at a 2% annual rate. That is slower than the summer, when third quarter GDP was  growing 4.9%. 

“We’ve heard so many companies for two years straight talk about the coming slowdown,” said Ullrich. “Demand is still high, [they say], but next month, we think, maybe, next two months, we think, maybe next quarter, we think, maybe, it will go down.”

“It really comes down to how strong consumption’s going to be,” said Ullrich. “Because if consumption’s really high, people will continue to make stuff and provide services.”

Retail sales dropped in October 0.1% from September, the first decline in seven months. But retail sales bounce around. A recent Bloomberg column notes that Ameicans have more savings than experts previously thought.

One hint of a possible downturn is the behavior of traders trying to forecast what the Federal Reserve will do. The guessing is tracked by CME FedWatch. The Fed raised interest rates 11 times from March 2022 to this past July to get a grip on inflation. And inflation has come down, slowly. It may have been the Fed’s tightening, or because we fixed the messed-up logistics of the economy caused by the pandemic, or maybe it is deflation being exported by China. The CME FedWatch tool predicts a 30% chance that the Fed will be cutting its target rate in March. 

But the Fed won’t be cutting rates unless inflation has come down to 2%, which would be half what it is now, with food and energy taken out. In order for that to happen, demand would have to fall off in the next quarter, which starts Jan.1, and you would expect to see a sign of that. And maybe we are, if you look close.

Monday morning, the leading economic index for October came out and was down 0.8%. The Conference Board projected “a very short recession”and growth of just 0.8% in 2024. The state job openings number came out mid-morning Monday, down 12,000 in September from August, and down 7% from a year ago. So maybe another slowdown sign. We are moving ahead data point by data point in an economic fog bank. Wednesday, we will get October durable-goods orders, and the forecast is -3.5%. 

Businesses have to make decisions. The pandemic and the tight labor market that followed may be having an impact. Often, when companies get a whiff of a slowdown in orders, they cut payroll. They may not be so quick to do that now, said Ullrich, based on what she’s heard from companies. 

“They may slow down their hiring,” said Ullrich, “but they are very, very hesitant to lay off workers.  Because they fought so hard to get their workforce that the attitude around that is different than it was before.”

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