Manufacturers adapt to changing economy, hopeful about prospects

Jul 01, 2023

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Domestic manufacturing has been in the dumps for a while. A survey from the Institute for Supply Management found that the sector has been shrinking for nine straight months. And S&P Global reported this week that demand for manufactured goods fell in July at a faster pace than in June.

But when you dig a little deeper, you can see signs that manufacturers are adapting to today’s economic climate. Some are slimming down capacity and reducing headcount; others are making different products.

Argonaut Manufacturing Services in Carlsbad, California, makes pharmaceuticals and diagnostic tests for other companies. CEO Wayne Woodard said business was great early in the pandemic, when a lot of companies shifted to making COVID tests.

But more recently, he said, his clients have had to pivot back to what they were doing before the pandemic. That’s happening while interest rates have been rising and banks have been more reluctant to make loans.

“They’re just finding that pivot back, which is going to require additional capital, is getting harder to find,” Woodard said.

As his clients have struggled, so has his company. Woodard has laid off employees, though he won’t say how many. But he said there are plenty of reasons to believe business will bounce back. For instance, COVID demonstrated that diagnostic tests can be pretty useful.

“Now, they start thinking about what other tests could I take at home?” he said. “Or what other tests could I go to my doctor and get a result very quickly?”

So, Woodard’s company is expanding. Earlier this year, Argonaut added a facility and another automated filling machine, and he said the expansion will boost the company’s capacity fourfold.

“It’s those folks who make the investment in the toughest of times who reap the benefits when business is good again,” Woodard said.

Manufacturer Lyman Munson is feeling upbeat about demand too. His firm, S.L. Munson & Co., makes metalworking tools in South Carolina, including diamond grinding wheels that other manufacturers use to make disc brake pads for vehicles.

Munson said demand for those tools stayed strong throughout the pandemic because a lot of people bought vehicles.

“Every one of them is going to have eight disc pads on them,” he said. “And after some amount of miles, they’re going to need to be replaced.”

Munson said before the pandemic, he had to compete with imports that were cheaper than his products. But the supply chain congestion during the pandemic taught many of his customers that working with foreign manufacturers can be a really slow process.

“You need to have six months’ lead time for the people offshore to make the product, and pack it up, and ship it over here, and get through the whole supply chain,” Munson said.

The Joe Biden administration has been trying to incentivize manufacturers to rely less on certain Chinese exports.

The goal is to source “more advanced technology goods from countries the U.S. sees as friendly and what we call reshoring, which would be domestic sources,” said Kadee Russ, an economics professor at the University of California at Davis.

The administration is pouring money into domestic sectors it sees as strategically important. The Defense Department is trying to spend more on American-made components. The Inflation Reduction Act of 2022 set aside money for clean energy and the CHIPS Act has given a boost to the domestic semiconductor industry.

“There’s a lot of monies that are appropriated already that have a lot of legs on them for these industries,” said Chris Blench, co-founder of Mavericks Manufacturing Partners in Escondido, California. “And so we’re trying to position ourselves so that we can continue to benefit from all those monies that are allocated to those projects.”

Blench started his company a few months ago to produce components for submarines and aircraft carriers, parts for wind turbines and desalination plants and tools for semiconductor manufacturing.

So far, the room he’ll be manufacturing in is mostly empty. But once his business is up and running, Blench said, he plans to add more equipment, including a 3D printer and welding robots.

That equipment isn’t cheap, but Blench said he’s sure he’ll be able to afford it because the products his company’s set up to make are sophisticated and expensive.

“We’re not making toasters, we’re not making furniture,” he said. “We are fabricating products that are very difficult to make.”

And that’s exactly the kind of manufacturing the Biden administration is encouraging.

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