Category: Manufacturing

Goods Producing Sectors Poised to Add Jobs this Year

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Companies are divided into two categories: Goods Producing sectors and Service Producing sectors. In simplistic terms: you make stuff or you do stuff.

One of the reasons the Goods Producing category is important is that many primary jobs are in these sectors. The NAICS categories include the Extractive Industries, Construction, and Manufacturing.

Only twice (1997 and 1998) since 1990 have all three sectors added jobs in the same year. At the midpoint of 2012, the trio are in a position to show gains for this year also. Previously the gains were a result of an economy hitting on all cylinders. This time the gains will occur because of an economy that has misfired and the sectors have nowhere else to go but up. They are playing a small, but extremely important role in the recovery.

For additional details on the Colorado economy click here or go to https://cber.co/.

©Copyright 2011 by CBER.

Governor’s Office Kicks Off Manufacturing Initiative

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In early December the Governor’s Office of Economic Development and International Trade (OEDIT) convened a Working Group to develop a State-wide Strategic Plan and Implementation Plan for the state’s manufacturing sector. The following information describing the process is either taken directly or paraphrased slightly from OEDIT communications about that effort.

The Strategic Plan will be created by chief executives from businesses across the state (Steering Committee) and the Implementation Plan will be created by government, economic development organizations, academia, non-profits and trade associations (Tactical Team).

In mid-December the Steering Committee met for 3 hours with a facilitator to create the vision, mission statement, and the major goals for the core objectives in the Colorado Blueprint. A follow up meeting may be needed in January.

The Tactical Team met for 5 hours to identify the tactics and action items necessary to achieve each of the goals identified by the Steering Committee in order to create a 1, 2 and 3 year Implementation Plan.

The work of the Steering Committee and the Tactical Team will provide a basis for retaining and growing existing Colorado companies and increasing the global competitiveness of Colorado’s industries.

The six core objectives are included below.

Business Environment refers to the government-driven factors that affect a company’s operations, including:
[1] local, state, and federal government regulations;
[2] local, state, and federal tax environment (sales and use, property tax, tax exemptions, and incentives); and
[3] any other Colorado business environment issues, such as utility or labor costs.

Business Development refers to the retention and expansion of existing Colorado operations and the recruitment and attraction of business prospects that:
[1] consist of national and global companies that are primary competitors and/or collaborators within the industry and would deepen the industry if brought to Colorado;
[2] consist of national and global companies critical to the value chain, supply chain and/or distribution chain for the industry in Colorado and would increase competitiveness if brought to Colorado; and
[3] provide access to international markets for export of products or services provided by companies within the industry.

Business Funding refers to:
[1] the lending climate between banks and companies in the industry in Colorado;
[2] activity level of private investors (angel and venture) with companies in the industry in Colorado; and
[3] access to other types of financing, including foreign direct investment.

Industry Branding refers to:
[1] the reputation that the industry in Colorado has on a national and global level—what level of “awareness in the marketplace” does the industry posses;
[2] the awareness of the industry locally and the affect on the ability of companies to attract potential employees, entrepreneurs or investors;
[3] the reputation that the industry has among the general public and policy-makers in Colorado and the associated effect on policy.

Education & Workforce refers to:
[1] the current talent pool—availability of qualified and high quality talent to grow the companies in the industry;
[2] the development of the future talent pool—availability of high quality and dynamic post secondary programs (universities, colleges, applied technical colleges, workforce centers) preparing and/or retraining students and workers to participate in the industry workforce;
[3] entrepreneurial training focused on developing new ventures within the industry.

Innovation & Technology will be addressed uniquely by all industry, but in general refers to:
[1] research and development activity within the industry within Colorado at universities, private research labs, or federal labs;
[2] activity in technology transfer and commercialization of products within the industry in Colorado and associated entrepreneurial activity;
[3] the impact of technology on increasing productivity of companies within the industry in Colorado.

Updates will be available on the OEDIT website.

 

©Copyright 2011 by CBER.

ISM Manufacturing Index Points to Continued Growth

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The Institute of Supply Management produces the Purchasing Managers Index (PMI), a measure of sentiment among manufacturing purchasing managers. The November PMI registered 52.7, an increase from 50.8 in October. November marks the 28th consecutive month of expansion for the PMI and the manufacturing sector.

Generally speaking, a reading above 50 indicates that the manufacturing economy is expanding while a reading below 50 points to a general contraction in manufacturing. A reading above 42.5 points to expansion in the overall economy. (November is the 30th month the PMI has been above 42.5).

Looking back over the past decade, manufacturing was hit hard during the 2001 recession and did not show sustained expansion until mid-2003. Sentiment remained strong for about a year then gradually tapered off with a severe decline in mid-2008. Despite 28 months of expansion, the PMI approached 50 in October.

Manufacturing is important because it is a source of primary jobs. In Colorado it is a particularly important part of the Boulder, Larimer, and Weld Counties. Each of the three areas has different manufacturing strengths.

©Copyright 2011 by CBER.

Challenges Facing Colorado Manufacturers in 2012

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Colorado’s seasonally adjusted manufacturing employment peaked at 192,700 employees in April 1998. On an annual basis, it has been declining since. As 2011 comes to an end, it appears that net jobs will be added for the first time in Colorado in 13 years.

Some economists are projecting that manufacturing job losses will resume in 2011. Manufacturers face a number of challenges. The following questions point to some of the challenges they face in terms of demand, the workforce, and the industry.

Demand
• Will there be sufficient demand for manufactured goods given the fact that consumers have received minimal increases in wages and disposable income?
• Will manufacturers be able to pass on increased input costs to customers and maintain demand?
• How much longer can shipments and output increase without significant increases in the size of the workforce?
• What impact will personal and private sector debt have on demand?

Workforce
• How much longer will productivity increase without adding labor?
• What is being done to address the mismatch between the skills that manufacturers need and a different set of skills in the workforce?
• What is the role of the older worker in the workforce? Are there sufficient workers in the pipeline to replace them when they retire?
• Has Colorado lost its pool of trained workers as a result of the Lost Decade?
• What is being done to educate high school and college students about the importance of learning skills that can be transferred between professions?
• What type of training opportunities are available to meet the changing needs of the manufacturing workforce?

The Industry
• How will changes in the manufacturing sector affect the growth of Colorado’s high tech cluster?
• Has Colorado lost its critical mass of manufacturers?
• Has Colorado lost the supply chain associated with the decline in its manufacturers?
• What is being done to retain existing manufacturers and attract new manufacturers?
• How will second and third generation manufacturers transition their businesses into the future?

For additional information on the Colorado manufacturing sector go to https://cber.co. or click on Colorado Manufacturing Update.

 

©Copyright 2011 by CBER.

1 in 6 Colorado Jobs are Construction or Construction-Related

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The following is an excerpt from Colorado’s Construction Industry – Impact Beyond the Hammers and Nails  olorado’s construction and related industries employ one-in-six private-sector covered workers, yet almost 60% of the net jobs lost between 2007 and 2009 were in these sectors.

What type of economic activity is necessary to generate enough construction and construction-related activity to recoup these losses, particularly given the state of Colorado’s housing and commercial markets? (Note: this does not suggest that construction is primary or export industry or that is could or should be).

A financial analyst might suggest that the risk or volatility associated with the construction industry could be reduced if Colorado had a larger, more diverse economy. Therein lies the paradox. Because Colorado is a growth state, it is necessary to have a construction industry to support the current base of five million people and build the homes and buildings that would support a larger, more diverse economy. The Colorado State Demography Office projects continued population increases in the range of 1.5% to 2.0% for the extended future. (Population projections can be found on the State Demography Office website ).

Even with the recent reduction in state construction workers, the 2009 location quotient is 1.29, down from 1.44 in 2001. Because the industry is not considered a primary or export industry, at some point the location quotient will eventually revert to 1.0. At that time Colorado will have a concentration of construction workers comparable to most other parts of the country. Keep in mind that this correction will likely include a comparable adjustment in the related industries identified in this study.

Construction is necessary for the expansion and maintenance of the Colorado economy. It is essential that economic development, public, and private leaders understand the relationship between construction employment, its related sectors and the overall economy. That includes awareness of the volatility of the industry and the likelihood that construction employment will ultimately return to a location quotient of 1.0.

©Copyright 2011 by CBER.

REO – Bright Light in the Down Economy

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Although Colorado’s high tech cluster has been hit hard during the “lost decade” there are some bright spots. On November 17 the Colorado Photonics Industry Association (CPIA)  recognized Research Electro-Optics, Inc. (REO)  as one of those bright spots when it named it the 2010 Colorado Photonics Company of the Year.

REO is a precision optics and thin film coating company founded in Colorado in 1980. It services small to medium to high volume OEMs including manufacturers of defense and aerospace systems, laser systems, semiconductor tools, medical systems, life sciences instrumentation and telecommunications equipment.

In recent years REO has expanded its staff and increased its new manufacturing and technology assets. REO officials indicated that they have been profitable for all of the past six years, with double-digit growth in several of those years. The company is privately held, with 2010 annual sales projected to be in the neighborhood of $40 million.

The Colorado photonics cluster received a boost during the mid-1980s, around the time REO was started. At that time, the Colorado Advanced Technology Institute (CATI) provided a small matching grant for at National Science Foundation Center of Excellence at CU and CSU. That grant ultimately led research that was commercialized to form 20 companies.

As an enabling technology, photonics touches many industries, such as aerospace, renewable energy, homeland security, biomedical devices, telecommunications, and defense. This allows companies, such as REO to diversify their product line and clients, thus insulating them from turbulent economic times.

Congratulations to REO!

©Copyright 2011 by CBER.

Growth in Colorado Exports Bodes Well for Recovery

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Recent export numbers provided a glimmer of hope that both the global and Colorado economies are slowly improving. As reported by Rita Wold in the November 12th issue of the Denver Post , Colorado exports through the first 8 months of the 2010 are about 10% higher than for the same period last year. This growth was driven by gains in the top agriculture category and each of the top four manufacturing groups.

Colorado exports, as calculated by WISER , peaked at almost $8.0 billion in 2006, followed by a series of declines to $5.9 billion last year. Total exports in the neighborhood of $6.5 billion are on tap for 2010.

The top agricultural export is, “Meat of Bovine Animal, Fresh or Chilled;” as beef sales are Colorado’s top meat export. In 2005, meat exports bottomed out at about $152 million as fears of Mad Cow disease caused many of the state’s trading partners to block sales of beef imports.. As concerns about the disease subsided, the markets for Colorado beef and other meats increased over the next several years to $400 million in 2008. Demand has declined with the global recession and Colorado meat exports should exceed $330 million this year.

On the manufacturing side of the equation, the top export category is electronic integrated circuits and microassembly parts. In 2006, exports in this category totaled $1.3 billion, and accounted for 16% of the state total. In 2010, this category will account for about 6% of total exports, or $430 million. The loss of the Intel plant in Colorado Springs several years ago, along with the restructuring of the computer storage industry brought about the precipitous decline in Colorado manufacturing exports and employment.

The increase in Colorado manufacturing exports bodes well for the recovery of the Colorado economy, however, it is not likely to drive a strong short-term increase in employment. Over the past decade, manufacturers have increased productivity and output at the expense of a larger work force.

The Colorado Office of Economic Development and International Trade  and the World Trade Center  provide a variety of programs and assistance to Colorado exporters. Many of these services are particularly valuable to first-time exporters or to business exporting to countries for the first time.

 

 

©Copyright 2011 by CBER.

Job Losses Expected in 2011 – State Demography Office

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The 2010 Annual State Demography Meeting kicked off on a somber note, when staff economist David Keyser;  announced that the state’s recovery from the Great Recession will be painfully slow.

Some of the key points from Keyser’s review of the past year (2010) were:
• Job gains occurred in health care, government, and education.
• Ongoing losses in manufacturing continue to hinder the recovery because they have a high multiplier effect.
• Low wage jobs were hit harder.
• Access to credit provided a challenge for many companies.
• Small businesses saw significant setbacks.
• Rural counties that relied on oil and gas or tourism (such as the Western Slope) suffered greater losses, while agriculture-based economies were more stable.
• The loss of basic jobs, such as manufacturing, will have a long-term effect on the state because these jobs are likely to be relocated elsewhere.
• On the other hand, the loss of non-basic jobs, such as retail, food and beverage, or personal services will return in the same location.
• Colorado will remain a popular place to live and work and net migration will remain positive, but slightly below previous years.

Looking ahead, key points from Keyser’s presentation for 2011 were:
• Non-farm wage and salary employment will decline slightly and a best case scenario is that it will be flat. Wage and salary job losses should not exceed 22,000 (1%).
• Agriculture and small businesses are likely to post a slight increase, offsetting declines in wage and salary employment.
• Construction won’t come back in the immediate future.
• Health care will continue to add jobs.
• Colorado will continue to be closely tied to the US economy.
• Many of the effects of the 2007 recession could be permanent.

Keyser’s forecast for 2011 is slightly lower than what cber.co projected in late October, but the basic analysis of the current state of the economy is similar.

©Copyright 2011 by CBER.