From the WSJ:
Companies were quick to lay off workers, idle`factories and sell unprofitable businesses during the recession. In April, U.S. manufacturers were operating at just 70.1% of their potential capacity, up from a low of 65.1% last June, but well below their historical average of 80.8%.Getting capacity back up and running isn't easy. Rehired employees who have been out of work a year or more typically need some retraining. Production equipment may also need to be recalibrated and tested.
Here's a hypothetical to show the difficulties raised. Company X sees an increase in demand. However, because this new increase will boost capacity, there are difficult questions to ask.
1.) Is this a temporary boost in orders? Is it only from one customer or a group of customers? Is this a one-time order boost, or is there an increase in demand from the customer's end?
2.) What does the owner of the company see for the economy?
Ms. Zierick says that one of her best customers called earlier this year with a rush order for a custom circuit-board component. She says she didn't want to restart a second shift, not only because it would mean higher utility and administration costs, but also because she expects the economy to slip back into recession.
If you think the economy is going to slip back into a recession, you won't be motivated to add to your work force.
3.) Consider this chart of output per hour from the St. Louis Federal Reserve:
That charts says you can do more with less. In other words, why hire someone when you can get the same number of people to increase their productivity?
4.) Uncertainty. There have been some big changes in Washington over the last year. Uncertainty can lead business to not do anything while they figure out what the changes mean.
While manufacturing is increasing production, there are lots reasons holding people back from hiring new employees right now.
1 comments:
"Rehired employees who have been out of work a year or more typically need some retraining. Production equipment may also need to be recalibrated and tested."
Goes to show how far out of the loop WSJ is even to business. All they know anymore is finance. It's long past time for worker training to be an excuse, and equipment is calibrated and tested all the time.
Some of it is panic, like Ms. Zierick walking away from "one of her best customers" out of the fear that the economy will fall back into recession. A factory manager who destroys business because of raw fear from watching dumb "news" like WSJ needs to be fired. There are many ways to ramp up production without doubling output with a full second shift. Paying overtime's the easiest. But therein a key problem is revealed.
Ramping up production in a vacuum is relatively easy. The problem is that we are barely above inflation and in serious danger of deflation. Combine that with a mad rush to lock in prices in a time of volatility and you can't do anything to increase production that will increase costs. OEMs and suppliers often go into contracts with each other to sell products at a set price. For stuff like automotive there's some flexibility in pricing, but in the case of electronics where pricing pressure is nastier, Tier II supplier margins can be very thin. What's barely profitable at normal wages is a money-loser at time-and-a-half, and the only way to increase automated capacity is to buy very expensive machines. So all it takes is paying overtime or buying some new equipment, and with a contractual obligation to deliver product at a set price, your higher costs now mean you lose money on every sale. Purchasers will always scream for product CHEAP CHEAP CHEAP NOW NOW NOW, but that's what they do -- they're not paid to be rational. Selling at a loss runs your factory out of business, so the path of least resistance is to just make the purchaser wait.
Industry could probably hire (and would do so to take away the business Ms. Zierick so badly wants to get rid of) if it wasn't for the pricing pressure.
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