‘Resilience’ in manufacturing could continue but at a slower pace

While several economists say Arkansas’ manufacturing sector was healthier than expected in 2019, the struggling industry added only 5,400 jobs — an increase of 3.4% — in the past decade.

The sector had 158,100 jobs entering the decade (January 2010), with 163,900 estimated jobs in December 2019, according to the most recent data from the U.S. Bureau of Labor Statistics (BLS).

But manufacturing has been on the upswing, with employment hitting 165,000 in February, the first time sector employment was above that mark since April 2009 when employment was 166,100. December’s manufacturing employment of 163,900 was up 0.5% from the 163,100 in December 2018. The sector — once the crown in Arkansas’ economy — remains well below peak employment of 247,600 in February 1995.

The sector, in terms of employment, has dropped below the government (213,000 jobs as of November 2019) and education and health services (195,300 jobs) sectors, and soon should fall below the professional and business services sector. That sector, which had 147,900 jobs as of November 2019, has grown 26.7% since employment of 116,700 in January 2010.

Dr. John Shelnutt, administrator for Economic and Tax Research with the Arkansas Department of Finance and Administration, told Talk Business & Politics the sector has benefited from being in what he says are more stable production categories.

“Our sectors are doing well because they are in less volatile categories such as processed foods or continuously upgraded such as the mini-mill steel corridor,” Shelnutt noted.

Dr. Michael Pakko, chief economist and state economic forecaster at the University of Arkansas at Little Rock’s Arkansas Economic Development Institute, said job growth in good-producing sectors proved to be more robust than expected in 2019.

“Over the past three years, manufacturing employment has increased as a share of total employment in 47 counties, with notable increases in non-metropolitan counties across the southern and north-central parts of the state,” Pakko said.

Pakko predicts manufacturing will continue to grow in 2020, “albeit at a slightly slower pace than in the past year or so, with employment growth down from nearly 2% in 2019 to less than 1% in 2020.”

Mervin Jebaraj, director of the Center for Business and Economic Research at the University of Arkansas’ Sam M. Walton College of Business, said he was surprised by the strength of Arkansas’ manufacturing sector during 2019, but it could have been stronger.

“Manufacturing’s resilience in Arkansas was surprising,” Jebaraj said. “Nationally, as a result of the tariffs, the manufacturing sector shed jobs in 2019, and various indices have the sector in a recession. But Arkansas is bucking that trend for now. Nonetheless, I think the manufacturing sector in Arkansas could have been stronger without the tariffs.”

Shelnutt also believes receding trade wars will be positive for the state’s manufacturing sector.

“Recent removal of China’s trade blocks against poultry shipments will help Arkansas producers and processors in 2020. And while global overcapacity of steel with currency manipulation is a problem for all players, the newest mini-mills and specialty steel are in a better position to survive and compete domestically,” he said.

Manufacturing jobs in Arkansas’ three largest metros are well below historic employment but are above historic lows. And the lows were all reached in the recent decade. The following are manufacturing job comparisons in the three metro regions.

Little Rock (central Arkansas)
• December 2019: 21,100 jobs, up from the 20,700 jobs in December 2018
• Peak employment: 36,000 in November 1994
• Low employment: 19,600 in May 2013

Northwest Arkansas
• December 2019: 30,700 jobs, up from the 30,000 jobs in December 2018
• Peak employment: 36,300 in May 2000
• Low employment: 26,400 in January 2013

Fort Smith metro
• December 2019: 18,100 jobs, up from the 17,900 jobs in December 2018
• Peak employment: 31,200 in June 1999
• Low employment: 17,300 in October 2012

The ongoing headwind for the manufacturing sector is in recruiting and retaining a qualified workforce. Arkansas Secretary of Commerce Mike Preston said in late 2018 that manufacturing employers struggle to hire enough workers.

A report published in July 2019 by the Center for Manufacturing Research and the Alfred P. Sloan Foundation found that 25% of the nation’s manufacturing workers are age 55 or older. The report suggested employers will need to work to retain older workers even as they work to recruit a younger workforce.

“Given the current workforce crisis, other manufacturers should look to the successful initiatives being implemented in the industry and collectively expand on them to develop the workforce of tomorrow. The simple fact is that companies are very concerned about losing their top talent to retirement and are finding creative ways to keep them longer and to train younger workers,” noted Chad Moutray, the Center for Manufacturing Research director and the National Association of Manufacturers’ chief economist.

Editor’s note: This article first appeared in Talk Business & Politics annual State of the State magazine. It was also written and posted before the novel coronavirus outbreak.