State of the State 2023: Arkansas’ manufacturing sector should remain ‘healthy’ in 2023

There are valid concerns about Arkansas’ overall economic health during 2023, but the manufacturing sector is expected to remain “healthy” even with some areas of the sector slowing down. That’s the view of Arkansas State Chamber of Commerce CEO Randy Zook.

Arkansas had an estimated 164,400 manufacturing jobs in December, up from 159,200 in December 2021, according to the U.S. Bureau of Labor Statistics. Manufacturing, once the state’s largest jobs sector, posted record employment of 247,600 in February 1995. The sector fell to a historic low of 150,000 in April 2020 when the COVID-19 pandemic emerged.

“Generally speaking, manufacturing is very healthy. Now, some sectors are showing early signs of a little weakness, especially anything driven directly by housing,” Zook said in a recent interview with Talk Business & Politics. “Housing, as a result of the Fed’s increases in interest rates, is going to slow down. I don’t know that it will fall off a cliff or anything, but it will back off from record high levels.”

John Shelnutt, Arkansas Department of Finance and Administration director of economic analysis and tax research, said construction-related building material manufacturing would likely decline in 2023.

Zook said Arkansas manufacturing sectors “running wide open” include steel production, food processing, and paper and packaging.

“All consumer goods still in relatively tight supply. Most supply chains have cleaned up, and the worst problems have been worked through, especially imported goods,” he said.

STEEL JOBS, WAGES
Steel firms like Nucor have expanded in recent years, benefiting county and regional economies in Northeast Arkansas. Zook says expansions by Nucor and Big River Steel could continue thanks to federal spending.

“Infrastructure spending that’s going to come through from the federal government will drive that. There will be a lot of bridges built and a lot of steel used. So that’s going to keep them in pretty good shape,” Zook said.

Mississippi County, home to Nucor and Big River Steel, which U.S. Steel owns, is the largest U.S. steel-producing county. More than 20 steel-related businesses in the county employ more than 3,600 workers. U.S. Steel announced in early 2022 plans to build a $3 billion companion steel mill near the BRS mill. It will create 900 jobs with an average pay of over $100,000 annually. It is the largest capital investment project in Arkansas history. Nucor Steel has three mills in Mississippi County.

Indeed, some of the best paying manufacturing jobs are in the steel sector. The average weekly wage was $2,180 among Arkansas iron and steel-producing workers in the third quarter of 2022, according to the most recent data available from the Arkansas Department of Workforce Services. The average weekly wage for workers in steel fabrication plants was $1,358 in the third quarter. The average weekly wage for all sectors in Arkansas during the third quarter was $1,037.

WORKFORCE CHALLENGE
As of December, 42.5% of the state’s total manufacturing jobs were in three of the state’s largest metro areas. Northwest Arkansas had 32,000 manufacturing jobs in December, central Arkansas had 19,800 jobs and the Fort Smith metro had 18,100 jobs.

Tim Allen, president and CEO of the Fort Smith Regional Chamber of Commerce, said the manufacturing sector does face headwinds in 2023.

“The current economic conditions present numerous business challenges to manufacturing companies, including the increase in raw material prices, freight and transportation costs, wages and salaries, and energy costs,” he said.

However, he’s confident the Fort Smith metro manufacturing sector – which reached peak employment of 31,200 in June 1999 – is well positioned to grow through the challenges. The Fort Smith metro has seen manufacturing job growth recently, reaching a five-year high of 18,500 jobs in August 2022.

“First, Fort Smith is fortunate to have a diverse makeup of manufacturing companies, from the food sector to steel production. Additionally, there is our considerable effort toward workforce development, ensuring that both advanced and traditional manufacturing companies have the right skilled talent. Both of those position us well to weather any economic storms,” Allen said.

An available workforce is the biggest challenge for manufacturing sector growth, according to Zook. He said a “fundamental demographic problem” is the ongoing retirement of baby boomers and estimated that such retirements would continue for 10-12 more years.

“It’s (Boomer retirements) eaten the base out of the workforce. We’ll have to do some things dramatically differently to overcome it. Now the states that figure it out and do those things dramatically differently will thrive. We need to make sure we’re one of those states,” Zook said. “There’s a real struggle to keep a full staff, and that’s in many businesses.”

GROWTH PREDICTIONS
Even with that significant headwind, Zook predicted the state would have more manufacturing jobs at the end of 2023 than at the beginning of the year. His confidence is primarily rooted in supply chain changes based on lessons learned during the COVID pandemic.

“The near-shoring and the onshoring process is at work. We’re seeing parts of supply chains be brought back to the country because we realized how vulnerable we were during the pandemic,” Zook said.

The recent “2023 Manufacturing Industry Outlook” report from Deloitte confirms the optimism of Zook and Allen.

“U.S. manufacturing has demonstrated continued strength in 2022, building on the momentum it gained emerging from the pandemic and surpassing expectations from the prior two years. Policy initiatives such as the Creating Helpful Incentives to Produce Semiconductors for America Act (CHIPS Act) and Inflation Reduction Act (IRA) have the potential to help sustain recovery in the manufacturing industry. Looking ahead to 2023, Deloitte projections based on Oxford Economics’ Global Economic Model anticipate 2.5% growth in GDP in manufacturing.”

The report also noted: “Despite a record level of new hires, job openings in the industry are still hovering near all-time highs at 800,000. Additionally, voluntary separations continue to outnumber layoffs and discharges, indicating substantial workforce churn. This prevailing workforce shortage, elevated by supply chain limitations, is reducing operational efficiency and margins.”

Editor’s note: The State of the State series provides reports twice a year on Arkansas’ key economic sectors. The series publishes stories to begin a year and stories in July/August to provide a broad mid-year update on the state’s economy. Link here for the State of the State page and previous stories. In the video below, Lexicon Inc. CEO Patrick Schueck and Hytrol Conveyor Manager Christy Valentine discuss industry conditions.