State of the State 2024: Manufacturing sector faces uncertainty, continued labor challenges in 2024

by Michael Tilley ([email protected]) 544 views 

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.

Arkansas’ manufacturing sector ended 2023 with an estimated 163,000 jobs, slightly lower than the 164,000 in December 2022. But the sector saw jobs grow to 165,300 jobs in June, the highest since 166,100 in April 2009.

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.

U.S. manufacturing jobs totaled 12.979 million jobs in January 2024, up 0.3% compared with 12.942 million in January 2023. The U.S. manufacturing sector reached a record of 19.406 million jobs in August 1979.

Mervin Jebaraj, executive director for the Center for Business & Economic Research at the University of Arkansas, said the stability in Arkansas manufacturing jobs in 2023 was not unlike the growth in U.S. manufacturing jobs, “which also reached 2008 levels due to a manufacturing mini-boom spurred by federal government policies that promote manufacturing in several advanced industries and the increased demand for weapons manufacturing to meet the needs of the U.S. and its allies in a time of increased global conflict.”

MISSILES AND FOOD
Jebaraj said defense industry production – primarily with Lockheed Martin and Aerojet Rocketdyne missile and motor production, respectively, in Camden – likely helped boost manufacturing job numbers. The two companies produce many of the munitions used by Ukraine in its war with Russia and Israel in its ongoing conflicts.

“Arkansas’ boom isn’t related to the subsidies for advanced industries, but it likely related to weapons manufacturing and food processing. Both are under pressure through the end of 2023 to now, due to the lack of congressional funds allocated to war and re-armament efforts of U.S. allies and declining food prices,” Jebaraj said.

Aerojet Rocketdyne has more than 1,100 employees in Camden’s Highland Industrial Park. The facility produces more than 75,000 solid rocket motors a year, mostly for Lockheed Martin. Lockheed’s Camden plant employs around 1,000 and produces components for the Multiple Launch Rocket System (MLRS), the Tactical Missile System (TACMS) missile, the High Mobility Artillery Rocket System (HIMARS) launcher, and the PAC-3 Missile Segment Enhancement (MSE).

The state’s food manufacturing sector took a hit in 2023 when Springdale-based Tyson Foods closed a plant in Van Buren that employed around 1,000, and a North Little Rock plant that employed around 200.

Arkansas’ Department of Workforce Services shows 162,600 manufacturing jobs in December, down from 163,800 in December 2022. Of the manufacturing jobs, the state data estimates that 84,000 are in non-durable goods – such as food processing – and 78,600 in durable goods.

The Northwest Arkansas metro continues to be home to the largest number of manufacturing jobs, with 32,300 in December, up from 31,900 in December 2022. The Central Arkansas metro had 20,000 manufacturing jobs in December, above the 19,900 in December 2022. The Fort Smith metro had 18,500 jobs in December, just below the 18,600 in December 2022. Combined, the three metro areas were home to 43.4% of all Arkansas manufacturing jobs.

NATIONAL FORECASTS
The National Association of Manufacturers, in a recent report, said optimism in the sector is growing, but rising health care, insurance costs, and labor shortages continue to be a concern in 2024

“Optimism in the outlook rose solidly among large manufacturers but continued to remain
challenged for small and medium-sized firms. In Q4, 77.5% of respondents from manufacturers with more than 500 employees felt positive about their company’s outlook, increasing for the second straight survey to the highest reading since Q2 2022. Meanwhile, small companies with fewer than 50 employees and medium-sized firms with between 50 and 499 employees had 65.9% and 63.0% positivity rates in Q4, respectively,” the NAM noted in its report.

According to NAM, more than 71% of manufacturers in a recent survey said their top challenge to is to attract and retain workers.

In its closely-watched report, Deloitte’s 2024 outlook predicts the sector will face labor challenges, “lingering” supply chain problems, and overall economic uncertainty.

“One factor contributing to continued supply chain delays is ongoing shortages in components such as electrical, electronic, and semiconductor parts. These shortages, which have persisted for more than 30 months now, can complicate production and delivery for a variety of manufacturing subsectors,” Deloitte noted in the report.

Another closely watched report is the Manufacturing Purchasing Managers Index (PMI) produced by the Institute for Supply Management (ISM). The recent report showed a Manufacturing PMI of 49.1% in January, up from 47.1% in December. A number above 50 indicates growth in the sector. It was the 15th consecutive month of decline according to the PMI, although a broader ISM report shows that the overall U.S. economy continued in expansion for the 45th month after one month of contraction in April 2020.

“The U.S. manufacturing sector continued to contract, though at a marginal rate compared to December. Demand moderately improved, output remained stable, and inputs are accommodative,” noted Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.