A new survey shows Indiana manufacturers are adjusting their future plans due to inflation and subsequent high interest rates.
The 2023 Indiana Manufacturing Survey was conducted by Katz, Sapper & Miller in partnership with the Indiana University Kelley School of Business and the Indiana Manufacturers Association.
The survey shows about a quarter of the 80 surveyed manufacturing companies based in Indiana believe their current financial performance is challenged.
Mark Frohlich, director of the Center for Excellence in Manufacturing at the Kelley School, explained the biggest takeaway from this year’s survey.
“Fifty-five percent of Hoosier manufacturers think there’s going to be a recession next year,” he said. “We thought it might be a toss up, you know, maybe a little under 50%, maybe a little bit over 50%. And when we saw the results, we thought that made a lot of sense. Indeed, when you look at the business media in general, for every article that says there will be recession, there’s another one that says it won’t be. But yeah, that was a little bit of a surprise.”
Respondents to the survey identified persistent inflation, high interest rates, and a continued shortage of workers among the key challenges for the manufacturing industry.
As a result 33% of companies said they are planning to invest fewer dollars in new equipment and facilities, while 27% plan to revise their future growth plans downward, and 18% expect to lose sales.
The Indiana Manufacturing Survey has been conducted for over a decade, but for the first time in its history, companies are forecasting a decrease in their current-year revenues (-2%), profit margins (-3%) and capital expenditures (-5%).
“We’ve never seen revenue and profit down as we’ve done this survey year after year after year,” said Frohlich. “If you go back to 2010-2011, companies were expecting to spend less on capital investments, so sometimes you see that one negative, but we’ve never seen all three of those considered negative as they sit in this year, looking forward to next year.”
Despite the bleak outlook for 2024, Frohlich said there is still optimism among companies when it comes to advanced manufacturing technologies and what is known as Industry 4.0. The survey showed 58% of respondents believe investment in so-called “smart” technology is a priority.
Frohlich said 41% of respondents expect to be hiring next year, and while that does show some amount of optimism, there is also the challenge of a widening skills gap that must be overcome to fill those next-generation jobs.
“Thinking back right before COVID hit and the 2019 study, we talked about how labor shortages appeared in the data to be maybe potentially hurting growth a little bit, but it wasn’t really slowing it down,” he said. “Now in 2023, it shows up a little bit more clearly that about 42% of companies were thinking that labor shortages might force them to revise their growth downwards.”
The final key takeaway from the survey, according to Frohlich, is the change in both “offshoring” and “nearshoring” among companies over the last four years.
In the 2019 survey, 13% of companies indicated an intent to offshore production outside of the country. That number has dwindled down to just 3% in 2023.
Additionally, only 3% of companies in 2019 said they intended to nearshore, or move production to Canada or Mexico. That number has increased to 8% in the 2023 survey.
“While we may be sailing in the troubled waters of economic uncertainty, we expect Indiana manufacturing to continue to prosper, even if those waters remain rough for a while,” said Frohlich. “They remain committed to investing in technologies, developing the workforce, and finding ways to maintain profitability.”
Full survey results can be found by clicking here.