Forecasting a better year, with headwinds still to come
By Tom Goettl, VP at KonikWhat does the 2021 economic outlook hold for the Minnesota manufacturing industry? How quickly will we return to pre-COVID manufacturing activity?
We set out to answer these questions and others by asking several manufacturing industry experts:
- Jesse Schelitzhe, Board Chair of Minnesota Precision Manufacturing Association (MPMA) and President of Imagineering Machine
- Kirby Sneen, President of Manufacturers Alliance
- Alex Chausovsky, Senior Business Advisor with ITR Economics
As the most challenging year in recent memory comes to a close, we look ahead to 2021 with optimism for a quick local manufacturing recovery. Here, we take a deep dive into what’s ahead for Minnesota manufacturers.
Q: Given recent events, including two promising vaccines and the U.S. presidential election, what impact do you see these having on the Midwest manufacturing industry?
“There will be very little impact over the next one to two quarters,” said Alex Chausovsky, Senior Business Advisor with ITR Economics. “Looking at the 2nd half of 2021 is when the positive impact of the vaccination protocols is going to be achieved. When you look at the elections, we’re probably looking at 2022 before we’re seeing any major developments, simply because we have to consider that it’s about policy rather than about who’s in charge at the White House. Policy takes a long time to develop and implement, and very few things will be done before 2022. Both of those combined will have an impact towards the later part of 2021 and early 2022, than anything in the near term.”, Chausovsky said.
“Looking to the 2nd half of 2021 is when the positive impact of the vaccination protocols will be achieved.” -Alex Chausovsky, ITR Economics
Jesse Schelitzhe is optimistic about recent events. “People are glad to have the election over, no matter the results. People were hesitant building up to the election, with no continuous assumption because people were awaiting the outcome. There will be a lot of optimism coming out of this COVID period. We’ve seen some really bright signs around the vaccine that people are excited about. I’m hoping there’s going to be a historical boom on the other side of this, and people are ready to get back to a normal life.”
Kirby Sneen adds, “The vaccine will get rid of fear, and when you get rid of fear, the economic downturn turns into an upturn. It’s going to be a while since they’ll give the vaccine to those more at risk so that it will be a slow process.” Kirby added, “I hear from a lot of executives that the economy was really good going into COVID, so as soon as there are vaccines and even better therapeutics, they expect things to continue to pick back up in January to March (2021) timeframe.”
How do you see the Midwest manufacturing industry performing during the first couple of quarters of 2021? Alex Chausovsky comments, “It’s going to come down to the reaction to the swell of new Covid cases we see right now. As emotional and fearful people are of the pandemic side of it, we have to recognize from an economic side, it’s much more about how we react to that, rather than the healthcare aspect. As we saw in the 2nd quarter of 2020, when we instituted the nationwide and statewide shutdown and closed businesses, that had a much more detrimental impact on the economy than anything from the Covid-19 pandemic itself. Assuming businesses are allowed to remain open, specifically manufacturing, then the economic recovery continues. As we look towards the future, pertaining to the recovery profile, the question becomes, ‘do we have another round of stimulus?’. We think that there will be. In the absence of additional stimulus, the recovery could lose a lot of momentum. If the federal stimulus does happen, it will allow that economic recovery to continue.”
Are there particular sectors that will perform better than others?
Kirby Sneen states, “Med device and instrumentation is staying busy. They were starting to take off again, but recently, elective surgeries are declining, so they’re slowing down again. It feels more like a W recovery and feast or famine for many companies.”
Jesse Schelitzhe adds, “Firearms are going crazy, and automated and industrial equipment is busy helping companies find ways to do more with less.”
Alex Chausovsky states, “The consumer is driving the recovery, so any consumer products are driving markets such as food and beverage, medicine, pharmaceuticals, and PPE products. Heavy industry will be a laggard, for example, mining, oil, and gas. We’ve seen a surprising rebound in the automotive sector as they’ve shown to be really strong in their resilience. The other strong sector will be military and defense, particularly the export of military goods.”
“It feels more like a W recovery and feast or famine for many companies.” -Kirby Sneen, Manufacturers Alliance.
When do you see the economy recovering to pre-Covid levels?
“You have to understand that just because we have a rebound in growth, the hole that this has created is going to take a long time to recover. Our industrial production forecasts, 75% of which is manufacturing, the return of pre-black swan event levels by the end of 2022, and early 2023. A 2-3 years to recover fully. Comparing this to the great recession, this is substantially faster as it took seven years to get back to pre-great recession levels. We should temper people’s expectations; it will take another year to recover.”, stated Chausovsky.
“We usually see a lull during the holidays every year. Q2 should be much better, especially once the vaccine is distributed, and the spring will be pretty positive”, says Schelitzhe.
Sneen added, “I wouldn’t be surprised if it was up” from pre-Covid levels by December 2021. “There was a good economy pre-covid, so I think the economy will continue to roar. People are just itching to be able to get back to work and get back to their livelihoods, and consumer confidence and purchasing will continue to grow. The retail sector is going to increase while stores will refresh to drive a lot of business. Next November and December (2021), most manufacturing sectors will be booming again.”
“There will be a lot of optimism coming out of this COVID period. – Jesse Schelitzhe , MPMA
About the Author: Tom Goettl is Vice President at Konik, a technical recruiting company in Minneapolis.