State manufacturing heading for slowdown, expert says

The robust rebound Indiana’s manufacturing sector has enjoyed the past 12 months is likely to fade during the next year amid more economic uncertainty, according to an annual report released Tuesday by Conexus Indiana.

The private initiative that focuses on the advanced manufacturing and logistics industries said the outlook is tempered for manufacturing-dependent Indiana, where growth within the sector will slow to just 1 percent during the next year.

“We’re now in the fourth month of declining retail sales and declining job growth, said Michael Hicks, director of Ball State University’s Center for Business and Economic Research. “So, I’m sad to say, here we are, 36 months after the last recession, that we’re near, or at, the cliff of another recession.” (Hicks recaps his report in the video below.)

Most manufacturers, however, should be better prepared to ride out the economic turmoil this time because many built up stockpiles by not going on spending sprees during the recession and subsequent recovery, he said.

Hicks, whose center compiled much of the data for Conexus’ annual report, sat on a panel as part of the organization’s fifth annual state of manufacturing and logistics report, presented with IBJ.

The annual report grades Indiana and other Midwestern states based on their performance in certain economic areas.

The manufacturing and logistics industries are large contributors to Indiana’s economy and continued to perform well from June 2011 to June 2012, as both again earned “A” grades from Conexus. The state ranked first among states in manufacturing employment per capita and ninth in logistics jobs, as well as 10th in freight shipments by tonnage.

Indiana also received an “A” grade for its friendly tax climate and a “B” for a new category—expected liability gap—that assesses the state’s exposure to future liabilities such as unfunded pension costs and bond obligations. In this category, the state reportedly is in much better shape than many other states, particularly neighboring Illinois, which received an “F” for its unfunded obligations.

More troubling for Indiana is that it slipped from a “C” to a “C-” in human capital, which measures the availability of workers for more technical, advanced manufacturing jobs.

The average age of a manufacturing worker in Indiana is 54 years old, said Steve Dwyer, president and CEO of Conexus. To meet future demand, more workers with some sort of education, whether it be a one-year certificate or two-year degree, are going to be needed to operate more complex machinery, Dwyer said.

“In a lot of ways, we’re in awfully good shape,” Dwyer said of the state’s manufacturing and logistics scorecard. “But then you get to human capital, and that’s an issue.”

Indiana fell last year from 23rd to 32nd in number of residents with associate’s degrees, leading to the poorer grade.

But Hicks attributed much of the slippage to the turbulence of the recession and said he's hopeful Indiana’s human-capital grade will rebound. He said he’s much more pleased with the state’s rise from a “C+” to a “B+” in the productivity and innovation category.

For Indiana, with deep ties to the auto industry, the improvement is good news, said Hicks, noting that increased innovation translates into higher wages and profits.

Besides Hicks, panelists included Tony Bennett, superintendent of public instruction at the Indiana Department of Education; J. Mark Howell, president, Brightpoint Americas; Teresa Lubbers, commissioner, Indiana Commission for Higher Education; Dave Parish, vice president of operations, Allison Transmission Inc.; and Zachary Scott, president, UPS Ohio Valley District.