DULUTH — Manufacturers coming out of the pandemic expressed fears of a recession in a recent statewide survey.
Enterprise Minnesota hired the Meeting Street Insights firm to conduct its annual survey of 400 manufacturing executives across the state, in addition to interviewing 50 manufacturers in each of Minnesota’s six Initiative Foundation regions.
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The results were presented by Enterprise Minnesota President and CEO Bob Kill during the annual State of Manufacturing event at Minnesota Power on Jan. 15.
As rising costs of health care and inflation loom, companies in the industry are putting hiring on hold, turning more toward automation and working to address the administrative burdens associated with newly passed legislation.
Shaky economic confidence
Fears of recession have increased since last year, and 56% of those surveyed said the business climate in Minnesota is worse than it was five years ago.
Manufacturer financial confidence has dropped to the lowest levels since the Great Recession of 2008 and 2010, especially among small manufacturing companies earning less than $1 million annually, Kill noted.
In 2024, 41% of those surveyed anticipated a decrease in profitability, compared to 26% in 2023. Similar margins were seen for anticipated gross revenue decreases year over year, while capital expenditures remained mostly flat.
Statewide concerns over the costs of health care coverage and overall inflation superseded concerns of attracting qualified workers in 2024. Health care costs have been a rising concern for smaller companies since 2022.
“And it’s not really health care; it's the documentation,” Kill explained. “It's not a ‘value add’ to the employee or to the employer; it's a value add to somebody. But the documentation is what the small companies really have to hire a third party for. When you look at two of our sponsors, the accounting firm, the law firm — they are really busy right now working with small businesses, getting their documentation in line.”
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Adjusting to new mandates
The impact of recent legislation such as paid family medical leave, earned sick and safe time, legalization of cannabis and others were areas of concern among manufacturers surveyed.
A video played during the presentation featured Gregg Elliott, president and CEO of Seacole, a Plymouth-based chemical manufacturing and distribution company facility. Elliot claimed a number of Secole’s customers have left the state due to its high tax burden.
“Minnesota now is the highest corporate tax state in the United States. It's difficult to do business in that environment,” Elliot said in the video. “Some of the articles I read say that Minnesota is the sixth best state to do business in, but they're not looking at the financial side of it. They're looking at the social side of it.”
According to Kill, Seacole has pulled back its plans to expand in Minnesota and will instead do so in Wisconsin.
“What a shame, a wonderful company of 70 employees,” Kill said.
As a member of a larger national organization, Enterprise Minnesota has learned that states such as South Carolina, Ohio, Georgia, Indiana and Wisconsin are thriving due to large investments into the industry to attract both manufacturing companies and their suppliers.
Some 34% of manufacturers indicated a major effect on business due to the requirement that small businesses must contribute to an employee's paid leave at the same rate as larger corporations.
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The program costs of paid family and medical leave, and requirements on the employer for paid sick and safe time were also identified as having a major impact on 32% and 29% of statewide manufacturers, respectively.
“It's going to increase our administrative costs and reduce our margins,” Paul Harry, owner and CEO at St. Cloud Window in Sauk Rapids, said in the video.
Additional concerns for maintaining a safe work environment were highlighted in reference to the legalization of cannabis.
Two-thirds of manufacturers surveyed expressed that these changes make Minnesota a less attractive place to do business. Just 8% of manufacturers surveyed believed the new legislation made the state more attractive to do business.
“I'm a little concerned about what feels somewhat biased against the paid leave and earned sick and safe time policies,” Duluth's Director of Workforce Development Elena Foshay said during the comment period.
Foshay continued, “There's going to be some rule changes introduced in the Legislature this year that'll hopefully ease the burden. So I feel like it's a little bit too soon to really strongly oppose that policy when the interest is in maintaining work-life balance and employee attraction or retention.”
According to the survey, work-life balance was the top area manufacturers wanted to be known for, followed by a competitive salary.
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A halt to hiring
Top concerns for manufacturers in Northeastern Minnesota were health care costs, worker retention and inflation. The increasing cost of materials for products was also identified as a challenge hindering Minnesota manufacturer growth, particularly impacting smaller companies.
“The very small manufacturers have just shut off the hiring as they're dealing with the mandates that came out of the Legislature,” Kill said. “Searching for resources to deal with mandates is affecting their overall growth plan.”
Fewer manufacturers are hiring, with 42% reporting having any open positions at all compared to 62% that were hiring in 2021. On a positive note, the percentage of manufacturers having difficulty attracting qualified candidates has declined over the same period.
Increased interest in automation
Investment into automation showed a slight rise from 2023 as manufacturers look to increase productivity and drive growth. Positive shifts in succession planning have also been seen in recent years in both large and small manufacturers, Kill noted.
“With the challenge of retirements that will continue to happen in manufacturing and other industries, we're going to see an acceleration of automation,” Kill said.
According to BotCrew President Al Johnson, pitching sales of autonomous machines to unions is a challenge for the Duluth-based autonomous construction equipment manufacturer.
“Union does not want autonomous-anything,” Johnson said. “So we have to sell our machine as kind of like an excavator. The equipment operator certainly doesn't want to be digging the hole. They're much more comfortable in the seat. So use our product as their machine, not as anything that's taking over any job.”
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Additionally, customers are placing pressure on their manufacturing suppliers to adopt a formal quality system, or International Organization for Standardization. Those who were previously “grandfathered in” now need to make the shift, Kill said.
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