Manufacturers Plan to Boost Wages at Record 3.5% Rate

Dive Brief:

• Manufacturers during the next 12 months plan to increase wages and full-time employment by 3.5% and 3.8%, respectively — record rates in quarterly surveys dating to 1997, according to the National Association of Manufacturers. They expect to push up capital spending by 3.6%, the highest increase since 2018.
   
• “Manufacturers are continuing to invest in their companies — both in workers and in capital — at paces that would indicate an extremely positive outlook in their business moving into next year,” said NAM, referring to a survey conducted between Aug. 10 and 30.
   
• The companies see workforce shortages as their biggest risk, followed by supply chain disruptions, rising cost pressures and increasing coronavirus cases, the association said.

Dive Insight:

CFOs making final decisions about pay levels for 2022 confront big challenges in hiring and retention from one of the tightest labor markets in decades.

The number of U.S. job openings rose to a record high of 10.9 million at the end of July, U.S. Bureau of Labor Statistics  reported on Sept. 8, as the highly contagious delta variant of COVID-19 discouraged many workers from employment. BLS has tracked information dating back to 2000.

Eight out of nine CFOs face unusually high employee turnover, and 81% believe a shortage of labor will harm revenue growth, PwC found in its early-August survey of Fortune 1000 and private companies.

“More than three quarters of CFOs say compensation changes are impacting their forecasts, as many recognize that they might have to start paying more for talent in the future if the tight labor market lasts,” PwC said. Staff shortages have influenced the forecasts for completing existing work by 77% of CFOs, and the estimates for the ability to take on new business among 74% of financial executives.

Headwinds to hiring and retention will probably persist into next year, according to a survey of 380 U.S. and Canadian companies last month by Willis Towers Watson.

Nearly three-out-of-four employers (73%) have trouble attracting employees, an increase from 26% last year and 56% during the first six months of this year, according to the WTW survey. Three-out-of-five employers have a hard time retaining workers, an increase from 15% last year.

The tight labor market and wage gains may increase inflationary pressure, according to warnings by some economists, including former Treasury Secretary Lawrence Summers.

Record monetary and fiscal stimulus, supply chain bottlenecks and a rebound in post-lockdown economic growth have pushed up prices in recent months. Consumer prices rose 0.5% in July for a 5.4% annual rate.

Manufacturers identified rising prices for raw materials as their top “primary business” challenge, predicting input costs will rise 6.5% during the next 12 months, NAM said.

Federal Reserve Chairman Jerome Powell and other policy-makers have forecast that inflation will gradually ease as the economy overcomes disruptions from the pandemic.

Manufacturers identified as their second biggest obstacle the inability to attract and retain a quality workforce, NAM said.

Although gross domestic product and manufacturing production exceed pre-pandemic levels, “significant challenges remain,” the association said. The delta variant “is spreading rapidly in many markets, resulting in renewed restrictions and dampening activity.”

Manufacturers account for 11.4% of total U.S. output and employ 8.5% of the workforce, according to NAM, which has 14,000 members.

Written by:  Jim Tyson, Sr. Reporter, for CFO Dive.