Citrin Cooperman's Manufacturing and Distribution Practice hosted an informative webinar and were joined by guest presenter Anirban Basu, chairman and CEO of Sage Policy Group, Inc.
Highlights:
- The current economic circumstances for manufacturing and distribution companies
- How difficult things are likely to become over the foreseeable future
- The contours of the brisk recovery to come thereafter
2. MARK HENRY, CPA, MSA
Partner & Co-Practice Leader,Manufacturing & Distribution
Citrin Cooperman
Welcome &
Introduction
3. Leadership Team
Partner & Co-Practice Leader
mfagan@citrincooperman.com
Mark Fagan
Partner & Co-Practice Leader
jgiordano@citrincooperman.com
John Giordano
Partner & Co-Practice Leader
mhenry@citrincooperman.com
Mark Henry
Manufacturing & Distribution Practice
4. Now. Next.
The survey was conducted in June 2020, to take a pulse of company leaders in the
manufacturing and distribution industry – amid COVID-19 – to measure the current health of their
business and to take stock of future priorities, concerns, and challenges.
Some key takeawaysfrom the survey include the following:
Best performers in the
industry have traction with
e-commerce.
Steady Revenues.
Technology and e-
commerce rank highest
for keys to future growth.
Future Growth.
COVID-19 changed
distribution and demand of
product leading many to
evaluate changing their
business model.
ProductDemand.
Manufacturing & Distribution
Pulse Survey
8. Yo-Yo Manufacturing
Source: Institute of Supply Management; Quandl.com
30
35
40
45
50
55
60Sept:
55.4
*A reading above 50 percent indicates that the manufacturing economy is generally expanding;
below 50 percent indicates that it is generally contracting.
Institute of Supply Management: Purchasing Managers Index (PMI), 2000 – 2020
9. Outlook for U.S. Reshoring: Recent Issues
Source: The Wall Street Journal; Office of the United States Trade Representative
2020:
• Covid-19 has disrupted supply chains
and placed further strain on relations
between the U.S. and China;
• According to polls conducted by the
American Chamber of Commerce in
China and the American Chamber of
Commerce in Shanghai, in October
2019, 66% of 25 large U.S.
companies surveyed said a
decoupling of the U.S. and Chinese
economies would be impossible;
• In March 2020, only 44% of large
U.S. companies said decoupling
would be impossible.
2019:
• United States-Mexico-Canada Agreement
(USMCA):
• Includes stronger rules of origin than
under NAFTA and TPP -- intended to
provide greater incentives to source
goods and materials in the United
States and North America;
• Only producers using sufficient North
American parts/materials receive
preferential tariff benefits;
• Stronger rules of origin and enforcement
for autos and automobile parts and other
industrial products such as chemicals,
steel-intensive products, glass, and
optical fiber.
10. Covid-19 & Reshoring
Source: Thomasnet.com
According to a Thomas survey in
May/June of 746 North American
manufacturing and industrial
sector professionals, 69% of
manufacturers report they are
likely to bring manufacturing
production and sourcing back to
North America — a 15
percentage point increase from
the same sentiment reported in
February.
46.0%
31.0%
23.0%
36.0%
31.0% 33.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Feb 2020 May/June 2020
How likely are you to bring more production/sourcing
back to North America after this outbreak (Covid-19)?
Very/Extremely
Likely
Likely
Not Likely
11. Reshoring Strong in 2018
Source: The Reshoring Initiative
• In 2018 the combined reshoring and related foreign direct investment
(FDI) announcements remained strong, adding more than 145,000 jobs in
the U.S. (2nd highest annual rate on record);
• This brings the total number of announced manufacturing jobs brought to
the U.S. from offshore to over 757,000 since the manufacturing
employment low of 2010;
• The number of companies reporting new reshoring and FDI was at the
highest level in history, up 38% from 2017 to 1,389 companies.
12. Kearney U.S. Reshoring Index Shows U.S. Companies Are Leaving China
Source: Kearney
• Kearney’s Reshoring Index recently revealed a dramatic reversal of a 5-year
trend as domestic U.S. manufacturing in 2019 commanded a rising share
versus 14 Asian low-cost countries (LCCs) tracked in their study, with
manufacturing imports from China registering a particularly sharp decline;
• In 2019, imports of manufactured goods from 14 Asian low-cost-country offshore
trading partners shrunk to $757 billion, from $816 billion in 2018—a 7.2%
decrease—while U.S. domestic gross output of manufactured goods reached
$6,271 billion in 2019, virtually unchanged vs. 2018;
• 2019 saw companies actively adapting to what then felt like a major disruption—
the U.S.–China trade war—by reducing imports of manufactured goods from
China while increasing manufacturing imports from the other countries in the
Asia LCC sample as well as from Mexico.
13. Reshoring is a Response to Macroeconomic Factors
Source: International Economic Development Council (IEDC), “Defining the Reshoring Discussion”.
Factors that Impact Reshoring Decisions:
• “Increased wages” is the most commonly cited reason for reshoring;
• Fluctuating currency values impacts reshoring decisions;
• Labor productivity (gains in output per manufacturing worker) is also commonly
cited as a significant factor of total manufacturing costs;
• The reduction of energy costs from 2004-2014, especially in energy-dependent
industries such as iron and steel and chemicals industries, made reshoring a
cheaper option for some manufacturers.
14. What is “Productivity”?
Source: Bureau of Labor Statistics
• Labor productivity is a measure of economic performance that compares the
amount of goods and services produced (output) with the number of hours
worked to produce those goods and services.
• Multifactor productivity (MFP), also known as total factor productivity (TFP), is
a measure of economic performance that compares the amount of goods and
services produced (output) to the amount of combined inputs used to produce
those goods and services. Inputs can include labor, capital, energy, materials,
and purchased services.
15. Multifactor Productivity Contributions to Output Growth by Sectors in Private Business
Source: Bureau of Labor Statistics
The contributions from the
manufacturing sector’s
MFP growth significantly
changed when it went
from being the largest
contributor to the nation’s
MFP growth in the 2000-
2007 business cycle to
being a drag on MFP
growth in the 2007-2018
business cycle.
Together, the decline in
MFP for manufacturing
and trade explain the
entirety of the nation's
MFP slowdown.
Manf, 0.57 Manf, 0.56
Manf, -0.09
Trade, 0.51
Trade, 0.19
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1990-2000 2000-2007 2007-2018
Percentage
Points
BusinessCycles
Services
Finance,
Insurance, & RE
Information
Transportation &
Warehousing
Trade
Manufacturing
Mine, Util, Cons
Agriculture,
Forestry, & Fishery
16. Contributions to Output Growth in Manufacturing by Business Cycle
Source: Bureau of Labor Statistics
Capital, 0.29
Capital, 0.11 Capital, 0.14
Labor, 0.07
Labor, -0.27
Labor, -0.03
MFP, 0.57
MFP, 0.56
MFP, -0.09
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1990-2000 2000-2007 2007-2018
Percentage
Points
Business Cycles
*MFP: Multifactor Productivity
17. Smart Factories Driving Productivity?
Source: 2019 Deloitte and MAPI Smart Factory Study
• In 2019 Deloitte and MAPI launched a study to determine how manufacturers are
pursuing smart factory initiatives to drive business impact. They found that:
• Every manufacturer — whether already “running smart” or yet to invest in smart
factory technologies — can harvest business value from smart factory initiatives.
• While there are risks, primarily operational and financial, they are outnumbered by
the smart factory’s value contribution. Also, most risks can be mitigated through
rational stakeholder selection, an efficient change management strategy,
measurable proof-of-concepts, and incremental investments.
• Smart factory initiatives accelerate business value creation. Companies report as
much as 10–12% gains in areas like manufacturing output, factory utilization,
and labor productivity after they invested in smart factory initiatives.
18. Smart Factories Driving Productivity?
Source: 2019 Deloitte and MAPI Smart Factory Study
• Deloitte and MAPI found that
companies that spent a larger share of
their budget on smart factory initiatives
and were moving toward complete
transformation of at least one factor
experienced larger gains.
• On average, smart factory initiatives
triggered double-digit growth in key
performance indicators between 2015
and 2018:
19. What is a “Smart Factory”?
Source: 1. Gartner.com; 2. “What is a Smart Factory? (And what it means for you)”, Tulip.co.
• No universal agreed upon definition.
• The smart factory (or smart manufacturing) is a concept used to describe the application
of different combinations of modern technologies to create a hyperflexible, self-adapting
manufacturing capability.
• The way the term smart factory is often used refers to a highly digitized shop floor that
continuously collects and shares data through connected machines, devices, and
production systems.
• That data can then be used by self-optimizing devices or across the organization to
proactively address issues, improve manufacturing processes and respond to new
demands.
20. Major Economic Forecasts for U.S. GDP Growth
Source: Congressional Research Service (CRS), “Global Economic Effects of COVID-19”, Updated July 9, 2020
-8.0%
-6.1%
-7.3%
-8.5%
4.5% 4.0% 4.1%
1.9%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
IMF World Bank OECD-Single Wave OECD-Second Wave
U.S. GDP Growth Rate
2020 2021
21. CBO U.S. GDP Growth Projections
Source: Congressional Budget Office (CBO); Committee for a Responsible Federal Budget (CRFB). Note: 2012 dollars.
-8%
-6%
-4%
-2%
0%
2%
4%
6%
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Real GDP, Annual % Change
Historic Projected
Jan. 2020 Projections
May 2020 Projections
Sept. 2020 Projections
22. Economic Impact of Past Pandemics – This One Will be Worse
Source: Goldman Sachs
uency proxies for China activity still depressed
ty relative to 2019 activity, percent
1
We use past pandemics to estimate the potential growth
impact of global community spread
Real GDP growth minus average growth over year before outbreak, pp
Coal Consumption/Transportation
Property Transaction Volume (7dma)
Construction Machine Operating Rates
Number of Passengers Carried
-25
-20
-15
-10
-5
0
5
10
15
20
25
0 1 2 3
SARS China (2003) SARS Canada (2003)
SARS Hong Kong (2003) MERS South Korea (2015)
Avian Flu US (1957) Average
Quarters Since Outbreak
• Goldman Sachs analyzed GDP
changes during other pandemics,
including the 2003 SARS episodes
in China, Hong Kong, and Canada,
the 1957 Avian Flu in the U.S., and
the 2015 MERS episode in South
Korea.
• The average episode saw a GDP
hit of 4-5% in the 1-2 quarters after
the outbreak, though the variation
was substantial.
23. The Cure is Just Oh, So Different: U.S. Government Legislative Actions
Source: Congress.gov; Committee for a Responsible Federal Budget; NPR News
• Phase 1 (3/6/2020)—Coronavirus Preparedness and Response Supplemental Appropriations Act:
$8.3 billion in emergency funding.
• Phase 2 (3/18/2020)—Families First Coronavirus Response Act: $192 billion
• Provided paid sick leave, tax credits, and free COVID-19 testing; expanded food assistance
and unemployment benefits; and increased Medicaid funding.
• Phase 3 (3/27/2020)—Coronavirus Aid, Relief, and Economic Security (CARES) Act: More than
$2 trillion (expected to increase the deficit by $1.7 trillion)
• Direct payments to Americans; scaled up unemployment insurance program; loans and
grants for small and large businesses and governments; aid to state and local governments,
business tax cuts; other health and safety related spending provisions.
• Phase 4 (4/24/2020)—Paycheck Protection Program and Health Care Enhancement Act: $483
billion
• Additional funding for Paycheck Protection Program, hospitals, testing efforts, and emergency
disaster loans and grants.
24. U.S. Saving Rate, August 2005 – August 2020
Source: Bureau of Economic Analysis
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Aug-05
Dec-05
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
Aug-14
Dec-14
Apr-15
Aug-15
Dec-15
Apr-16
Aug-16
Dec-16
Apr-17
Aug-17
Dec-17
Apr-18
Aug-18
Dec-18
Apr-19
Aug-19
Dec-19
Apr-20
Aug-20
SavingsRate(%)
August
2020:
(Savings as Percentage of Personal Disposable Income)
25. Conclusion/Outlook
Source: Congress.gov; Committee for a Responsible Federal Budget; NPR News
• The initial phase of recovery from the crisis will be sharp, profound and most welcome --
interest rates are still low, pent-up demand high, there is a need to rebuild inventories,
and people are anxious to meet again, go to restaurants, casinos, see a movie, watch
the Orioles, and engage in other most wonderful of human activities.
• May's jobs report was an absolute stunner. One way to look at this is to say economists
missed the mark by 10.5 million jobs. Another way to look at it is that economists
missed it by 2 weeks. June was even better, but July-September has been increasingly
soft…
• While recovery has begun, these remain treacherous times (obviously – we haven’t
earned an enduring v-shaped recovery).
26. Thank You
• Please follow me on Twitter -- @sageanirban
• Please follow my newsletter at Basu.substack.com.
• Please look for updates of information at
www.sagepolicy.com.
• Please contact us when you require economic
• research & policy analysis.