Feeling More Productive? | You probably are -- and that could mean real trouble for the local economy.
In the second quarter, the productivity of U.S. manufacturers increased by more than it has in almost six years.
In fact, productivity has been on the upswing for several quarters as manufacturers do more with much less. Those steady gains of more output with less input could signal a very difficult road ahead for the Central Massachusetts economy. It’s an issue that economists have warned about — the so-called “jobless recovery.”
The second quarter’s statistics reflect national declines of 1.5 percent in output and 7.6 percent in hours worked. From the second quarter of 2008 to the second quarter of 2009, output fell 5.5 percent while hours fell 7.2 percent, resulting in an increase in productivity of 1.9 percent, according to the U.S. Bureau of Labor Statistics. (Click here to see productivity has increased over the last decade.)
Jack Healy, director of operations at the Massachusetts Manufacturing Extension Partnership in Worcester, an organization that advocates for lean manufacturing processes, said that while those declines can seem dire, some Central Massachusetts organizations will find they’re better off doing with less.
“By comparison to the rest of the country, it’s a lot like losing one arm instead of two,” Healy said of the recession’s relatively un-severe toll on the region. “Companies are not going to race back to hiring people unless they have to get the orders out. They’ve found they can do with less.”
Manufacturers will begin hiring again, “but it’s going to be a longer period before the hiring starts,” Healy said.
One thing manufacturers are watching very closely for are signs of a sustained economic recovery in the region. “They’re unsure if this is like a ‘W’ where it gets better and then goes down again and then back up again,” Healy said. “They’re trying to avoid that. They want to make sure it’s a ‘V.’”
Faster, Better
For Chris Crowley, executive vice president and treasurer of Polar Beverages in Worcester, a nice, steep V-shaped economic recovery would be nice. But he said manufacturers in the modern economy that do not spend the time or money necessary to become as fast and efficient as possible are probably bound to fail regardless of the condition of the economy in general.
Polar is currently building a facility in Auburn in which it will consolidate all of its warehouse operations. “We’re not laying off, but we’re putting everyone in the same location. That increases productivity and makes us as efficient as possible,” Crowley said. “We’re growing enough that we don’t have to lay anyone off, but we’re driving a lot of efficiency in our plant.” That includes spending money on better, faster, more reliable machinery and keeping “the right amount of people” to run it.
“We’re always trying to run as lean and quickly as you can. If you’re a big, fat obese company, you’re gone. If you’re not utilizing your assets and your margins are so tight, you’re gone,” he said.
Polar recently installed a new water bottling line to fill large jugs of water found in offices. “I think it’s the fastest water line of big jugs in the country,” Crowley said. “We’re using the same amount of people, but we’re doing it four times faster.”
Cautiously Pessimistic
Dave Glidden, chief lending officer for Southern New England at TD Bank, said manufacturers will hold off on hiring for as long as consumers hold off on buying.
“A lot of companies are doing fine, but they’re very cautious. They’re paying down their debt and putting off major purchases, understandably,” Glidden said.
Glidden shared some of Healy’s concerns, as well. He said the uncertainty around whether the economy has gotten as bad as it will get has taken a serious toll on the commercial real estate market. And manufacturers aren’t willing to expand, buy space or lease new offices in a market that’s in such disarray.
Whether those companies invest in hiring is a tricky question.
“Every company, after what they’ve been through, before they bring people back, they’re going to ask a lot of questions about cost and whether they can accommodate those employees long-term. You don’t want to rehire someone and then have to let them go again,” said Christopher Coghlin, president and CEO of Coghlin Cos. Inc. in Worcester.
While Coghlin wouldn’t disclose how many employees the company had laid off this year, he did say it has brought “several” back over the last two months. When that does happen, “we really focus on versatility,” he said.
And that focus is partly a result of Coghlin’s understanding of the changing nature of supply and demand. During this “tough year,” Coghlin has seen productivity gains by forcing its suppliers to get lean.
After layoffs, the company was left with its most talented and quickest-producing personnel.
And that’s a good thing. “Our customers are negotiating better prices for less product,” he said. “It forces you to look at your business, your materials costs, and we’ve been very thoughtful in our approach.”
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