Minnesota manufacturers' profits soar, but a labor shortage looms

The strength of Minnesota's manufacturing industry has obscured a potentially serious challenge ahead for the sector: finding enough workers.

The industry group Enterprise Minnesota released an annual survey Thursday that pointed to looming worker shortages as a top concern for manufacturers, as baby boomer retirements shrink the labor pool at the same time the sector continues to grow.

"For the first time, large and urban manufacturers are indicating an increased urgency about workforce issues [and] concerns over attracting and retaining qualified workers," the State of Manufacturing 2018 report said.

The report found overall optimism about business conditions. Sixty-five percent of respondents said they expect to expand this year — double from two years ago. About 93 percent of the 400 respondents and 60 focus group participants said they are optimistic about their prospects.

But the report, which the group presented in front of manufacturing, banking and economic development officials at the Minneapolis Convention Center, described the anticipated workforce shortage as a "sobering counterweight" to the generally upbeat mood.

Nearly half of those surveyed by Meeting Street Research, which did the study, identified hiring and retention as their number one challenge. At the same time, an "unexpectedly small" number of manufacturers are preparing their operations for any type of labor shortage, the survey found. That left Enterprise Minnesota officials scratching their heads.

The group, which the Legislature created decades ago, travels the state counseling factory operators on strategies to make operations more profitable, efficient and successful.

Enterprise Minnesota CEO Bob Kill said the survey revealed that small and mid-sized factories are not uniformly improving leadership training, increasing productivity or planning strategically to tackle worker shortages. The survey revealed that the smaller the firm, the less likely any planning was underway.

That's a mistake, Kill said.

"The ability of Minnesota's manufacturers to weather the [labor] crisis — and come out stronger — will depend on how well they prepare for its challenges rather than react to them," Kill said.

Pollster Rob Autry said he found the findings of the recent survey surprising.

It prompted him to warn producers to look out for the "hazard ahead" and to ask if "booming sales are distracting manufacturers" from seeing "the looming workforce crisis."

"Taken on its surface, the tenth state of manufacturing survey indicates again in 2018 that Minnesota's manufacturing executives exhibit almost surreally high levels of optimism about their companies' financial prospects for 2018," Autry said. "But the data also reveal some ominous workforce challenges on the horizon."

With the swell of baby boomers leaving the workplace for retirement, many factory heads admit they need to hire more workers but are already having trouble filling positions.

Some factory managers are asking workers of retirement age to stay an extra couple years or switch to part-time hours so production doesn't slow down while they hunt for replacement workers. Some proactive firms are investing in elaborate training programs for new hires for the first time.

Traci Tapani, co-owner of the Wyoming Machine metal precision shop in Stacy, Minn., said the labor shortage is real and that companies like hers are smart to work with community technical colleges to recruit and train prospective workers so they have the skills necessary in today's high tech factories.

Companies that ignore the issue do so at their peril, said Tapani, who recently testified before Congress about workforce development.

She also participated in one of the 60 Enterprise Minnesota focus groups that contributed to Thursday's survey results.

Tapani said survey findings about how lackadaisical some employers were in addressing labor shortages "is quite surprising. Actually, that number is alarming," she said. "For the people who are concerned about the future of their business and where they will get their employees from, doing nothing is not an option. Everyone needs to step up."

Minnesota has help. She noted the state's technical colleges, CEO and human resource roundtable groups, and training funds — all directed toward helping small employers recruit and retain workers.

Will Fort, the general manager and vice president of Daikin's facilities in Owatonna and Faribault, Minn., said employment grew there from 500 workers in 2013 to 900 workers today. He's about to recruit 200 more workers for a new, third plant opening north of Faribault in summer 2019. Because of his growth, the company had to be proactive in addressing the tight labor market, he said.

Fort hired a full time recruiter and created in-depth training programs for new hires to learn copper brazing, electrical and sheet metal fabrication.

The training, which involves 35 manufacturing pros from Japan, attracts workers and builds loyalty among new recruits, Fort said. It isn't cheap.

"The investment is, for sure, hundreds of thousands of dollars," for the training centers, equipment, materials and wages, Fort said. The company has also invested in air conditioning plants for worker comfort. "You have to prepare and you have to invest in your people," he advised other firms.

As baby boomers retire, some economists expect the labor problem to worsen.

The national unemployment rate in April dropped to 3.9 percent, and competition for new recruits is high.

Minnesota's unemployment rate is now just 3.2 percent, the lowest rate since 2000, according to an employment report issued Thursday.

The other big worry of manufacturers is health care costs, according to the survey.

But for the first time, large firms with the most revenue and employees admitted being "more concerned about attracting qualified workers than they are about health care costs," Autry said.

Like other surveys of businesses, 67 percent said they supported the recent Federal Tax Cuts and Jobs Act but found it hard to gauge the law's impact.

Forty-five percent of respondents said the tax changes will help their organization; 42 percent predict it will have no impact.

Enterprise Minnesota is now hitting the road with the survey results, holding forums in Redwood Falls on May 22, Duluth on May 24, Morris on June 1, Owatonna on June 5, St. Cloud on June 12 and Bemidji on June 13.

Dee DePass • 612-673-7725