Adam Honig: Deadpool definitely was going to come up at some point. You look like you’re a Deadpool fan. I don’t know if that’s your son’s influence. 

Chad Moutray: I’m a Marvel fan. 

Adam Honig: You are a Marvel fan in general? Okay. All right, we’ll work that in. What a lot of people want to hear about is the crystal ball kind of stuff. Like, looking forward, what are we thinking here? It seems to be very mixed up at this moment. 

Hello and welcome to Make It. Move It. Sell It. On this podcast, I talk with company leaders about how they’re modernizing the business of making, moving, and selling products, and of course, having fun along the way. I’m your host, Adam Honig, the CEO of Spiro.ai. We make amazing AI software for companies in the supply chain. But we’re not going to talk about that today. Today, we’re going to be talking with Chad Moutray, the Chief Economist of the National Association of Manufacturers. Welcome to the podcast, Chad.

Chad Moutray: Thanks for inviting me.

Adam Honig: Yeah, of course. I’m super excited to have you on the show. I know a lot of our listeners have been looking at their own crystal balls and trying to figure out what’s going on in the future, so it’s amazing to get a real-life economist to talk with us about stuff. But before we jump into that, maybe just tell us a little bit about the NAM, as it’s called, and what your mission is.

Chad Moutray: The National Association of Manufacturers was founded in 1895, making us fairly old, in Cincinnati. It makes it the oldest trade association dedicated to manufacturers, but I think the bigger deal is we have 14,000 members; every state manufacturing association as well as about 200 or so vertical associations. People join the NAM for our advocacy, but there also are a lot of other aspects; their workforce. Certainly AI is a big topic, Adam, that a lot of our members are engaged in and trying to make sure that we are competitive for the future. Obviously, I’m chief economist, but there’s a lot of other aspects there to the NAM that I think folks join us for.

Adam Honig: Yeah, I think I read on the website there’s over 250,000 manufacturers in the United States alone. That’s crazy large number. 

Chad Moutray: That is true, and 90% of manufacturers are small- and medium-sized manufacturers, at least that’s according to our membership. Certainly in that realm of small businesses is certainly important for us, even though most people think of the larger manufacturers when they think of manufacturing.

Adam Honig: I’m here in the Boston area, and of course, General Electric somehow has moved its headquarters here a number of years ago. I think when people think manufacturing, they think tremendous factories, big plants, and so on. But a lot of them are much more modestly sized.

Chad Moutray: Yeah, the reality is General Electric, which is a member, and a lot of other companies use a lot of small businesses as suppliers. There’s a lot of innovation that happens amongst some of those small- and medium-sized companies, but also the very important parts of the supply chain.

Adam Honig: What’s been really interesting for me in talking with a lot of manufacturers and distributors is just how blurred the line is between the two of them sometimes. A lot of our manufacturing customers, they do manufacture things, but they’re mostly assembling things. Then we have other people who are pouring metal and breaking it down into components. It’s such a big range of companies.

Chad Moutray: When you think about the larger multiplier effect—I’ll use an economics phrase there—it really shows you just how important manufacturing is when you include the supply chain, the various parts of the overall process, as well as all of the communities that are so important to manufacturing. That’s why manufacturing continues to be really such a central conversation here in Washington and everywhere. Everyone loves manufacturing and thinks we should make more here. I think that’s a pretty bipartisan appeal that’s out there.

Adam Honig: It’s always coming up during the political campaigns, about that. It almost makes you feel like it’s a smaller part of the economy, but it’s really not. It’s actually a very large part of the US economy. 

Chad Moutray: There’s this sense that we don’t make anything in America anymore, and that’s just not true at all. The reality is we make more than we ever have. If you look at overall output, we have 13 million workers in manufacturing. That’s the most since 2008. The challenge here is that the pie’s gotten bigger. There are other pockets of the economy that also have gotten big. But we still are here. We’re making more and selling more. I think that’s a myth that certainly can be disproved when you look at the real data.

Adam Honig: Well, that’s the trick to get people to actually look at the data because sometimes they just only read the headlines.

Chad Moutray: That’s true.

Adam Honig: Now you’re the chief economist of the NAM. First of all, I know you didn’t have to beat up any other economist to get that title. Tell us a little bit about the work that you do for the organization.

Chad Moutray: The short word here is I’m a talking head. So anytime any number comes out, I’m commenting on what that means for manufacturers, what that means for the overall economic outlook, talking to CEOs and other members that we have in terms of the manufacturing community, but also speaking to the press and giving lots of speeches and doing podcasts like this one, which are pretty exciting. 

But the other aspect of that is a lot of research. We’re going to be releasing a study next week. We’re releasing stuff all the time, either to help move the needle in terms of policy or in terms of thought leadership, especially in the workforce space. In addition to being chief economist at the NAM, I straddle over into the Manufacturing Institute, and so we’re doing a lot of research on workforce topics there.

Adam Honig: I imagine a lot of this research is survey data. Is that how you get a lot of insights?

Chad Moutray: Some of it is survey data. We also, quite frankly, do a lot of regressions as well as I do a lot of interviews with manufacturers. I think it’s important for us to get insights. As chief economist, I actually think it’s important to get outside the beltway as frequently as possible to hear what’s really happening in the economy. If I’m giving a press quote, I’m actually giving it from real insights. There’s a lot of a little bit of that. We also work with a lot of consulting firms and a lot of other groups that help do some kind of original research for us.

Adam Honig: I know from talking to a lot of manufacturers that there seem to be a bunch of macro trends, in my view, that are going on right now. I know one of them that’s on everybody’s mind is the idea of having more production locally. The pandemic exposed far flung supply chains for people, and people are looking for a little bit more consistency, at least the people I’m talking to. Is that what you’re seeing in your research as well? 

Chad Moutray: There were some pretty tremendous supply chain bottlenecks. As you remember, we all couldn’t find toilet paper and a bunch of other things during the pandemic. The reality is freight costs went up pretty significantly. You had some pretty significant issues at the ports and elsewhere. I think it really brought home not just the importance of the supply chain, but it also brought home the fact that maybe it might make sense to make more in North America or in the US or, as you say, in your local community and not have to deal with some of those big bottlenecks. 

The fact is that we’re seeing a lot more investment in the US today. We had a record level of foreign direct investment last year. We’re seeing what I call the hockey stick, if you see the graph of manufacturing construction. This is a number that obviously you hear quite a bit in Washington, but construction activity and manufacturing is up a whopping 70% over the last 12 months, hitting new record highs largely because of the CHIPS and Science Act as well as the Inflation Reduction Act had some components in it for battery production and EVs and other energy components.

I also think it just simply is a sign that reshoring is trendy, and you’re seeing a lot more folks looking at the US differently. That has major ramifications, I think, not just for manufacturing, but also for the employment market. Goldman Sachs estimates that huge hockey stick of construction is going to lead to another 250,000 manufacturing workers over the next couple of years.

Adam Honig: I wonder where we’re going to find them all from. That’s a whole other topic. 

Chad Moutray: That’s where I was going, Adam, is that we already are in a tight labor market, and so it just makes that overall competition for talent that much tougher.

Adam Honig: There’s so much going on in there. Let’s just dig in on a couple of the items to begin with. I’m super curious about this relationship between construction and manufacturing though. Is that one dollar of construction is generating a certain number of dollars of manufacturing? Is that just the way the world works? 

Chad Moutray: We put out a study, Adam, called Building to Win. You can go on the NAM website and find it. That really puts that linkage out there. The reality is, if you’re building a road or bridge or port or putting out infrastructure, you’re probably using equipment that was manufactured by one of our members. There is a huge connection there and that a lot of our members really benefit from the sale of construction equipment as well as the materials that are used for it. That certainly has a pretty tremendous multiplier effect. 

The other aspect of that is all of those manufacturing construction projects that I just mentioned, they’re just putting shovels in the ground. Those are going to be, at some point, build actual factories with equipment in it and a lot of things. All of that also creates additional opportunities and jobs. 

Adam Honig: You said that something was up 70%, and I’m sorry that I– it was just such a big number, it flushed out of my mind what that was. 

Chad Moutray: This is manufacturing construction. This is actual shovels in the ground to build new factories or warehouses or whatever it might be. Again, this is just a pretty astonishing number that you are seeing more investment in the US in manufacturing. Who would have envisioned this happening so quickly? In my view, it’s a bit of an inflection point for manufacturing and also pushing back against the notion that we don’t make things in the US is that we’re making a lot more and you’re seeing a pretty rapid uptick in it.

Adam Honig: How does that work from the shovels in the ground to when the manufacturing output starts increasing? Is that an 18-month? Is it five-year? It’s certainly not a short-term thing. 

Chad Moutray: It’s not an immediate thing. That’s why I think as you move into 2024 and 2025, you’ll start seeing some of that taking place. Flashback a year or so, there was a shortage of semiconductors. So they’ve got to build foundries, they got to build factories. All of that, as you move into the next couple of years, you’ll actually start seeing some output coming out of those factories. They’re looking for workers right now to fill those roles. 

Adam Honig: I saw a statistic the other day that basically said that even if everybody who is unemployed took manufacturing jobs, we would still have a gap in the number of people we need to hire. 

Chad Moutray: The reality is we did a study with Deloitte. Actually, we’re getting ready to update it, but we needed to identify another two million workers between now and 2030 to be able to fill all the jobs that we need, keeping in mind that we have a lot of baby boomers and eventually those of us in Gen X are going to retire. We need a replacement, younger workers to fill some of those roles. We’re going to need to identify another 2 million people. The reality is right now, we have 616,000 manufacturing job openings. We already are in an environment where the number one issue amongst manufacturers, small, medium, and large, is the inability to attract and retain talent.

Adam Honig: Now I know it’s not an economic question, but have you seen any strategies or approaches that companies are using to break through that talent barrier?

Chad Moutray: This is what the Manufacturing Institute does actually. A large part of that is we need to identify new groups of folks. We can’t just keep thinking we’re going to be able to recruit the same old way. The reality is the labor market is tight. Everyone is looking for workers. We have to find ways to differentiate ourselves from other folks who are working and looking for the same people. What I like to think is we’re competing with non-traditional players. We’re competing with the service sector; fast food workers, Amazon, other companies are also looking for some of these same workers. We’ve got to make sure we stress that manufacturing is a cool job. It’s highly technical. It’s not non-skills work anymore. It’s a lot of technology and automation. We need really smart, sophisticated people. It’s a pathway to a career. Talk about culture. Talk about all those other things that helps differentiate us from some of those other players. 

But the other part of it is we’ve got to go out, and we’ve got to recruit more women into manufacturing. We have a nice program to do that. We’re trying to encourage more military veterans to move into manufacturing. It’s a nice, really transferable skills that can really play well in manufacturing. We’ve got to look differently at second-chance employees and other groups, and diversity and inclusion. There are a lot of different ways that we need to really widen the net in terms of the folks that we’re recruiting.

The Manufacturing Institute also does manufacturing day every year. The first Friday in October is a day which, it’s not limited to that day, but where we encourage our members to open up their doors and try to show young folks and their parents and guidance counselors how cool manufacturing can be. I think the short answer there, Adam, is we’ve just got to think differently.

Adam Honig: I think that people definitely have misperceptions about manufacturing jobs. I was talking with a young person the other day who was interested in trying to figure out what she should do for her career, and we went to the website of a manufacturing company. There’s a lot of very operationally interesting jobs, balancing relationships with suppliers and some really interesting stuff that has nothing to do with conveyor belts and stuff like that, which is where I think people’s mind go to. 

Chad Moutray: There are all these perceptions out there that are quite outdated right now. It’s not your grandfather’s manufacturing anymore. If you tour a manufacturing facility, which obviously that’s the goal of Manufacturing Day, you’ll see that there’s a lot of automation, there’s robots. There’s a lot of roles there that are much different than I think people think of when they’re thinking of manufacturing.

Adam Honig: I’ve got this idea, and you can tell me if you think this is crazy or not, but what I think we need is a great movie that takes place at a manufacturing company, like a Marvel movie or something like that. We can get Deadpool running through a modern factory or something like that, and everybody is like, oh, wait, we get a glimpse of something that’s interesting. What is that? What’s going on there? I don’t know. What do you think about that idea? 

Chad Moutray: That sounds like a great role for Tony Stark.

Adam Honig: Yeah, no doubt. 

Chad Moutray: It’s got a nice Iron Man theme there.

Adam Honig: All of that, AI and movie stuff, but the problem with Tony Stark is he just does everything himself. I don’t know how he does it. He just builds everything himself. It’s crazy because it really does take a team  to do all of this stuff in reality. 

Chad Moutray: You got to get past the arrogance too, but that’s a different story. 

Adam Honig: But I guess if you were able to make an Iron Man suit on your own in the middle of Afghanistan or wherever the heck he was, then you can probably be a little bit arrogant. 

Chad Moutray: Proof that innovation can be cool is what that says.

Adam Honig: I guess so. Talking about Tony Stark and manufacturing, obviously we’re very focused on AI in manufacturing, but is this a trend that you’re seeing across the industry?

Chad Moutray: Obviously. I don’t have to say this to you, Adam, you know it, but everyone is going to be touched by AI at some point. Manufacturers have doubled down on just a whole host of disruptive technologies over the last couple of years, whether that’s connected technologies or Internet of Things, or obviously AI is the latest. I think the reality is manufacturers have to continue to not just innovate, but adopt some of these new technologies to stay competitive, to innovate differently, and hopefully make their workforce more productive. I think that’s the bottom line is especially in a world where labor is tight—there is such a major shortage of labor—technology can be the solution for a lot of folks. That doesn’t mean that anyone’s getting fired because of it. The robots are not taking your jobs away. But it does mean, in the conversations that I have with a lot of manufacturing firms, that maybe that role might change, and a robot is doing it, or automation is doing it. But that person who used to do that is now doing something else in the factory. That requires a lot more upskilling and training to be able to use augmented reality or whatever else is happening on the shop floor.

Adam Honig: I know there’s a lot of things that people do today that they prefer the robots did. I think that could definitely be a nice addition. We were talking with a guest who’s in the machine vision space before and how identifying quality issues or all kinds of different things can be taken care of with AI. It’s super exciting.

Chad Moutray: Definitely. It certainly improves quality. As you note, there are other roles that we never really wanted to do in the first place and certainly a robot can do those and frees us up to do other tasks on the shop floor.

Adam Honig: Definitely. Now you had mentioned some of the supply chain snafus a little bit earlier, and I’m just curious from your perspective, have we worked our way through that, or are they still ongoing? What’s your take?

Chad Moutray: We still hear about supply chain issues from our members. It’s not the issue that it was a year ago, but there are still these one-off issues where you’re trying to get an electronic component, and you got to wait 12, 13, 14 months for it, or there’s some raw material that’s holding things up. It’s still an issue, just not the issue that it was earlier. Now the reality is the economy has slowed around the globe, and that has helped some of that. But there still are some one-off supply chain issues. 

The other comment I’ll make about that is that I think manufacturers also have used that experience to become smarter about using data. That also has accelerated a smart factory notion that procurement is much smarter than it was before because we’ve used ways around some of these supply chain challenges to maybe identify another possible vendor or maybe even just completely rethink the supply chain overall. Resilience has become the buzzword as well of how can we make sure, if this were to ever happen again, we won’t be caught in a large the way we were this time.

Adam Honig: I know talking with a lot of people, I feel like inventory levels are up. People are willing to carry more on their balance sheets. We actually had one guest on the podcast saying that they felt like that was a bit of a competitive advantage. They could use their financial position to have a bigger inventory and keep things in stock, so when customers needed things, they were always available for them. 

Chad Moutray: That’s especially true of small- and medium-sized manufacturers. The last thing you want to do is have to shut down production. That costs lots of money. Now pushing back against that is the fact that interest rates have gone up a lot, as you know, in the last few months. That certainly increases your borrowing costs. Some manufacturers tell me that they had to build a whole new factory or new warehouse. That borrowing cost is pretty significant and I suspect might push back a little bit on carrying too much inventory on hand.

Adam Honig: It’s interesting. It’s something that I wonder about, the larger, the GEs of the world, the publicly-traded manufacturing companies, are they under more financial pressure to shareholders in a way than the smaller guys who are more family owned and willing to take a cut in profit for sustainability?

Chad Moutray: Well, the bigger you are obviously, you have a lot more scale, and you have a lot more opportunity. I used to be chief economist at the Small Business Administration. The reality is the smaller you are, the scale of being able to do some of these things, you have a lot fewer options. You have a lot fewer options for availability of capital, as well as a lot fewer resources to be able to do some of these things. I think the small- and medium-sized manufacturers are probably more at a disadvantage there, especially your smallest manufacturers.

Adam Honig: If you don’t mind, I’d love to talk a little bit about 2024 and what’s, in your view, going to happen. We’re not going to hold you to it. We promise. But in your view, from a general and then from a manufacturing perspective, how do you think the year is shaping up for us?

Chad Moutray: Well, as you know, the data have been pretty mixed. Even in manufacturing, there are a lot of signs of challenges. You don’t have to look very far to see them. But there’s also all this investment that’s happening. So you have this on the one hand, on the other hand notion that you would expect to hear from an economist. I have long actually been in the soft-landing camp and continue to be in the soft-landing camp. We still see quite a bit of resilience in the US economy. While consumer confidence is down, people are still spending money.

We’re going to get a new reading for a third quarter GDP. That’s going to be really robust in the next week. It’s because people still went out and spent money. They went to Taylor Swift concerts. They went on vacation. They went to restaurants and bars. You’re going to see a lot of spending, especially on services, and that’s helping prop up the economy. Now you move into 2024, that’s going to slow a little bit. Part of that is the fact that interest rates have really shot up in the last month. That’s providing a little bit of sticker shock for housing. Mortgage rates are hitting close to 8% where you were seeing some recovering in housing over the summer, that’s starting to dissipate a bit. You’re going to see things slow a little bit in terms of overall pricing pressures and other things. 

I see a slowing. I do think we’re going to have a soft landing. But if we’re going to have a recession, I think it’s going to be largely in the first half of the year. I actually see us bouncing out of that by this time next year. My official forecast is 2.4% growth this year and about 1.6% growth next year. But much of that is coming from the rebound you see at the end of next year. But there’s also a lot of downside risks there, which, I could tick off all of them, and it would just depress you, so I won’t.

Adam Honig: I see a lot of them just in the news for sure. But tell me, do you feel like any particular sectors in manufacturing are more resilient than others? Is it consumer goods? Is it industrials? How do you look at that?

Chad Moutray: Well, anything that’s related to infrastructure or transportation has tended to fare pretty well, so motor vehicles, aerospace, machinery, to a certain extent, go back to my construction conversation earlier, what I call core capital goods. Companies are still investing in themselves. They’re investing in new technologies. Those have tended to fare fairly well. 

At the bottom end of that spectrum, you’re seeing some weakness in furniture. You’re seeing some weakness in some of paper and textiles and things along those lines. If we were to fall into a recession, obviously some of those consumer goods might get hit depending on what consumer goods your talking about, and obviously motor vehicles are pretty cyclical. Those are things to watch. I didn’t say this earlier, but as you move into 2024, in my view, what really is the key to getting a soft landing is the labor market. As long as the unemployment rate doesn’t shoot up too much, that’s the key number to watch. If it gets to 4.5%, we’ve likely slipped into recession.

Adam Honig: It’s super hard to figure out of course. I mean, it just feels like with so many jobs open, it’s going to be hard to do that, but who knows what’s going on? 

Chad Moutray: This is a very unique time when we’ve never had a recession and full employment at the same time, and we’re not far from full employment right now. So that makes a bit of a weirdness to the overall forecasting. There’s a lot of folks saying that a recession is inevitable, and yet we’re at 3% unemployment rate. There’s a pretty large disconnect there.

Adam Honig: I think it’ll be really interesting a few years from now when we look back because I feel like there’s a lot of people who are saying that some of the normal assumptions that we made about the way the economy work has changed like the relationship between recessions and unemployment interest rates and how it affects unemployment. It just seems to be all discalibrated at this point. 

Chad Moutray: The yield curve has been upside down for the last year, and yet we haven’t had a recession. There’s a lot of talk about, maybe, is this time different? I just said to you that I’m in the soft-landing camp, so I guess I’m saying it might be. We’ll see, I guess.

Adam Honig: I’ve got one more question for you about 2024, and this is just from a lay person’s perspective. I feel like a lot of business owners that I’m talking to look at the upcoming presidential election and feel like that’s a big impact on the economy, that somehow the federal government always tries to juice up the economy before the election. Is that just like a popular wisdom kind of thing, not really true? Or is that a thing?

Chad Moutray: Well, that’s definitely a thing, although, as you know, Washington is kind of crazy right now. We’re certainly moving into a very interesting election cycle, I guess I’ll leave it there. As we’re recording this, we still don’t have a house speaker. There’s clearly a lot of dysfunction as well as craziness in next year’s election. You know the reality is, we’ll see how it plays out. It could be another Trump versus Biden election. I think from our perspective, what we’re going to be continuing to look at is we’re seeing a lot of regulations coming out of Washington right now in the lead up to that election. We’re running an enormous debt, which is something that could be a major topic of the election, although who knows? It never really is a major topic, but it could and should be. 

The other aspect of it is all of those tax cuts we got in 2017 are going to expire as you move into 2025. Whoever wins the White House in Congress next year will have a pretty major hand in shaping what tax policy will look like for the next decade. That’s how we would like to frame the election. We’ll see how it ends up getting framed as the overall election shapes up. But that’s how we would like to see it and be focused on.

Adam Honig: Well, stay tuned, I guess, as they say, and we’ll learn all the answers to that soon, I guess. In a year, we’ll know. Not that we’ll be able to do anything about it at that point, but is there any advice when you talk to owners of manufacturing companies? What are you counseling them looking forward to 2024?

Chad Moutray: I think it’s always important. Keep in mind, manufacturers are very long focused. They’re already thinking not just about 2024, but 2025 and 2026. My advice is continue to invest and make decisions that are going to allow you to come out on the other side of whatever we’re in right now and be able to capitalize on that.

I actually am bullish about the future. I think manufacturers have been doing that. I’m bullish about productivity growth moving forward. Investments in things like AI and these other technologies I think will certainly bode well for us moving forward. That was a commercial for you Adam, I think. 

Adam Honig: Well, thank you very much, I appreciate that. Well, Chad, I really appreciate your coming on the podcast, really great to get your views, not only about 2024, but about just how all of this kind of stuff works and the relationship between different things in the economy. Super fascinating. So I really appreciate your coming on the show.

Chad Moutray: Well thank you.

Adam Honig: As a reminder to our listeners, you can find every episode of the Make It. Move It. Sell It. podcast at spiro.ai/podcast. Be sure to subscribe, maybe give us a good rating. I don’t know, Chad, do you think people should give us a good rating? 

Chad Moutray: Of course, the highest possible. 

Adam Honig: Give us a 6 out of 5, please. I really appreciate everybody listening. Thanks for tuning in, and we look forward to talking with you on the next episode.