Manufacturing Is Struggling In The Face Of Sluggish Global Demand

Millennials and Gen Z not only expect modern, tech-driven work environments but also prioritize sustainability, seeking to work for companies that demonstrate strong environmental and social commitments

Industrial production slid 0.1 per cent in November, marking the third consecutive drop. October production was revised lower. Compared to a year ago, industrial production has fallen by almost one per cent. Losses were concentrated in manufacturing of nondurable goods and mining/utilities. High mortgage rates continue to sap demand for new housing construction and therefore construction supplies. This is despite the surge in demand for repairs and rebuilding following the devastation from two monster hurricanes.

Oil and gas well drilling hit its lowest level since December 2021. Investors are more focused on maximizing profits than on expansion, especially given the curbs on carbon fuels abroad. The break-even price on new wells can range from $55-$66 per barrel, which is higher than for the existing wells. This is why easing regulations in the energy sector may not unleash investment.

Manufacturing output rose 0.2 per cent on increases in furniture, appliances and vehicles and parts production. Consumer sentiment surveys point to households stocking up durable goods before potential tariffs set in. Rebuilding after two devastating hurricanes is contributing to the increase in demand for durable goods. Those shifts pushed up vehicle prices, despite some easing of credit conditions for vehicle loans; barring autos, manufacturing edged 0.1 per cent lower.

A resumption of work by striking workers for a major aircraft manufacturer did not produce an increase in output of aerospace and miscellaneous transportation equipment. Activity fell 2.6 per cent, largely due to manufacture of aircraft parts. Plants shut down much faster than the possibility of a ramp up.

Nondurable goods manufacturing was weak and broad-based; apparel, leather, paper, plastics and rubber products as well as petroleum and coal all fell. There is a shortage of rubber, which pushed up the cost of tyres in recent months. Near-record cold temperatures in the mountain west failed to boost electricity and gas utilities, which fell 1.3 per cent.

Business equipment bounced back 1.2 per cent, following two consecutive months of losses. Transit equipment and industrial and other equipment led gains.

Capacity utilization fell to its lowest level since April 2021 to 76.8 per cent. Manufacturing capacity utilization came in at 76%, 2.3 percentage points below its long-run average. That should accelerate discounting, but goods prices have rebounded in recent months.

The Institute for Supply Management (ISM)'s Purchasing Managers' Index (PMI) showed an eighth consecutive month of contraction. A silver lining was in the form of new orders index returning to positive territory for the first time in eight months. Growth industries include food and beverages, computers as well as electronics and appliances.

Productivity and quality control remained top issues in 2024, highlighted by high-profile cases like Boeing’s quality control mishaps. This hints at a broader challenge across the manufacturing sector, as many companies, regardless of size, lack systems to identify and address errors, defects, and mistakes as they happen on the assembly line.

Labour shortage also plagued manufacturing the past year, threatening productivity and profitability. While manufacturing jobs have reportedly rebounded to pre-pandemic levels, skilled labour remains difficult to attract and retain. Gen Z employees, the emerging majority workforce demographic, are looking for roles that offer digital-centric, engaging, and modern work environments that provide opportunities for growth.

A 2023 Deloitte survey found that 60 per cent of Gen Z wants to work for companies with progressive, digital-first cultures. The manufacturing sector, still stuck in its analog past, faces an existential crisis now that its pinnacle Baby Boomer workforce begins to retire and Gen Z lack interest in a career in manufacturing.

To fix this, manufacturers need to overhaul their workspaces, embrace digital tools, and rethink their training programs. Traditional, paper-based operations aren’t going to cut it anymore—Gen Z expects digital, interactive training that mirrors their everyday experiences with technology. To be successful, training initiatives must integrate user-friendly, digital technologies such as videos, touch screens, and real-time task guidance. These tools not only enhance learning but align with the digital tools Gen Z uses daily. If manufacturers don’t get this right, they’ll be stuck with an aging workforce, or, eventually, be left with no workforce.

Several emerging trends are set to shape the manufacturing landscape in 2025, with recent political developments in the U.S. likely to play a big role.

Millennials and Gen Z not only expect modern, tech-driven work environments but also prioritize sustainability, seeking to work for companies that demonstrate strong environmental and social commitments. This shift in priorities aligns perfectly with the values of millennials and Gen Zs, who are increasingly stepping into leadership roles. They’re digital natives, and they’ll drive faster adoption of new tools.

The speed of change might not be predictable, but it’s coming. Manufacturers who don’t keep up will be left behind.