Evaluation: US manufacturing is booming – however not for these folks


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By Timothy Aeppel

(Reuters) – Jim Kirsh initially believed his family-owned foundry in southeast Wisconsin could stay busy during the pandemic.

Kirsh Foundry Inc, a cluster of buildings in Beaver Dam, a town of 16,000 people about an hour's drive from Milwaukee, started the year with an extensive order book, thanks in part to a large client who brought casting work back from China.

An urgent call for parts for a ventilator built by followed quickly General Electric (NYSE 🙂 Co as an answer to the coronavirus.

However, in the summer the business began to dry up. Today it remains depressed, a symbol of an American manufacturing economy that, despite its apparent resilience, has notable flaws.

Comprehensive metrics for manufacturing activity, such as the Institute for Supply Management's purchasing managers index, suggest the sector has recovered from the springtime slump triggered by COVID-19. But the resuscitation is uneven. The Federal Reserve reported Tuesday that while production by consumer goods manufacturers has largely recovered to pre-pandemic levels, those who make things for other companies have not.

In fact, some U.S. factories are booming, and there are even shortages of some popular consumer products. Americans stuck at home or hesitant to get on planes grab trucks, gadgets, recreational vehicles, and boats.

However, a large chunk of U.S. industry is made up of companies like Kirsh's selling goods to other companies, and many of those companies continue to experience weak demand.

Caterpillar Inc (NYSE :), recognized as an economic driver, posted a year-over-year revenue decrease of at least 20% in its three main businesses in the most recent quarter, while 3M Co saw revenue decline year over year in half of its businesses. The aerospace giant Boeing (NYSE 🙂 Co is in a deep slump.

A recent surge in COVID-19 in the upper Midwest, where many of these companies have large operations, is the latest challenge. If officials try again to contain economic activity to stop the virus from spreading, it would prolong the downturn for device manufacturers and others dependent on heavy business spending.

"At this point, I just think the whole of 2021 is going to be horrible regardless of who the president is," said Kirsh, whose grandfather started the company in 1937 amid the Great Depression.

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There are hardly any more basic industries than foundries. These factories, which make metal castings, are a good measure of the health of the larger manufacturing sector.

Nine out of ten durable goods contain metal castings, which are made by pouring molten metal into molds to make parts that are then cut and polished before moving on to other factories. While castings are found in many consumer products, including automobiles and washing machines, metal parts that go into things like bulldozers, cranes, and airplanes are a core application.

Kirsh estimates his sales will fall 11% this year – a decent result considering that at one point it was down in half. He laid off a third of his 115 employees, a combination of hourly and salaried employees, and suspended all capital projects.

Its 12 largest customers include Caterpillar, Deere (NYSE 🙂 & Co and the engine manufacturer Cummins Inc. (NYSE 🙂 have slowed orders and provided little indication of when orders might return to pre-covide levels, he said. One hopeful sign is a sharp surge in orders in recent weeks, led by Deere.

What makes this downturn so worrying, Kirsh said, is its "open" nature. "Even in 2008 and 2009, after a certain point, you could see things start to turn. They knew things were going to go back to normal," he said. "This is not a normal economic downturn."

Now he's struggling to ship the orders he has because the virus hit the foundry right away.

In September one of his superiors tested positive – after the supervisor had spoken to 12 employees at the plant for some time. Then the planner – another key employee – tested positive, which meant the shipping manager, who works closely with her, also had to be quarantined.

At one point in time, the foundry had 19 employees – around a quarter of its reduced workforce – either sick or in precautionary quarantine. That number is now just one. However, Kirsh's calculations of how many manpower he needs get complicated by finding a buffer that takes into account the absences associated with COVID-19. He is now trying again to hire workers to partially make up for the absences and the recent surge in orders.

Kirsh is part of the Gray Iron Founders Association, a group of 16 small foundries that meet once a quarter in Chicago to discuss terms and conditions. At the last session, most reported similar conditions. "Most of us have business in the 30% range," he said.

Thomas Teske, general manager of EJ, a foundry in East Jordan, Michigan, said its business has stabilized – mainly because it specializes in making castings for government infrastructure projects.

"The only state that stopped construction was Pennsylvania – and only for a few weeks," said Teske. "But our concern continues," as government infrastructure projects are highly dependent on tax revenues.

"Funding will be a problem," said Teske, "so it's difficult to see what the future holds."

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