Outlook: Employment in the Manufacturing Sector

By IBISWorld Analyst Lauren Setar

The story is familiar: Overall employment suffered during the recession, adding to the already accelerating trend of outsourcing manufacturing jobs or replacing them with machinery. Nevertheless, there are a handful of manufacturing industries that IBISWorld projects will bolster their workforces during the next five years. Ranging from millwork to prefabricated home manufacturing, IBISWorld has compiled five manufacturing industries with the rosiest job outlook. These industries share two common themes: construction and customization. Residential construction is expected to grow in the coming years, while customization has become increasingly important for consumers.

Construction

Having suffered during the recession, construction markets and are expected to gain some steam in the coming five years. Residential construction, specifically, which plummeted an average of 9.2% per year over the past five years, is expected to bounce back with an annualized growth rate of 12.3%. Sawmills and wood production, wood paneling manufacturing and millwork are all expected to benefit heavily from the uptick in residential construction.

Consumers looking to buy a home for the first time or renovating their existing home will be the primary drivers behind increased demand. And as more projects are contracted, more employees will be required to satisfy this need.

To look at some examples, companies in the Sawmills and Wood Production industry and the Wood Paneling Manufacturing industry contribute a lot of the materials for residential construction. Both industries have weathered tough market conditions in the past five years as a result of the dramatic drop-off in housing starts. Depressed demand led operators to cut staffing levels over the past five years.

Turning things around, the industries are now expected to grow in the five years to 2017. During this time, increased downstream demand will allow industry operators to make up some of the losses from the past five years. IBISWorld expects that employment in the Sawmills and Wood Production industry will rise an average of 5.7% per year. Similarly, the Wood Paneling Manufacturing industry will expand its staff numbers at an average annual rate 5.2% over the period. These increases will add 24,844 jobs to the Sawmills and Wood Production industry and 21,612 to the Wood Paneling Manufacturing industry. While employment in these industries will rise, however, it will fail to reach pre-recessionary levels because the number of housing starts will still be low.

Customization

The trend of customization plays a role in many of the industries with fast-growing employment. Much like they want to choose their own clothing and style, consumers prefer a personalized living space. Customization of living spaces cannot be automated, requiring a human touch to add personal character to a home or motor home. As such, industries like the Prefabricated Home Manufacturing industry and the Truck, Trailer and Motor Home Manufacturing industry are expected to experience especially rapid employment growth.

Labor represents a significant part of these industries’ cost structures. The production of prefabricated homes, trucks, trailers and motor homes is labor-intensive due to the high degree of customization and manual work required. Typically, labor accounts for a larger share of revenue for smaller firms within the industry because they are less likely to invest in more automated manufacturing facilities.

Since the recession, increased competition and unemployment have reduced manufactured home sales, hurting the Prefabricated Home Manufacturing industry. Over the next five years, however, housing prices are set to rise and reduced competition from site-built homes will fuel growth. Furthermore, 30-year mortgage rates are projected to increase, thus making lower-cost prefabricated homes more attractive to consumers. As revenue rises, companies in these industries will need to hire more workers to account for the greater demand. Consumers generally spend more on personalized prefabricated homes in order to cater to their preferences and also to give them a greater sense of ownership. As a result, the number of industry employees is expected to grow at an annualized rate of 5.5%, adding 14,017 jobs over the next five years.

The Truck Trailer and Motor Home Manufacturing industry is in much the same situation. Demand from truck transportation, domestic trips by US residents and total trade value all fell during the worst of the recession, contributing to industry declines. Now, industry revenue has increased since the recession as credit and consumer spending gradually improve. Demographic trends that support the industry (such as the retirement of baby boomers) and sustained high trade volumes will drive growth through 2017. When spending on high-cost items like motor homes, consumers are generally willing to spend more money on a custom motor home than a mass-produced model. As a result, hiring activity will pick up as manufacturing volume rises. Industry employment is forecast to rise at an average of 4.5% annually through 2017, to add 27,323 jobs to the industry.

Combined

Combining both customization and construction activity trends, the Millwork industry is also poised for significant employment growth. Millwork is highly dependent on manual labor mainly because the industry’s final products, including wooden doors, windows and floors, require a quality hand finish before they can be sold to downstream industries and consumers. The industry performed poorly over the past five years, primarily due to the decline in residential construction. But in the next five years the Millwork industry will need to take on new employees to respond to stronger demand conditions, a greater need for customization and increased production requirements. As a result, industry employment is anticipated to increase at an average annual rate of 4.5% to 132,492 workers, adding 26,239 jobs during this time.

Conclusion

Due to an improving construction market and the increasing popularity of customization, IBISWorld expects these five industries to lead hiring in the manufacturing sector. Like many manufacturing industries in general, each of these industries has a high concentration of establishments in the Great Lakes region of the United States. The return of manufacturing jobs will contribute to the region’s drop in unemployment over the next five years. Overall, these highlighted industries are expected to have employment growth that outperforms that of the overall manufacturing sector, which will average about 0.3% per year during the next five years.

To download full research reports for the industries discussed in this article, click on the report titles below.

Sawmills and Wood Production, Wood Paneling Manufacturing, Prefabricated Home Manufacturing, Truck, Trailer and Motor Home Manufacturing, Millwork

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