After a turbulent end to 2019, Wisconsin manufacturers are optimistic. Cautiously optimistic.

A quick glance around Molded Dimensions' factory in Port Washington — a company that makes everything from car parts to fire extinguisher pins — indicates it has plenty of business.

On a recent weekday, eight orders were on the whiteboard to be completed that day.

After having gone into a "defensive mode" last year — hiring freezes, overtime reductions and not replacing departed employees — Al Mejia walks through his factory with cautious optimism.

The company has seen an increase in orders this quarter compared to the last quarter of 2019.

"We're seeing a good momentum developing," said Mejia, the CEO of Molded Dimensions. "February is building up to be a nice month as well."

But the key word is cautiously.

Last year started out strong, too, but then business slumped in the second half of the year. So at this point, Mejia will take one month at a time.

Molded Dimensions is reflective of the overall manufacturing climate — still fragile because of a difficult second half of 2019. And that fragility is accentuated in Wisconsin because of manufacturing's outsized importance.

While manufacturing nationally is at a 72-year low for percentage of gross domestic product, it's still relatively high in Wisconsin. The sector accounts for 18.79% of Wisconsin's economy, according to the National Association of Manufacturers.

Only six states — Indiana, Oregon, Louisiana, Michigan, North Carolina and Kentucky — rely more on manufacturing.

“We have noticed the upper Midwest has been hit particularly hard by what’s happening in the national manufacturing data,” said Willie Delwiche, an investment strategist at Baird. “That is still a center of manufacturing activity."

Nationally, manufacturing in the U.S. added 46,000 jobs last year, but that was compared to 264,000 new jobs in 2018.

The February report from the Institute of Supply Management does show increases in gross domestic product for January. It also shows a rise in what is known as the Purchasing Managers Index, an economic indicator drawn from monthly surveys of companies in the private sector. The index increased 2.4% in January, after declining 0.9% the prior month.

Trade war tensions add uncertainty

A lack of confidence among manufacturing executives drove much of the decline last year, Delwiche said. Business leaders need to know “what the rules are going to be” to operate.

That wasn't easy in 2019, amid a global economic slump and trade wars between the Trump administration and a host of countries, especially China.

Mejia's customers held back on capital investments while waiting to see whether the tariffs were here to stay. Molded Dimensions, which has 120 employees, produces molded rubber and silicon products for customers in medical, mining, agricultural, automotive and other industries.

The United States and China signed a trade agreement last month. Many tariffs remained intact, but the deal includes $200 billion in Chinese purchases of American products by 2021.

Mejia, who previously worked as vice president and general manager at Johnson Controls, said the resumed trade negotiations with China make him hopeful.

"It should help us propel or at least continue to hold things flat or better than what we saw in Q4," he said. "I don't believe we'll see further decline."

Delwiche, the Baird investment strategist, said any trade deal, regardless of its components, will be a positive for the industry.

“Having some deal, any deal, and having the certainty of what that means is a tailwind for CEO confidence and then for the manufacturing sector (as a whole),” Delwiche said. “Having a deal is more important than whatever the deal is.”

The recently-passed United States-Mexico-Canada Agreement also could raise confidence. The deal — replacing the North American Free Trade Agreement and dubbed NAFTA 2.0 — is intended to improve trade conditions between the three countries, notably in auto and tech manufacturing.

Large manufacturers included

Blake Moret, the chairman and CEO of Rockwell Automation, noted a “tough manufacturing environment” in his January conference call with investors — pointing again to the obvious suspects: U.S. trade tensions, ongoing effects of Brexit and slow global economic growth.

Despite that, the company posted a 3% increase in sales in the latest quarter. Rockwell Automation is projecting sales growth ranging from 2% to 5% for the 2020 fiscal year.

Rexnord, another big Milwaukee-based manufacturer, reported net sales from March to December 2019 were less than 1% higher than March to December 2018. The situation has forced the company to make what it euphemistically calls a $60 million "footprint repositioning." 

In January, Rexnord announced it will close its Grafton factory by the end of the year. It employed 200 people and made conveyor systems for Anheuser-Busch Cos. and MillerCoors LLC, among other companies. 

A 'somewhat insulated' region

One area of the state that seems relatively immune to the trade challenges is the manufacturing-heavy Fox Valley, said James Golembeski, the executive director of the Bay Area Workforce Development Board.

Two anchors in the Green Bay manufacturing industry — Fincantieri Marinette Marine and Oshkosh Corporation — operate on large government contracts, and the Trump administration has invested heavily in military spending.

The success of those companies in turn has benefited smaller manufacturers in the area by ensuring a supply chain for them.

"Until that changes, we're somewhat insulated from the ups and downs of the

manufacturing economy," Golembeski said.

The production of wind turbines has emerged in the region as another stabilizing force.

NEW (Northeast Wisconsin) Manufacturing Alliance polls more than 100 manufacturers in northeast Wisconsin. In its December Vitality Index, 67% of manufacturers in northeast Wisconsin said they are projecting an increase in sales.

Constant search for good employees

One problem that no one in manufacturing seems to be immune from is the struggle to fill jobs with competent employees.

Economists, local manufacturers and other industry experts have all pointed to the gap between available skilled workers and open positions as a major headache.

“It will take some time to have the labor force catch up to the demands of the manufacturing sector," Delwiche said.

Unemployment in the industry is at 2.7%.

"Hiring has been as challenging as ever," Mejia said.

In the NEW Manufacturing Alliance poll, 74% of companies said they were having issues finding talent.

When the survey started in 2011, only 29% had this challenge.

"We're hoping some day that we're able to duplicate people and not have to wait 18 years for them to work," alliance executive director Ann Franz said with a laugh. "If you can find that, please give me a call."

Noah Williams is the founding director of the Center for Research on the Wisconsin Economy at the University of Wisconsin-Madison. He expects automation to have a more prominent role in Wisconsin manufacturing as companies continue to face worker shortages.

Implementing automation is hardly an immediate solution — or a cheap one — forcing companies to take other actions until then.

“It’s kind of a bodies problem now,” Williams said. “A lot of employers have actually reduced the requirements to interview or to hire people. They’re just trying to get people in the door. Even with that, they’re having difficulties filling jobs.”

Other obstacles — at least one completely unforeseen just two months ago — also could stand in the way of improvement.

Mejia said the recent spread of coronavirus "could be a huge issue" for the manufacturing sector. Mejia estimated that 25% of Molded Dimensions' business is dependent on Asian imports.

As he looks at the orders on the whiteboard, he is guarding against getting too upbeat.

"There's still a lot of uncertainty to what's happening here in 2020," Mejia said.