Manufacturing in recession? Not so far in this factory hub.

Why We Wrote This

Economics shapes politics, but as talk of a manufacturing slowdown grows, people in one potentially pivotal state aren’t seeing it.

Barry Adams/Wisconsin State Journal/AP/File
James Johnson builds a spike-tooth harrow at McFarlane Manufacturing in Sauk City, Wisconsin, on Sept. 27, 2017. Facing a tight labor supply, General Manager Todd Lassanske says he has worked to cultivate loyalty and flexible skills in his staff.

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After two years of strong economic growth, the outlook here in Wisconsin’s Sauk County is softening. Total jobs are down a bit from last year. Some businesses have lost orders due to rising tariffs. Ed White, executive director of the Sauk County Development Corp. in Baraboo, says there’s “a little bit of angst.” 

Yet, amid headlines about a U.S. manufacturing sector essentially in recession – with one key index of factory activity showing two straight months of decline – Sauk County also provides a counterpoint. 

For many companies in this factory hub not far from Madison, the biggest problem isn’t too few orders, it’s too few workers. “Help wanted” signs abound. McFarlane Manufacturing, which makes farm-tillage equipment, is due to receive its first robot soon, to improve the quality and speed of the current workforce. 

“We struggle to get folks,” says Todd Lassanske, general manager. But “that’s a good challenge for us as employers.” 

How things play out will be important politically as well as economically, since factory-oriented states like Wisconsin and Pennsylvania could be pivotal in the 2020 election.

It’s not the worst of times in Sauk County, Wisconsin. It may even be the best of times in this bucolic mix of dairy farms and vacation homes, factory workers and professionals.

But after two years of strong economic growth, the outlook here in this battleground county in a battleground state is softening.

“Plateauing,” says Kurt Muchow, a community development consultant for Wisconsin municipalities. 

“A little bit of angst,” says Ed White, executive director of the Sauk County Development Corp. in Baraboo. 

And a little bit of mystery, too. After strong job growth in President Donald Trump’s first two years, 2019 is proving to be the year of the slowdown nationally, due to the trade war with China and the fading of the stimulus from tax cuts. The weak employment growth is particularly noticeable in the blue-collar industries in the states most hotly contested in the 2016 presidential election. Of the 10 states with the tightest election margins, four states are on track to lose goods-producing jobs this year if current trends continue and two others will see growth in those industries cut by 75% or more.

Such losses are not a big deal in, say, North Carolina, because growth in service jobs is so strong. In the factory-oriented states of Michigan, Pennsylvania, and Wisconsin, the loss of goods-producing jobs should be setting off alarm bells for a president who won office by appealing to many of those blue-collar workers, winning these states by razor-thin margins.

Nationwide now, the manufacturing sector is essentially in recession. Factory activity dropped to 47.8 last month from 49.1 the prior month, the sharpest drop in the index of the Institute for Supply Management in a decade. Any reading under 50 signifies a contraction in manufacturing. 

The mystery is that in Sauk County, at least, economic alarm bells don’t seem to be ringing.

Located near Madison, the state capital, and about a two-hour drive west of Milwaukee, this county has for the past year seen its overall job count stagnate at a level a few hundred jobs below prior-year figures. (The U.S. Bureau of Labor Statistics doesn’t break down county data by industry.) Out of an employment base of some 34,000 that’s not much. And the preliminary figure for August shows a jump of 300 jobs over the previous August. 

Normally, shrinking or stagnant employment signals economic distress. But here in Sauk County, business is still so good that statistics of decline come as a shock to local leaders. “There must be some anomaly,” says Peter Vedro, chairman of the county board of supervisors. “Sauk County is doing exceptionally well.”

“Now hiring”

There are some chinks in the armor: A foundry in Reedsburg is being bought out. Chinese tariffs have hurt sales for a local specialty hardwood mill and dairy processors. But for many companies in Wisconsin, the biggest problem isn’t too few orders, it’s too few workers.

“We have pretty much tapped out the labor market,” says Steve Deller, an economist at the University of Wisconsin-Madison. “We have companies that are saying that that’s causing part of the slowdown. It’s a bottleneck.”

“Now hiring” signs are everywhere. In Reedsburg, the county’s fastest-growing community, the AAM foundry has posted three at a busy intersection at the corner of its plant, offering starting pay of $16 an hour and a $100 bonus for workers who sign up for the second or third shift. In the industrial park nearby, Primex Plastics has a big hiring sign at an intersection 100 yards before one reaches its plant. In an empty lot of the park, Hartje Tire & Service Center has put up a bright green sign for a farm and truck tire technician, even though its shop is nine miles away in LaValle, Wisconsin.

The labor market is getting tighter and changing tires is hard work, says the company’s co-CEO, Connie Hartje. “That’s why we put the sign out there [by factories]. Not everyone wants to work that hard.” The company is so stretched servicing current customers, it can’t drum up new business, she adds.

Companies are finding various ways to cope. In the past year, Seats Inc. in Reedsburg, which makes seating for everything from fire trucks and boats to locomotives, has opened facilities in Iowa and Kansas, avoiding the local labor crunch. “Our colleagues and I were a little bit stunned,” says Mr. Vedro of the county board, “because this seemed to be a done deal before it got to me.”

McFarlane Manufacturing, which makes farm-tillage equipment, is due to receive its first robot on Halloween. “We struggle to get folks,” says Todd Lassanske, general manager. But “that’s a good challenge for us as employers.” He has worked to make the workforce more flexible and the company more transparent about its financial situation to increase company loyalty. The robot, he adds, won’t take away jobs, but instead improve the quality and speed of the current workforce.

A robot to brush their backs

The move to robotics isn’t confined to manufacturing.

Farmer Greg Lohr has a new steel barn, where one hired man supervises four robots that milk 230 cows a day. He says he had to make the debt-financed switch because good help was hard to find and keep. It was either sell the farm or move to robots.

The new facility is something of a shock. Cows lie in stalls covered with sand worthy of a California beach. They choose when they get milked, and even have a robot to brush their backs on demand. And Mr. Lohr says they produce 10% to 15% more milk than they did under the old system.

It’s hard to say how all this plays out for Wisconsin in next year’s presidential race. 

“We’ve had exceptionally low unemployment for several years now, so that’s a good reason for people to feel positive about the economy,” says Charles Franklin, director of the Marquette Law School Poll, a closely watched survey of public opinion in Wisconsin. But “when we look at the future expectations, the drop in 2019 is extremely striking.”

Coming out of the Great Recession, more Wisconsin residents felt positive about the future than negative. And under President Trump, they grew even more optimistic – in all, 42 straight Marquette polls with no net negatives. That changed this year with the latest August poll showing 26% of residents think things will get better; 37% expect they’ll get worse.

If Wisconsin loses manufacturing jobs this year – some 8,000, if current trends continue – it could hurt the president next year, because that would undercut one of his key campaign promises in 2016, says Mr. Franklin.

But if the job losses remain small, overworked and understaffed companies in places like Sauk County might not even notice.

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