By: Scott Lawrence | 02/25/21
Despite undergoing significant challenges and changes due to the coronavirus pandemic, the outlook for the manufacturing industry looks hopeful at the start of 2021. In the recent Q4 Outlook survey conducted by the National Association of Manufacturers (NAM), a majority of manufacturers said they were positive about their company’s outlook. With 74.2% of respondents indicating they were positive or somewhat positive about the future, this was a significant increase from the two prior quarters which had ratings of 33.9% and 66%. Additionally, two thirds of respondents anticipated that their revenue would return to pre-pandemic levels during 2021, and 86.2% indicated return of revenue by the end of 2022.
Manufacturers have shown themselves to be resilient in responding to pandemic challenges. Many manufacturers have been able to pivot and respond to increased demand for supplies necessitated by the pandemic and an increase in consumer demand for durable goods. Some companies have even assisted in the response to the pandemic by manufacturing personal protection equipment and more recently manufacturing and distributing much anticipated vaccines. The arrival of the COVID-19 vaccine is likely contributing to the optimistic 2021 outlook for manufacturers.
As manufacturers look forward to an increase in revenue and restoration of business to pre-pandemic levels, there are still issues they foresee for 2021. The NAM survey indicated that the top four challenges manufacturers are focused on in the coming year are as follows: hiring/retaining quality employees, increasing sales in a weak domestic economy, dealing with rising health care/insurance costs and mitigating the impact from increased raw material costs. NAM also reports that over half of manufacturers continue to focus on supply chains and are in the process of considering or starting a redesign of their supply chain. To anticipate future needs from consumers, manufacturers should continue to reforecast demand and identify supply chain risks and consider the impact of increased expenses. They should also revisit their pricing policies and look for ways to mitigate potential costs.
The recent jobs report released on February 5, 2021 by the Bureau of Labor Statistics showed that manufacturing employment was stagnant in January. As of January 2021, manufacturing jobs remain over a half a million lower than manufacturing jobs in March 2020. However, despite the increased availability of workers, many manufacturers report hiring difficulties brought about by a skills gap in labor. Consequently, manufacturers are considering how to close the labor gap by retraining employees and redesigning more efficient processes.
Only 5% of manufacturers surveyed indicated that access to capital was their primary business challenge in Q4 2020. These results would seem to indicate that government programs such as the Paycheck Protection Program (PPP) and the Main Street Lending Program are helping to provide manufacturers with much needed access to funds and preventing business shutdowns. Furthermore, Congress has implemented several changes to tax laws which could provide much needed cash flow to manufacturers as they file their 2020 tax returns and plan for 2021.
As manufacturers plan for 2021, they should keep the following tax considerations in mind:
Bennett Thrasher is here to offer the guidance and insights you need as you navigate the pandemic and look toward the future. We are available to consult with you to ensure you are taking advantage of recent tax law changes that will support your business. Additionally, we are able to help determine the most efficient manner to maximize all credits and incentives (e.g. ERC, PPP Loan Forgiveness, other credits, etc.) available to your company.
For more information, please contact Rick Rosell or Amy Hess by calling 770.396.2200.
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