By Timothy Aeppel
(Reuters) – Jim Kirsh initially thought his family-owned foundry in southeastern Wisconsin might stay busy during the pandemic.
Kirsh Foundry Inc, a cluster of buildings nestled in Beaver Dam, a city of 16,000 about an hour’s drive from Milwaukee, entered the year with a bulging order book, thanks in part to a big customer bringing casting work back from China.
This was quickly followed by an urgent call to make parts for a ventilator being built by General Electric (NYSE:) Co in response to the coronavirus.
By summer, however, business started to dry up. Today it remains depressed, emblematic of a U.S. manufacturing economy that, for all its apparent resilience, has notable pockets of weakness.
Broad measures of manufacturing activity, such as the Institute for Supply Management’s purchasing managers’ index, suggest the sector has snapped back from the springtime slump delivered by COVID-19. But the revival is uneven. The Federal Reserve reported Tuesday that while output by consumer goods producers has largely recovered to pre-pandemic levels, those who make things for other businesses have not.
Indeed, some U.S. factories are booming, and there are even shortages of some popular consumer goods. Americans stuck at home or hesitant to get on airplanes are snapping up trucks, appliances, recreational vehicles and boats.
But a large swath of the U.S. industrial economy consists of companies like Kirsh’s – which sell goods to other companies -and many of those firms remain crimped by soft demand.
Caterpillar Inc (NYSE:), seen as an economy bellwether, reported sales fell by at least 20% in its three main businesses in the latest quarter, while 3M Co reported sales down in half of its business lines compared with a year ago. Aerospace giant Boeing (NYSE:) Co is mired in a deep slump.
A new surge of COVID-19 across the Upper Midwest, where many of these companies have large operations, is the latest challenge. If officials move to curb economic activity again to halt the spread of the virus, it would prolong the downturn for equipment makers and others dependent on strong business spending.
“At this point, I’m just figuring all of 2021 will be awful, regardless of who’s the president,” said Kirsh, whose grandfather founded the business in 1937 amid the Great Depression.
There are few more basic industries than foundries. These factories, which produce metal castings, are a good gauge for the health of the larger manufacturing sector.
Nine out of every 10 durable goods contain metal castings, which are made by pouring liquid metal into forms to create parts that are then trimmed and polished before they move on to other factories. While castings are found in many consumer goods, including cars and washing machines, a core use is metal parts that go into things like bulldozers, cranes and airplanes.
Kirsh estimates his sales will be down 11% this year – a decent result considering that at one point they were down by half. He has laid off a third of his 115 employees, a combination of hourly and salaried staff, and halted all capital projects.
His 12 largest customers, which include Caterpillar, Deere (NYSE:) & Co, and engine-maker Cummins Inc (NYSE:), have curbed orders and given little indication of when orders might return to pre-covid levels, he said. One hopeful sign, he said, is a strong uptick in orders in recent weeks, led by Deere.
What makes this downturn so unsettling, said Kirsh, is its “open-ended” nature. “Even in 2008 and 2009, after a certain point, you could see things start to turn. You knew things would get back to normal,” he said. “This is not a normal economic downturn.”
Now he is struggling to ship the orders he does have because the virus has hit the foundry directly.
In September, one of his supervisors tested positive – after the supervisor spent time talking to 12 workers around the plant. Then the scheduler – another key employee – tested positive, which meant the shipping supervisor who works closely with her also had to quarantine.
At one point the foundry had 19 employees – about a quarter of their reduced workforce – either sick or in precautionary quarantine. That number is now down to just one. But Kirsh’s calculations of how many workers he needs are complicated by figuring out a buffer to account for COVID-19-related absences. He’s now trying to hire workers again, in part to compensate for the absences as well as the recent upturn in orders.
Kirsh is part the Grey Iron Founders Association, a group of 16 small foundries that meets once a quarter in Chicago to talk about business conditions. At the latest meeting, most reported similar conditions. “Most of us have business down in the 30% range,” he said.
Thomas Teske, general manager of EJ, a foundry in East Jordan, Michigan, said its business has held steady – mainly because it specializes in making castings for government infrastructure projects.
“The only state that shut down construction was Pennsylvania – and that was just for a couple of weeks,” said Teske. “But our concern is going forward,” given how heavily state infrastructure projects rely on tax revenue.
“Funding is going to be an issue,” said Teske, “so it’s tough to see what the future holds.”