Rust Belt Reopens With Workers and Customers on Sidelines

(Bloomberg) -- A rebound in manufacturing is more complicated than just reopening a state, as a company in Schuylkill Haven, Pennsylvania, is painfully learning.

Cardinal Systems Inc., the second-largest pool maker in the U.S., is in the midst of its peak sales season -- boosted by demand from Americans now staying home instead of traveling this summer. After an initial two-week closure in late March, it was deemed essential and reopened, but the company is operating at just half capacity and unable to fill orders fast enough.

Only half of its 250 employees are back at work, despite a $1-an-hour pay bump and $500 bonus, according to President Debra Haase. Some are earning more from unemployment and stimulus payments, others have childcare issues and need to stay at home and many are worried about catching the virus.

The state starts reopening today. But Haase isn’t sure it will actually do her and other manufacturers any good.

“I think it’s going to stick around for a while,” Haase said about the impact of coronavirus on activity. “I think it’s a long way away from people allowed to freely go out and business as usual.”

Pennsylvania, hoping for a return of economic activity, is among the first Rust Belt states to start reopening its factories. But even before the virus hit, U.S. manufacturers were suffering from weakening global demand, a trade war with China and shrinking orders from the oil and gas industry.

Manufacturing contracted at the fastest pace on record in April, according to the Institute for Supply Management, with an index of employment falling to the lowest level in almost seven decades and new orders plunging the most since 1951. The sector lost 1.3 million jobs in April, as manufacturing-heavy states were among the hardest hit in the first rounds of layoffs.

Until there’s little threat of contagion, “productivity is going to really hurt from this,” said Timothy Fiore, chairman of ISM’s manufacturing business-survey committee.

Long Recovery

Manufacturing won’t recoup the recent losses until 2021, according to Oxford Economics’ Oren Klachkin.

“Parts of the country are beginning to slowly emerge from lockdown, but it will take time before manufacturing starts firing on all cylinders,” he wrote in a note to clients this month. “The backdrop for manufacturers is very bleak.”

States are trying to reopen as quickly as possible to limit the economic hit. Pennsylvania Governor Tom Wolf on Friday lifted restrictions in two dozen counties in the north central and northwest parts of the state, and named several more to reopen next week.

Michigan, home of car giants General Motors Co. and Ford Motor Co., is resuming auto and parts assembly starting May 11, one week after Ohio said manufacturers can begin operations. Indiana has already reopened parts of the state to some business, including factories.

But that doesn’t bring back demand for steel and other products from the energy industry, clobbered by historically low oil prices. Pittsburgh-based U.S. Steel announced 2,700 U.S. layoffs in April. Covid-19 amplified “already difficult oil and gas markets,” Chief Executive Officer David Burritt said on a conference call.

Nucor Corp. and Steel Dynamics Inc. also are facing challenges.

Ashland Foundry & Machine Works LLC, a metal parts manufacturer specializing in valves and pumps, has seen a 20% drop in demand-- a lot of its work is for energy clients. Its two Pennsylvania factories remained open as essential businesses, and even manufactured key parts for the two Navy hospital ships docked off the coasts of New York and California. But the company’s still feeling the hit.

“A lot of our clients are hesitant to make big capital investments right now,” CEO Jim Spalding said in a phone interview. It’s forced a rethink, with the company now pushing into the aerospace, nuclear, infrastructure, and medical industries, he said.

And even as Rust Belt states reopen, there’s still the issue of customer demand and lockdowns in other regions. Harmony Castings LLC, based in western Pennsylvania not far from the Ohio border, also was deemed essential, with most of its revenue coming from medical and military industries.

Even so, orders are down by a third in the past few months, according to President Andy Renkey. Harmony makes aluminum parts that go into everything from dental chairs to runway lighting at airports, and the drop in elective surgeries and slowdown in consumption is hurting.

“The overall economy needs to reopen and reopen quickly for us to be able to bounce back,” he said. “You can’t get back to normal if the economy isn’t open. What we’re doing right now is not sustainable.”

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