What Philly factory owners are thinking: Tax cuts help, but tariffs and labor scarcity pose challenges

Here's something we haven't heard much in a while: It's a good time to run a factory in Philadelphia, says William Stockwell, fourth generation owner of Stockwell Elastomers, a 75-employee gaskets-and-seals manufacturer in the Holmesburg section.

It's about hiring: While suburban factory managers complain that it's tough to find reliable new people who can handle factory work, the city has more people looking for hourly wages that start in the low teens and range through the high 20s, plus medical, retirement, and a piece of the action: Stockwell has added an employee stock-ownership program.

Unlike in the far suburbs, "I can look out a half-mile from this building and I have 10,000 people to choose from," in rowhouse neighborhoods spreading west of the low-rise tan-brick plant, Stockwell told me from his office.

He needed all the referrals he could get last year, when area temp services ran out of names during a mini-boom in factory and warehouse hiring. Stockwell sent an all-hands email appeal. Staff responded with friends and family members "who had never dreamed of working in a manufacturing facility," he told me. "We have a lady from the Kmart that closed on Cottman Avenue. She's a star. People assume the work is drudgery. But we do small-run, high-mix jobs. You won't be bored by doing the same thing shift after shift. It's an entry to the middle class."

The stronger economy is also forcing factories "to take a second look at people we might not have been inclined to hire before," he added. Stockwell has sped up on-the-job training. Generally, he concluded, "the private sector is reaching deeper into society to teach and train, where the school system and the government haven't been able."

Stockwell was one of 111 manufacturers in eastern Pennsylvania, South Jersey, and Delaware who answered the sixth yearly manufacturing survey — about hiring and the impact of economic policies of the Trump administration and the Republican-led Congress — by Kreischer Miller, a Horsham accounting firm that focuses on industrial companies in Southeastern Pennsylvania and nearby towns.

More than two-thirds of the factory owners said they expected last winter's federal tax rate cuts will help the U.S. economy generally.

Nearly half expected their own sales will grow at least 5 percent, outpacing the U.S. economy. That's a big increase: Only one-third felt that way in last year's surveys.

But just 1 in 12 manufacturers expect the  looming tariffs on steel and aluminum imports will help their companies. Nearly six in 10 expect tariffs will hurt both their companies and the U.S. economy.

Federal corporate income-tax cuts are making it easier for German-owned lighting-parts maker GEHR USA in Boothwyn to afford new investments "in the business, in equipment and people," said president Patrick Foose in his comments to the survey, which were made public by Kreischer Miller. That includes $1.5 million for two new extrusion lines, instead of the single line he had been planning to add, plus "a little bit more" for wage increases.

He wasn't worried about higher tariffs; Foose expects Trump's move will end up obliging the Chinese to ease restrictions on their U.S. imports, boosting the U.S. economy.

"The new tariffs on steel have had a very quick, negative impact" on Waste Gas Fabricating Inc., an employee-owned steel fabricator in Fairless Hills, president Kyle Cloman said in his survey response.

Even though the company uses mostly U.S.-made steel, the threat of tariffs has driven overall prices higher, boosting steel costs by 20 cents a pound. The company handles 125 tons of steel a day, "so that means it costs about $40,000 more a day to run our business" since the tariffs were announced. "The resulting increase in the cost of goods made from steel" will "offset the tax advantages," he added. But that could take a few years; For now, "we are about as busy as we can possibly be."

Nearly two-thirds of the companies said they plan to hire this year, up from fewer than half two years ago. But many added that reliable, experienced help is getting harder to find.

The Labor Department says the national unemployment rate has fallen below 4 percent. The Bureau of Labor Statistics says the average U.S .hourly manufacturing wage was $26.91 an hour in April and $26.55 a year earlier. That compares to $40.34 for information technology workers, $29.63 for construction workers, $26.80 for health-care and school workers, and $15.83 for restaurant and hotel workers.

If demand keeps rising faster than the labor supply, factory owners could face more pressure to raise wages, automate operations or move work overseas. The pressure should grow as fewer Americans have children and President Trump and other Republican leaders have pushed to limit immigration, a traditional source of American factory labor.

More than 90 percent of the manufacturers in the area survey said they had to give workers a raise in the past year (48 percent said they added workers in 2016, 59 percent in 2017, and 65 percent plan to hire this year).

But many are finding it harder to find qualified and skilled workers: "There is a disconnect between jobs available and the skill sets of applicants" in the Philadelphia area and nationally, said Michael A. Coakley, Kreischer Miller's audit and accounting director and manufacturing group head, in a statement.

GEHR's Foose says there are plenty of sales and office workers around, but it's tough to find reliable entry-level plastics workers in the firm's Delaware County neighborhood: "We're not a sexy business," and there's "a fairly large section of society" in that area of people who never learned or adapted to factory work.