Surviving the Storm: Navigating the Impact of Rising Interest Rates on Manufacturing

Right now, one big factor affecting the manufacturing industry is rising interest rates. In this post, we will outline a few expected impacts of this change as well as some ways manufacturers can stay resilient in the face of rising interest rates.

First, one of the biggest impacts of rising interest rates on manufacturing is the increased cost of borrowing money. As it becomes more expensive for manufacturers to finance capital projects and operations, investment in equipment, facilities, and technology can decrease. This can lead to reduced productivity and competitiveness, and ultimately could lead to lower profits.

Another way that rising interest rates are impacting manufacturing is through demand. When interest rates go up, consumers may have less disposable income, making it more difficult to finance large purchases such as automobiles and homes. This can lead to a decrease in demand for manufactured goods, which can have a ripple effect throughout the manufacturing supply chain.

So, what can manufacturers do to prepare for the impact of rising interest rates? One solution is to diversify sources of capital. Manufacturers can look for alternative sources of funding such as private equity or government grants to supplement traditional financing options. In addition, utilities frequently have programs that can help fund CapEx for energy efficiency improvements.

Another solution is to invest in efficiency and automation. By investing in automation and process improvements, manufacturers can improve the efficiency with which they use their existing assets, potentially offsetting the impact of rising interest rates. By finding ways to do more with less, larger capital investments may become less necessary to drive efficiency, more competitive pricing, and profits. IndustryWeek goes into detail, for example, on how Penn Color has been able to use Guidewheel to improve utilization of existing assets by 30-35%, significantly improving productivity and profit without new CapEx.

With capital more expensive, many manufacturers also give a higher priority to cost savings initiatives. Energy efficiency, for example, is an area where manufacturers can often quickly drive savings to the bottom line.

Lastly, manufacturers can also focus on innovation to offset the impact of rising interest rates. By investing in research and development, teams can create new products and services that may be less vulnerable to changes in interest rates and demand. For example, although the impact depends on the specific industry, products that are considered essential or have lower price points are less likely to be impacted by changes in interest rates as they will continue to be in demand regardless of economic conditions.

In conclusion, higher interest rates are likely to have a significant impact on manufacturing as well as other industries. However, by taking proactive steps to prepare for these changes, manufacturers can mitigate the potential negative impacts and position themselves for continued success in the future. By diversifying sources of capital, investing in efficiency and automation, and focusing on innovation, great teams can weather the storm and come out even stronger.