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Small manufacturers cutting back, delaying hiring

Wednesday, 25 Sep 2013 | 4:25 PM ET
Andrew Harrer | Bloomberg | Getty Images

After three years of investing billions into their factories, adding thousands of jobs and watching their profits grow, many small manufacturers in America are now cutting back. A new report from PayNet, which tracks the investments of 75 million small businesses, said small manufacturers cut their spending by 2 percent during the 12 months that ended in June.

It is the first decline in investments by small manufacturers PayNet has recorded since June of 2010.

"Small manufacturers in all these different sectors are finding that there are less orders coming in for their goods and services," said Bill Phelan, president of PayNet. "With less orders, they don't see the need to invest in greater capacity."

The slowdown in orders may not be a huge reduction, but it is making some mom-and-pop manufacturers more cautious.

"It's like running in mud these days," said Rich Carrigan, president of United Displaycraft in Des Plaines, Ill. "We're doing a lot of work, but we're not making the progress we'd like to see. We had a good week last week, but I need to see that over the next six or eight weeks before I get my confidence back up."

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More uncertainty, fewer new workers

Whether it's manufacturing executives being worried about the economy slowing down or companies getting greater productivity out of their plants, it is clear many manufacturing companies are thinking twice before hiring more workers.

That's happening at United Displaycraft. The company builds and sells custom displays for retail stores throughout North America, with 225 workers filling orders 24 hours a day, five days a week.

(Read more: US industrial output up in August)

But with business slowing down, Carrigan is holding off on filling open jobs. "Just yesterday my COO came in and said, 'We've got four open jobs on the second shift,' and I said 'We really have to see business pick up again before we hire those guys back full time.'"

In the past 12 months the U.S. economy has added just 20,000 new manufacturing jobs. Since bottoming out in January of 2010 with 11.46 million jobs, the manufacturing sector has added a little over a half million jobs.

Diane Swonk, chief economist at Mesirow Financial, believes U.S. manufacturing companies will add more jobs, but the hiring will be modest. "I think we will see an uptick in manufacturing employment, but the dirt is in the details and it is off a very low base. It is not going to be the hundreds of thousands of jobs it once was 20 or 30 years ago," said Swonk.

Phelan agreed. "Small manufacturers are not going to be in a position to hire a lot of new people, because they just don't have more systems, more conveyors and more property plant equipment to put them to work."

(Read more: US factory activity loses momentum in September: Markit)

Waiting to spend, waiting for confidence

At United Displaycraft, the capital expenditure budget is on hold. Earlier this year, the company spent a quarter million dollars adding a new paint shop. "To invest in new equipment we need to see profits for the whole year and the confidence those profits are going be around for a while," said Carrigan.

(Read more: Snap-on CEO upbeat about business)

After 15 years rising through the ranks of a company started by his grandfather, Carrigan has seen his share of ups and downs, including the recession. He said this slowdown feels different. Carrigan's not worried about the economy slipping back into a recession, but he is concerned business is slowing down.

"I happened to be at an industry meeting last month where there were 30 other companies sitting around the table, and I was surprised at how many other executives feel like I do. They'd like to keep investing, get equipment cued up, but they're not going to cut purchase orders for new equipment until they see that consistency in the future," said Carrigan

—By CNBC's Phil LeBeau. Follow him on Twitter @LeBeauCarNews.

Questions? Comments? BehindTheWheel@cnbc.com.

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