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Overall, the manufacturing sector will eke out minimal gains this year, weighed down by the long-running housing slump and slow auto sales. Those weak links won't see much improvement until next year. The overall factory production will fall just shy of last year's 2% increase, which was the slowest pace since the 1.1% advance in 2003.
The slower sectors are being offset by sectors that benefit from exports -- to a certain extent. "Exports are a cushion, but they aren't strong enough to offset domestic weakness," says Daniel Meckstroth, an economist with the Manufacturer's Alliance/MAPI. Exports account for about 19% of total factory shipments.
Coming into this year, seven manufacturing groups, accounting for 25% of production, were in recession. They include the manufacture of heavy trucks and housing-related activity such as wood products. Eight other categories, which account for 50%, are struggling. The remaining four, which are exports-heavy, are still expanding, fueled by oil and gas drilling equipment, information processing, medical supplies, agricultural machinery and civilian aircrafts.
Manufacturing posted a weak fourth quarter in 2007 but a survey of purchasing managers in January showed a rebound, a rare pieces of good economic news so far this year. With the economy so weak, the prospect of a 2% increase this year might not seem so bad. But it's less than half of the 4.6% increase in 2006.
Although factory production will remain in positive territory overall this year, another 200,000 jobs will be lost. Only aerospace and industrial machinery will buck the tide and add workers in 2008. Manufacturing still hasn't recovered the 3 million jobs that were lost between 2000 and 2004. After gaining for two years, the losses resumed, with 78,000 in 2006, and 212,000 in 2007. The total of 13.9 million manufacturing jobs is well below the peak of 19.5 million in 1979 -- or a recent high of 17.3 million in 2000.
Most of the jobs are lost for good. They won’t come back when gross domestic product revives. More and better equipment are the chief reasons. Federal Reserve Chairman Ben Bernanke said recently, "U.S. manufacturing is so productive that we produce as much stuff as we did 20 years ago and we do it with fewer workers." For weekly updates on topics to improve your business decisionmaking, click here.
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