Manufacturing Bouncing Back
America's manufacturing sector is recovering and poised for a modest rebound. The question is how much?
The long decline in America's manufacturing sector finally is over. During the past two years, manufacturing output has regained almost three-quarters of the stunning 20% drop it took during the Great Recession. And manufacturing firms have pared their production costs and improved their efficiency. Now they are poised for a comeback.
The Manufacturers Alliance for Productivity and Innovation, the industry's trade group, predicts that manufacturing output will rise 2% this year, 3.3% in 2014 and 4.2% in 2015 -- a modest rebound, but headed in the right direction. Some industry experts see decidedly better days after that, and talk of a renaissance in U.S. manufacturing fills the air.
The sweeping structural changes that manufacturing companies have undergone are putting U.S. factories back in the game. Over the past few years, U.S. productivity has improved, wages have remained flat, and automation has replaced many human workers. Labor unions have lost much of their clout. Other costs have fallen sharply: Interest rates are low. Oil and gas supplies have mushroomed, while energy prices, particularly for natural gas, have plunged. And the dollar's value has declined, making U.S. exports less expensive and foreign imports more costly to buy.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
At the same time, rising wages in China, combined with the spread of robotics here at home, are eroding the attractiveness of outsourcing production to low-wage countries. The nuclear disaster in Fukushima, Japan, gave companies pause about global supply chains. The upshot: A growing number of U.S. firms have begun to bring production home.
"The U.S. has gotten more competitive," says Harold L. Sirkin, a Boston Consulting Group senior partner who watches manufacturing. He predicts the U.S. will create up to 1 million manufacturing jobs over the next 10 years. "The U.S. will become a manufacturing center, and not just for American companies," he says.
Sirkin foresees visible gains in overall manufacturing output in industries such as computers and electronics, appliances and furniture, chemicals, fabricated metals, plastics and rubber, and automobiles and automotive parts. "We're really seeing signs of a turnaround," he says.
Even so, most analysts expect that manufacturing won't take off for another couple of years, at least. The U.S. economic recovery continues to be anemic, without enough oomph to propel factories at full speed. And the global economy is lagging further, so manufacturers can't count on exports to spur production at home.
"The missing ingredient is demand. Everything else is falling into place for manufacturing," says Mike Montgomery, an economist at IHS Global Insight in Lexington, Massachusetts. "The structural issues that manufacturing faced before have almost entirely sorted themselves out. But demand isn't growing fast enough."
And the golden days of the 1960s and early 1970s aren't likely to come back anytime soon. The resurgence will be modest. Large multinationals will continued to retain large plants abroad. At best, the gains will replace much of the employment losses incurred during the recession.
"You can say that the worst is over for American manufacturing," says Barry P. Bosworth, a Brookings Institution economist who keeps tabs on manufacturing. "The loss in factories will be slower than it's been over the past three decades because we no longer have to shed low-skill jobs and increase our efficiency in order to compete."
Even so, while U.S. manufacturing has come a long way in adjusting to the post-1970s world, it still faces some daunting challenges. Already, factories are having difficulty finding skilled workers for today's manufacturing jobs, and the problem will intensify as the work force ages. So far, the U.S. has done little to address it.
And while innovation in this country is going strong in a few high-profile scientific fields, such as nanotechnology and computer science, translating that into manufacturing is going more slowly than economists say is needed. Labor Department figures show, for example, that the number of new start-up firms has been declining steadily since 1998.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
-
GM Stock Accelerates After Earnings Beat
General Motors beat expectations for the first quarter and raised its outlook for the year. Here's what you need to know.
By Joey Solitro Published
-
Georgia Has a New Income Tax Rate for 2024
Tax Cuts Georgians now have a tax package containing income tax cuts, childcare relief, and potential property tax caps.
By Kelley R. Taylor Published
-
The Robots Are Coming... But Not For a While
The Kiplinger Letter There’s excitement in the tech sector over the potential of humanoid robots, but widespread adoption is likely to be years away.
By John Miley Published
-
Farmers Face Another Tough Year As Costs Continue to Climb: The Kiplinger Letter
The Kiplinger Letter Farm income is expected to decline for a second year, while costs continue to up-end farm profitability.
By Matthew Housiaux Published
-
H-1B Work Visa Rules Get a Revamp
The Kiplinger Letter H-1B visas allow employers to hire high-skilled foreign workers. Regulators have finalized new rules for this visa program following last fall's proposal.
By Matthew Housiaux Published
-
Woes Continue for Banking Sector: The Kiplinger Letter
The Kiplinger Letter Regional bank stocks were hammered recently after news of New York Community Bank’s big fourth-quarter loss.
By Rodrigo Sermeño Published
-
Are College Athletes Employees of Their Schools?: The Kiplinger Letter
The Kiplinger Letter A recent ruling has ramifications for labor relations and the unionization of student athletes.
By Sean Lengell Published
-
Salton Sea Clean Energy and Lithium Project Gets Approval: The Kiplinger Letter
The Kiplinger Letter California's Salton Sea is due to see the construction of a new lithium extraction and geothermal clean energy power plant.
By Matthew Housiaux Published
-
More Woes for Anheuser-Busch as a Strike Looms: The Kiplinger Letter
The Kiplinger Letter Drinkers of Anheuser-Busch beers may want to stock up soon. A looming strike threatens to shutter its U.S. breweries later this month.
By Sean Lengell Published
-
The Auto Industry Outlook for 2024
The Kiplinger Letter Here's what to expect in the auto industry this year. If you’re in the market for a car it won’t be quite as daunting as it was during the pandemic and after.
By David Payne Published