Manufacturing in the U.S.

Though the Latest Unemployment Advances Are Worthy of Some Optimism, Employment Numbers May Never Be What They Were

By Aaron Hand

In President Obama's State of the Union address in January, he laid out a blueprint for the U.S. economy that is built on manufacturing. Within his pledge to improve incentives for manufacturers to stay in the country, he said, "American manufacturers are hiring again, creating jobs for the first time since the late 1990s."

Indeed, manufacturing is looking up and unemployment rates continue to fall. According to the Bureau of Labor Statistics, the U.S. added 330,000 manufacturing-based jobs in 2011. With companies adding 243,000 jobs throughout the economy in January alone, 50,000 of those jobs were in manufacturing. That's the fastest jobs in the manufacturing sector have grown in the past year.

It all sounds pretty good. But is it really all it's cracked up to be? Here are some figures to keep in mind: For 35 years (1965-2000), manufacturing employment in the U.S. stayed between 16 million and 19.5 million jobs, notes Josh Bivens, acting research and policy director at the Economic Policy Institute (EPI). Then the sector lost 3 million jobs in the 2000 recession, and today employs fewer than 12 million workers.

So, although the latest advances on unemployment are worthy of some optimism, we might never see the kind of employment numbers that we used to. Looking at the job market overall, we've had zero growth over the past 11 years, though the population grew steadily. Even at January's pace of acceleration, it would take us until 2019 to return to full employment levels, according to EPI.

Another red flag that EPI's Heidi Shierholz pointed out recently is the continued low number of voluntary quits, which dropped by more than 40% between 2007 and 2009, and are still 34% below 2007 levels. "When job opportunities are plentiful, employed workers have the chance to change jobs that are a better match for their skills, experience and interests, and where they are more productive and command higher wages," she writes in a recent blog post. "During downturns, not only does hiring go down, so does the number of voluntary quits, as outside job opportunities become scarce."

Although the latest advances on unemployment are worthy of some optimism, we might never see the kind of employment numbers that we used to.

This in turn greatly affects the wages that workers can earn because not only do they lose a key avenue for wage growth (changing jobs), but employers do not see the need to substantially increase wages in order to hold onto their people.

Nonetheless, there is cause for hope in the U.S. manufacturing sector, hinging not only on falling unemployment rates. "North American factory activity has increased for the 30th consecutive month and 65% are investing in new technology, both very positive signs for expanding growth in the manufacturing sector," says Mitch Free, CEO of Mfg.com, an online marketplace for industry. According to Manufacturers Alliance for Productivity and Innovation (MAPI), machinery is expected to rise 7% this year, with the motor vehicle market growing 11%.

There's also been news that machinery manufacturing could be coming back to the U.S. from overseas—a movement called "reshoring." As we reported in December (www.ControlDesign.com/comeback), machinery is among seven sectors that are set to return to the U.S. for manufacturing.

This isn't because of any renewed patriotism, Free explains. "The U.S. dollar has gotten quite weak. Therefore, it's eroded some of the cost advantages of producing overseas," he says. Add to that the cost of making trips to China, rising shipping prices as oil prices go up, brokerage costs, a longer work in progress, etc., and "some companies are deeming it just not worth the hassle."

The decision to bring manufacturing back to the States will depend in part on how many of each item a company wants to manufacture, Free notes. The bigger the order, the more worthwhile it will be to make it overseas. "But companies are still nervous about consumer demand, business demand in America," he says. "So they would rather produce in smaller lot sizes."

With a 3% uptick bringing reshoring back to North America to 22%, it remains to be seen if it can surpass the 38% peak Mfg.com has seen since it began tracking. "American manufacturing has never gotten the full throttle White House support that was addressed in the recent State of the Union that called to return manufacturing to the United States."

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