The Current Confusing State of American Manufacturing, More Exciting Than the Super Bowl

The Wrap of of The Confusing (But Exciting) Current State of American Manufacturing: As Told By Experts Throughout

As a football fan you may have expected an exciting and nail biting Super Bowl. But that was not the case. Although the Super Bowl may have been a lot less exciting than most had expected from the #1 Offense in the

Denver Broncos and the #1 Defense in the Seattle Seahawks. However, there is a more exciting event to watch: The Current State of American Manufacturing. If you follow the state of American Manufacturing and are a fan of manufacturing, the day after and this week after the Super Bowl has been sprinkled with drama and exciting reports on the state of American Manufacturing. From the rapid decline of new orders and the ISM’s PMI, to the talks of Reshoring as a reality to bring more manufacturing to the US, all to the dispute and “weirdness” of how all of these various indexes are really capturing the true outlook on the renaissance (or perhaps volatility) of American Manufacturing. In short, the current state of American Manufacturing is just plain….CONFUSING!

There is Manufacturing Investment, But Not Necessarily Manufacturing Jobs

Each week, Dean Barber, a site selection and economic development consultant, puts out his thoughts on the state of American manufacturing, the economy, and the important subject of site selection. This past weekend, as usual when I checked my LinkedIn inbox, and read his weekly blog post, he made a compelling argument regarding the state of manufacturing and manufacturing jobs in the U.S. While manufacturing investment is gaining momentum, Barber argues, that is not translating into a resurgence in manufacturing employment. In fact, the two might be mutually exclusive.

“Here’s the kicker — most experts don’t see a big burst of new manufacturing jobs taking place despite all the hopium about a “manufacturing renaissance” in this country. That’s because to some degree people, or at least most people, are becoming functionally obsolete for advanced manufacturing. Technological change has resulted in the automation of so many functions in the manufacturing process, in which software-driven machines have essentially become substitutes, not complements, to people on the factory floor.”

In the short run, the numbers suggest manufacturing jobs are making a comeback. According to U.S. Bureau of Labor Statistics preliminary numbers, the manufacturing sector ending 2013 at slightly more than 12 million jobs, up about six-tenths of a percent from 2012. But while the sector has added more than 557,000 jobs since the 2009 recession, it is still 800,00 jobs below where it was in 2008 and more than 2.3 million jobs below what it was 10 years ago.

Monday, the Institute of Supply Managers’s PMI fell drastically, despite ending the year on a tear with 6 months of consecutive growth and a positive reading to end 2013 in December, to just 51.3% pointing to a manufacturing economic outlook of uncertainty yet again. Additionally, ADP reports that 12,000 manufacturing jobs were lost, the first decline sine July 2013. So, if Reshoring is all the buzz, and manufacturing is in a renaissance and is coming back, where all the jobs?

From an International Business Times article yesterday, it seems that we need to start looking at the Reshoring of manufacturing jobs in more of the long term vs. the wishy washy month to month:

Since 2010, the U.S. has regained a net 568,000 factory jobs. The Reshoring Initiative, an organization aiming to “return manufacturing home,” estimates that about 150 companies have “reshored,” or moved positions from overseas to the U.S. since 2010, contributing about 80,000 jobs or 15 percent of the total manufacturing jobs added.

“Jobs are coming back, and there is a renaissance,” said Claude Barfield, a scholar at American Enterprise Institute and former consultant to the Office of the U.S. Trade Representative. “There are jobs in widgets you would never have thought of before, but that’s not always translated into lots and lots of jobs.”

Numbers Month to Month are Fleeting, Let’s Look a The Long Term…And, The RIGHT Data

It seems, a lot of the experts are hinting at looking at the long term, and in general, that net gain of jobs in total as well as the economic multiplier effect created when there is a larger dollar-share of the GDP from manufacturing.

Manufacturing’s dollar-share of gross domestic product increased in 2012 for the third consecutive year to 12.5 percent, its highest share of GDP since 2007, though still less than half its contribution during the 1950s.

David A. Rosenberg, chief economist for Gluskin Sheff + Associates Inc., said Monday that the Chicago Purchasing Managers Index for January shows that “manufacturing activity in the industrialized heartland has been expanding for nine months in a row.”

Sam Ro, in his article on Business Insider said that the ISM’s PMI report was just “weird”, noting that economists were expecting a PMI reading of 56.0, which didn’t happen. He continues to say that this number is weird, because a number of the regionaly PMIs (such as the Chicago one noted by Rosenberg), showed improvement.

This brings us to this colorful chart from Bloomberg LP chief economist Michael McDonough. It’s of the progression of the national and various regional manufacturing survey indexes.

McDonough notes that the ISM index — the national index — is the closest to breakeven. This is in contrast to the regional surveys, which are much farther away.

Alan Tonelson, an economist with the U.S. Business and Industry Council, said the PMI suffers from a more fundamental problem — its forecasts don’t line up with the actual data that follows from the Federal Reserve and the Bureau of Labor Statistics.

In MarketWatch.com, Tonelson says recent ISM reports have painted a picture of robust manufacturing expansion when the corresponding production data from the Federal Reserve has been more modest. At other times, the ISM reports have been out of step with the government data.

“For example, in 2011 and 2012, the Fed reports that U.S. manufacturing output rose in inflation-adjusted terms by a nearly identical 3.675 and 3.68%, respectively. But during that period, the annual ISM headline fell from 55.2 to 51.69. More puzzling, manufacturing’s real output growth last year fell to 2.77%. But the ISM headline actually rose to 53.7.” [MarketWatch.com]

Tonelson writes that ISM’s forecasts on manufacturing employment are no better.

“According to the BLS, American industry began adding net new jobs on an annual basis in 2010, with the 119,000 increase being accompanied by an ISM employment reading of 57.5. The following year, however, net job creation in manufacturing rose to 207,000. But the ISM employment reading fell to 52.9.”[Marketwatch.com]

How does Reshoring Affect These Trends, and What Does it Mean for Manufacturing Jobs?

As Barber notes in his blog this week, the manufacturing investment being made today is less about strong backs and more about strong machinery, highly sophisticated, technology-driven machinery that requires fewer humans to be a part of the process.

The irony is, even with the the lower demand for labor, manufacturing jobs could still go begging, in part because of the shortage of workers with the skills needed to replace workers who are nearing retirement age, referred to as the Skills Gap (which we covered in our Skills Gap series here).

Harry Moser, founder of the Reshoring Institute and the chief apostle of the U.S. manufacturing renaissance, sees workforce development as the key challenge related to reshoring and manufacturing in development in general, and he is vocal in calling for more initiatives to encourage students toward manufacturing careers, from creation of more STEM programs to establishing more partnerships between industry and schools.

The Charlotte USA region, for example, has the unique Apprentice 2000 program that provides four years of technical training for students beginning when they are high school juniors and leads to an associate’s degree in mechatronics technology from a local community college. The program is supported by a number of industries in the region that provide hands-on training and hire graduates after they complete their degrees.

Another opportunity to develop more manufacturing jobs is through encouragement of local supply chains. Moser says economic development organizations can help influence that by having meaningful conversations with original equipment manufacturers in their region that offshore production and educate them on the economic sense of utilizing contract manufacturers and components makers in their communities.

Barber’s insight may be correct. U.S. manufacturing may be able to sustain its momentum without manufacturing jobs returning to their levels of even a decade earlier. But by tackling the workforce issues, creating new avenues of opportunity and leveraging the power of partnership, manufacturing jobs can remain a vital — and even growing — part of the nation’s economic prosperity.

In Conclusion on the State of American Manufacturing

Despite numerous data, expert opinions, thoughts, and hopes, the reality is we can all do something to help the state of American Manufacturing: keep your head down, work smart, hard, and use common sense. Make decisions based on the long term, to mitigate risk, and to stay efficient. As stated in our blog post on the IDC’s Manufacturing Insights for 2014, the focus this year needs to continue on investments in operations improvement and technology (in fact, this great article featured on Forbes today says technology-based planning is vitally MORE important than a fiscal-based planning model).

There is a lot out there to read and to stay on top of your game as a manufacturer, we hope this summary of the current State of American Manufacturing was helpful.