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2011-03-15 12:17:20
Against all the odds, American factories are coming back to life. Thank the
rest of the world for that
Mar 10th 2011 | CHICAGO AND WASHINGTON, DC | from the print edition
ACME INDUSTRIES is a small contract manufacturer with only ten big customers.
But those customers are a cross-section of the industrial economy, spanning
mining, oil, transport and construction. Right now, Acme s order book is
bulging. Everyone is up across the board, says Bob Clifford, the company s
head of sales and marketing.
In one corner of its factory just outside Chicago, three workers polish what
looks like a steel Lego brick the size of a steamer trunk. This is designed to
channel water underground at high pressure, and will go into
natural-gas-drilling equipment. In another corner sit rows of hollow steel
cylinders that will hold bearings inside the wheels of gigantic mining trucks
being built in nearby Peoria. Mr Clifford points to several parts destined for
diesel locomotives built by a subsidiary of Caterpillar a big maker of heavy
equipment. Caterpillar is booming, and its ecosystem of suppliers across
Illinois is seeing a real trickle-down effect, he says.
At the nadir of the recession Acme s sales had fallen 20% and it had laid off
ten of its 125 employees. Sales are back up, the head count is now up to 130,
and Acme reckons it will hire 20 more people this year to handle the growing
order book.
For the first time in many years, American manufacturing is doing better than
the rest of the economy. Manufacturing output tumbled 15% over the course of
the recession, from December 2007 to the end of June 2009. Since then it has
recovered two-thirds of that drop; production is now just 5% below its peak
level (see chart 1).
Factory employment has been slower to recover than output, since productivity
has risen. Nonetheless, that too is growing. In February factory payrolls rose
by 33,000 from January. In the past year manufacturing employment has gone up
by 189,000, or 1.6%, the biggest gain since the late 1990s. Total employment
rose just 1% in that period. Unemployment has fallen more sharply than the
national average in Illinois, Ohio and Michigan, which are relatively dependent
on manufacturing.
Much of the recovery there is payback for the stomach-churning plunge that came
before. Sales of cars, still one of America s biggest manufacturing sectors,
collapsed between 2007 and 2009 as customers lost access to credit, lost their
jobs, or lost confidence in cars made by General Motors and Chrysler, which
went through government-sponsored bankruptcy. That rippled through the industry
s thousands of suppliers strung out across the rustbelt. We were in the
valley of death in April of 2009, says John Winzeler, president of Winzeler
Gear, whose small plastic gears go into door latches, lumbar supports and
countless car parts. Sales, down 40% during the recession, have recovered more
than half that drop, in line with the recovery in car production.
Beyond this cyclical bounce-back, though, a structural shift may also be under
way. Makers of floorings, furniture and glass, all of which go into houses,
were especially hard hit and have yet to start hiring again. But those that
make things for businesses or customers overseas computers, machinery,
electronic equipment, heavy-duty trucks are thriving. Cisco Systems and Intel
Corporation notched up record sales last year. Caterpillar and John Deere,
which makes diggers, bulldozers and farm equipment, saw sales leap.
Kash Mansori, who provides economic consulting for manufacturers, attributes
this to the composition of economic growth (see chart 2). Housing and car sales
have typically led previous recoveries, but this time both have been held back
by tight credit conditions and heavy household debt. Meanwhile business
investment, typically a laggard, is rising because of tax incentives and
because firms had so long delayed replacing ageing equipment. Exports are even
stronger, thanks to the robust appetites of emerging markets and a lower
dollar.
In its Economic Report of the President last month, Barack Obama s Council of
Economic Advisers calculated that each additional percentage point of another
country s growth boosts its imports from America by three percentage points. It
thus expects emerging economies, including Mexico, to account for 71% of
America s export growth from 2009 to 2014 especially in farm products,
aircraft, integrated circuits and oil- and gas-field machinery.
Some hope this marks a broader turning point. American manufacturing employment
peaked in 1979 and has been generally falling since. This was mostly because of
rising productivity; but it also reflected the steady loss of domestic market
share to foreign imports, especially from China. Some now wonder if those
trends have stopped. Mr Winzeler points to announcements of Japanese and German
companies opening plants in America. His own company has weaned itself off
American car brands by developing relationships with foreign-owned suppliers.
Yet the notion that jobs may flood back from abroad seems a fantasy.
Caterpillar added 19,008 employees (excluding acquisitions) last year; 60% of
those were overseas. Like most multinationals, Caterpillar prefers to produce
where it sells. Last year sales to Asia rose 43%, and to Latin America 58%,
compared with 30% for North America. As long as emerging markets are growing
fastest, that s where the bulk of new manufacturing jobs are likely to go.
from the print edition | United States