The U.S. is still a market of consequence for the world’s manufacturing companies. What remains uncertain is the ability of the U.S. to regain manufacturing jobs, or whether its manufacturing firms will continue to expand mostly outside of the country.
In 1984, Data Resources Inc. founder Otto Eckstein completed a study on the future of manufacturing in the U.S. Eckstein, a Harvard University professor and former member of the Council of Economic Advisors, said “economic instability, high cost of capital and high exchange rates have created an untenable atmosphere for industrial growth.”
He noted that manufacturing is a vital segment of the economy, and that “to bet the future of our economic system on a service economy is a high-risk gamble that is hardly likely to succeed.”
The years since then, unfortunately, have seen a continuing erosion of manufacturing employment in many segments of the economy, even though industrial production has generally continued to rise, driven by productivity gains and other factors. Recently, however, IndustryWeek reported on studies that project manufacturing jobs returning to the U.S. over the next decade. Other press reports have recently cited plans for new U.S. factory construction and hiring by global firms such as Airbus manufacturer EADS NV (IW 1000/59) and Toyota Motor Co. (IW 1000/8).
Optimism about the possibility of improvements in manufacturing employment is largely based upon rising costs of labor in countries such as China that have drawn manufacturing jobs from the U.S. over the past several decades.
That is happening, but China and other developing countries still have huge labor pools that can be tapped at wage rates far below those that prevail in the U.S. Competition for manufacturing jobs will not go away. And, with capacity utilization about back to pre-recession levels, it will take investments in new capacity in order to yield gains in manufacturing employment.
The U.S. is still a market of consequence for the world’s manufacturing companies. While China’s growth over the past two decades has captured the headlines, the U.S. still prevails in terms of the scale of most markets and, even at currently slow growth rates, contributes a meaningful share of global growth.
Moreover, world economic growth, propelling millions of consumers into the middle incomes, will create a substantial new source of demand for manufactured products. The domestic and global foundations are both there for U.S. manufacturing firms (and those from other countries) to grow and yield strong returns to company shareholders.
