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Manufacturing Leaders Energized About the Economy

Aug. 16, 2012
"The most optimistic members we have is manufacturing, and that’s because manufacturing has really been the thing that has made our GDP today bigger than it was in 2007. Exports have grown dramatically, over 30%. So manufacturing has really replaced housing in the GDP numbers. We’re making lots of manufactured goods right now and we’re selling it around the world because the dollar is relatively weak compared to five or 10 years ago."

There’s good news for manufacturing executives looking to expand their market base globally. While other sectors of the economy, including housing and construction, continue to struggle, demand for higher living standards in less-developed countries and the booming energy industry will offer new opportunities for manufacturing companies, says Bill Dunkelberg, chief economist for the National Federation of Independent Business.

The National Federation of Independent Business represents small and independent businesses. About 10% of the organization’s members are involved in manufacturing. Overall, small businesses were less optimistic in July regarding the economy, according to NFIB’s latest optimism index. But manufacturing appears to be one of the few bright spots.

IW spoke with Dunkelberg, who also serves as a professor of economics at Temple University, at the Rocky Mountain Economic Summit in Jackson Hole, Wyo., July 27.

IW: What are some of the trends you’re seeing in terms of global manufacturing growth?

BD: Globally manufacturing output will continue to grow all the time, and what China is going through is what we went through 200 years ago – taking all these people out of the rural areas, putting tools in their hands, raising productivity and making more stuff. So while manufacturing output continues to rise wherever we are we do use fewer and fewer people to make the stuff, which is perfectly fine. It’s something we’re always doing – making that technological change.

When you’re looking at the NFID data we take a sampling of these 350,000 firms, if I look at it by industry, the really unhappy people are in the construction because lots of firms are out of business or they’re not making houses. So they’re probably among the more pessimistic members.

But the most optimistic members we have is manufacturing, and that’s because manufacturing has really been the thing that has made our GDP today bigger than it was in 2007. Exports have grown dramatically, over 30%. So manufacturing has really replaced housing in the GDP numbers. We’re making lots of manufactured goods right now and we’re selling it around the world because the dollar is relatively weak compared to five or 10 years ago.

So manufacturing will continue to grow. Think about the number of people in other countries who don’t have a car or a toaster or a TV or any of these kinds of things, and they’ll want them over time. Wherever it’s being made, whether it’s in a low-wage country or here in the United States, it will continue to be done with fewer and fewer workers every year.

IW: You see that type of productivity increasing even in emerging markets?

BD: You can see that in China. Wage rates in China have been going up. Why? Because their workers are more valuable. A company can’t pay a worker more than the value they bring to the firm. Otherwise, you go bankrupt. We talk about exploiting the unskilled workers. It’s not exploitation at all – it’s training them.

Remember in the 1950s where the cheap labor was? It was in Japan. We exploited them until they became one of the most wealthy countries in the world. Because the exploitation means you get somebody; you give them a job; you teach them things. So we have a huge market ahead of manufactured goods that will be made here in the United States, and lots more will be made in other countries because the pent-up demand is huge.

IW: What particular sectors will continue to grow?

BD: It depends of course on what country you’re in. We talked about one today, which is just huge, and that’s energy. Discovery, processing, converting oil to other products and distribution – there are huge amounts of capital required for that. So there will be very strong growth and output there, and the fact that you can have $2 natural gas instead of $10 natural gas makes a lot of other products cheaper. So if somebody is going to go make products cheaper people will buy that stuff. There will be a lot of work on the raw materials side, so Caterpillar will continue to make these wonderful machines.

About the Author

Jonathan Katz | Former Managing Editor

Former Managing Editor Jon Katz covered leadership and strategy, tackling subjects such as lean manufacturing leadership, strategy development and deployment, corporate culture, corporate social responsibility, and growth strategies. As well, he provided news and analysis of successful companies in the chemical and energy industries, including oil and gas, renewable and alternative.

Jon worked as an intern for IndustryWeek before serving as a reporter for The Morning Journal and then as an associate editor for Penton Media’s Supply Chain Technology News.

Jon received his bachelor’s degree in Journalism from Kent State University and is a die-hard Cleveland sports fan.

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