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Looking for Good in Manufacturing? You Don't Have to Look Very Hard

Aug. 16, 2013
Here at AMT, we go the "glass half-full" route. Does that make us blind optimists? Quite the contrary.

Among the industry experts weighing in on the state of U.S. manufacturing, most are aligned on what needs to be fixed in order to make the industry stronger. The common thread between us is a call for action to alleviate the U.S. tax and regulatory burden, increase the pace of innovation and address the skilled labor shortage.

But while we can agree on these broad end results, we don't always agree on the road map to get us there – or even where manufacturing currently stands relative to our economic recovery and competitiveness.

Here at AMT, we go the "glass half-full" route. Does that make us blind optimists? Quite the contrary.

I see, every day, the great strides our members are making in growing and building their businesses. They are taking their operations global and expanding into new markets. They are coming up with innovative, groundbreaking technologies that are expanding possibilities beyond what was even imagined just a few short years ago.

Others, though, don't see the picture quite as positive. They insist that manufacturing is stuck in the doldrums. Some point to limited output in certain industry sectors as an indicator that manufacturing isn't at a strong point. Others say that manufacturing is only partially recovered from the recession or that its comeback is "muted."

These opinions come from respected and highly knowledgeable voices within the industry, and I certainly don't disrespect their viewpoints or expertise. But it seems many of them are overlooking some of what's really happening in manufacturing.

They point to low output in certain industry sectors, or tie manufacturing's "success" as an economic driver (or lack of it) directly to employment numbers. While it's true some sectors have not bounced back as quickly as others and that manufacturing jobs have been lost, it's also true that American manufacturing has led our recovery and holds the keys to  strong, sustainable economic growth and national security.

From our viewpoint, this is what is important to know: Profitability in manufacturing is the highest it's been since the 1960s.

Take a look at what's happening in the auto industry. The motor vehicle industry, which had been posting losses since 2006, lost just shy of $65 billion dollars in the last quarter before the Great Recession.

Just two years later, it began turning a profit.

Fourth quarter 2012 was the sixth consecutive quarter that the industry was profitable, matching the previous streak from 2004.

Although some auto industry segments have not surpassed pre-recession levels, consistent profitability suggests this key manufacturing industry is far better off than it was at any point in the last 10 years. A recent article in the Detroit Free Press said that auto suppliers are "scrambling" to keep up with demand, and pointed to a survey by the Original Equipment Suppliers Association which found that 25% of suppliers are running at 100% capacity.

More Good News

You really don't have to dig deep to find plenty of good news for manufacturing.

Take, for example, the Industrial Production Index for Durable Goods.

The indexes of industrial production are published each month as measures of output in major industrial sectors. The series for durable goods (products that last over three years) peaked in June 2013. Coming out of such a recession, it is important to compare the level of output to both the 2009 trough and the 2007 pre-recession peak. In neither comparison has durable goods output underperformed relative to the economy overall.

Additionally, the Purchasing Managers' Index continues to suggest expansion in manufacturing rather than contraction.

The index has been over 50 for all but two months since August 2009, and the three-month average has not dropped below 50 at all in that time. The July 2013 reading, issued on August 1, showed the PMI currently sitting at 55.4, its highest reading of the year so far. A new Goldman Sachs report suggests that the PMI is one of the best predictors of the economy's strength and momentum.

Machine tool orders are a great metric for measuring the overall health of the manufacturing economy because they show the true level of activity among manufacturers for capital investment in their plants.

The latest data as measured by AMT's USMTO survey shows orders lagged slightly in May 2013 compared to 2012, but they are easily back to where they were in 2007 – the last boom year for the industry. This is true for unit count as well as total order value. Moreover, the 12-month moving average for machine tools has been very consistent since the beginning of 2012, and more importantly, it has remained consistently well above the 2003-2007 level when things were "normal" in the machine tool segment.

Reshoring, Onshoring and the New American Workforce

While some point to a lack of job creation as proof that manufacturing doesn't add enough value to the economy, it's important to understand why we don't see the same level of manufacturing employment as previous decades.

While many low-skilled manufacturing jobs were moved overseas over the last decade, today, reshoring and onshoring are trending upwards as offshoring becomes less economical. And the jobs that are moving back are higher-paying and require higher skills.

Yes, automation has ushered in higher levels of productivity and reduced the need for lower-skilled assembly line jobs, but it has also created new opportunities for workers with sophisticated skill sets and advanced training. 

Nationally, we must recognize that there are currently more jobs than workers to fill them and then increase our efforts in regards to STEM education and technical training.

It's a different industry, but its value to the economy goes far beyond simple jobs numbers.

According to research from MAPI, U.S. manufacturing stands alone as the world's tenth-largest economy.

Manufacturing's multiplier effect is stronger than that of any other industry. Foreign direct investment in U.S. manufacturing sits at $899 billion – much higher than pre-recession levels.

Additionally, U.S. manufacturers' investment abroad is valued around $580 billion, indicating that U.S. companies are expanding their global reach and finding their place in worldwide emerging markets.

I think that all of us with an interest and passion for manufacturing agree that this is an industry with value beyond compare.

Most of us agree that we do need a government framework that allows us to meet our greatest potential – a strong national manufacturing strategy focused on making the U.S. the best place in the world to make things.

Enacting comprehensive tax and regulatory reform is a start, but only a start. There is a lot of work that can be done to strengthen U.S. manufacturing, but to paint its recovery from the recession in a dull light only furthers the message to the public that this is an industry that is no longer relevant.

I want to focus on changing that message, and to show all the reasons why U.S. manufacturing is strong and getting stronger. I think that's a message that all of us can stand for, no matter how we get there.

Douglas Woods is president of AMT – The Association for Manufacturing Technology.

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