Editor's Page -- U.S. Manufacturing Will Rise Again

Dec. 21, 2004
New, high-tech products will shape our future.

It's been a particularly brutal recession for manufacturers, and many economists believe it's not going to get better for them any time soon. While a number of economic statistics point to an improving economy overall, others suggest that the manufacturing sector will be stuck in slow gear, not reaching pre-recession production levels until as late as early 2004. Still, a number of facts should brace up manufacturers until the economic cloud lifts. The resilient (read: "innovative") nature of U.S. manufacturing, perhaps with a helpful push from our nation's leaders, will see to it that manufacturing will come back from this downturn as strong as ever. "Although things look bleak in manufacturing, I think you can overstate it," says Daniel J. Meckstroth, chief economist of Manufacturers Alliance/MAPI, Washington, D.C. "What you're seeing is a rapid acceleration in the rate of structural change in the industry. Some jobs and some products are being lost abroad, but I think there are new products that are going to be introduced. I can't tell you what they are. But I'm confident they are in the pipeline [and] will provide jobs in the future in the manufacturing sector." This from an economist who spent the better part of a 40-minute interview pointing out how much worse this recession has been compared with past post-war recessions. "It will be the worst in terms of number of months in recession, and it will be the worst in terms of the number of months to regain its previous cyclical peak," he says. Meckstroth presents evidence of U.S. manufacturing's structural change in a February 2003 economic report published by the Manufacturers Alliance/MAPI. In the study, Meckstroth analyzed the business activity of 28 U.S. manufacturing industries as well as the recent surge in imports from China, which has contributed to the manufacturing sector's troubles. He concludes: Although "[I]mports from China are found in virtually every major manufactured product line. . . . Products that are prime targets to be replaced by imports from China tend to be items that have a high labor component, low technology and low capital intensity." U.S. manufacturers, he says, have rapidly increased outsourcing of high-labor-cost items to China, and are moving "out of high-labor-cost products toward products with high technological and intellectual content." Still, in the face of the painful economic downturn and restructuring, Meckstroth sees several positive signs that point to a resurgence of manufacturing. He cites research done by the U.S. Census' Center for Economic Studies, which found that new manufacturing companies continue to start up during recessions at the same rate as during expansions. Other positive signs that he says will give the industrial sector momentum this year include a weaker dollar, which makes U.S. exports less expensive; accelerating capital equipment spending, which is rising to meet the increase (albeit small) in manufacturing production; and the proposed tax changes, which many economists think will provide another shot of stimulus to help jump-start the economy in the second half of the year. It won't ease the pain of those who lose their jobs, or those forced to endure the loss to a low-cost country of the industry to which they've dedicated a career. But the seeds of the U.S. manufacturing resurgence are being planted and nurtured now. We may not know who is creating the next generation's high-technology, high-intellectual-content products that will power U.S. manufacturing's future. We may not know what form the innovation will take. But we do know that it's just a matter of time. Patricia Panchak is IW's editor-in-chief. She is based in Cleveland.

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