A View from Here

Bill's Sisson's weekly Trade Only blog

U.S. manufacturing: ‘On a knife edge’

Good news on the manufacturing front from The Wall Street Journal and a growing number of other sources. After a long drought, industrial manufacturing in this country may have shifted gears, the newspaper suggests in a recent story.

Manufacturing in March expanded for the 32nd consecutive month and added 37,000 of the 120,000 jobs the United States gained, according to the paper. Caterpillar, Ford Motor, NCR and other companies are moving some of their operations back to domestic shores, according to the WSJ report.

The newspaper quotes Neil Dutta, U.S. economist at Bank of America Merrill Lynch, on three signs that America’s “manufacturing renaissance” might just be getting started:

• The cost benefits of producing in China and elsewhere have gotten smaller. Wages in emerging markets are rising rapidly, even though they are still much lower than here. Too, increasing oil prices have made shipping more costly. Both factors are broadening the range of goods that U.S. factories can produce more competitively, the newspaper reports.

• The weakening U.S. dollar has helped products “Made in the U.S.A.” to become attractive once again to overseas buyers.

• And lastly, the WSJ points out that energy production is soaring in this country and that domestic natural gas prices have plummeted. Those factors are benefiting domestic producers that use a lot of natural gas, from fabricated steel to machinery, chemicals and transportation equipment.

Regarding domestic manufacturing, the WSJ quotes Kristina Hooper, head of portfolio strategies at Allianz Global Investors, as saying, “It’s time to stop looking in the rearview mirror and start looking ahead.”

What about boats and marine components?

In the upcoming May issue of Trade Only, Reagan Haynes reports extensively on the trend to move manufacturing back to the United States from offshore locations, including China. The homeward bound movement is known as “reshoring,” and Reagan cites a report issued last month by the Boston Consulting Group that examines when it makes sense to keep operations in China and when it makes sense to bring them home. Click here to read: “Made in America, Again: U.S. Manufacturing Nears the Tipping Point — Which industries, Why and How Much?”

Reagan’s in-depth story examines the issues, questions, and the pluses and minuses surrounding reshoring and its effects on the recreational marine industry.

On a related topic: A couple of weeks ago I addressed the need for more educational programs aimed at kids “who think with their hands” and don’t fit into mainstream school programs. Click here for the story.

A recent report on manufacturing by two professors from the University of Michigan’s Ross School of Business addressed some of the structural issues affecting education in this country, which the authors say was our “ace in the hole” for nearly a century.

The co-authors of the study, “Manufacturing’s Wake-Up Call,” argue that America’s preoccupation with college preparation has marginalized vocational education and industrial arts programs. Schools must recover their vocational training roles, the study says, and become better at vocational guidance so that young people realize the many career paths in manufacturing.

“If you talk about manufacturing long enough, all roads eventually lead to education,” says Michigan Ross professor and report co-author Wally Hopp, associate dean of faculty and research and Alessi Professor of Operations and Management Science. “A huge determinant of how many manufacturing jobs remain in the U.S. will be our ability to create a skilled work force.”

The study says the “reputation” of manufacturing among students and graduates lags that of other industries. “Modern plants are exciting, technical places to work, but the perception has not caught up with reality,” professor Roman Kapuscinski notes.

The study found that despite the recent uptick in U.S. manufacturing, a very large portion of the sector “hangs on a knife edge” and could either stay in this country or go elsewhere. The authors cite several key factors that they say will determine whether U.S. manufacturing continues to rebound or spirals into permanent decline: U.S. education policy, working training, the tax code, the regulatory environment, and our relationship with Mexico.

“U.S. manufacturing has declined, but we are not structurally out of the game,” Hopp says in a statement. “Manufacturing is still here, it’s big, and it’s helping us out right now. Manufacturing matters; that’s why this is an inflection point. We have almost 40 percent of the sector sitting on the bubble. It could stay here, or it could go somewhere else.”

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