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U.S. Still On Top Of Manufacturing World

Thu, 11/05/2009 - 5:13am
Amanda Earing, News Editor, Manufacturing.Net
An Q&A session from Manufacturing.net about the state of U.S. manufacturing and how it can compete better than China

While U.S. manufacturing jobs have shrunk from 20 million in 1980 to about 12 million today, the U.S. has never been more important in global manufacturing. Manufacturing.net spoke with Dr. Chris Kuehl, Economic Analyst, Fabricators & Manufacturers Association, to learn what he believes the future holds for U.S. manufacturing.

How is it possible for U.S. manufacturers to compete against China when they hold a large portion of our debt and have fewer regulations imposed on their manufacturers?

Dr. Kuehl: There are three things that give U.S. manufacturers a bit of an edge even with China in the picture.

First -- and on a more temporary level -- the weakness of the dollar. With the dollar down at the level it currently is, we’re essentially discounting anything we sell internationally. But at some point, that advantage begins to go away.

Second, China is still a fairly rudimentary manufacturing culture. They do have a few sophisticated sectors, but China’s specialty is the labor-intensive, mass-production items for WalMart. The U.S. continues to be a more high-value manufacturer and our biggest competitor would be Europe more than it would be Asia. Again, that will change over time. We certainly have some Chinese companies that are becoming more competitive but they are still few and far between.

Third -- the single biggest advantage and the one that would be the most consistent -- is simply that US manufacturers are closer to their markets. Being closer hasn’t been a huge issue in the last 10 or 15 years, but if you track what is happening with the energy crisis, it becomes more expensive to bring things from various distant and drawn out supply chains. So you began to see, particularly if oil prices come back up, more incentive to produce closer to the consumer. You now have much more customized, specialized manufacturing and smaller lots. Consumers are no longer content with mass production and that makes it even more important to be closer to your ultimate destination.

Those are the three biggest factors. And certain U.S. companies will have other advantages as well because of their patents and process and the work forces they have.

Is there anything that the U.S. government is doing that ensures U.S. manufacturing remains competitive in the global economy?

Dr. Kuehl: We don’t have anything that could be construed as a manufacturing policy per se, and while there has been some effort to develop one, it hasn’t been well-coordinated thus far. The government has done little to understand the implications of cap and trade, carbon checks and other government policies and their affect on large and small manufacturers.

There also has not been a conscious effort from the Federal Reserve to keep the dollar weak -- it just happens to have occurred because of the current economic conditions.

The biggest concern is that while manufacturing has shed jobs, there are also job shortages. The potential employees available are not the kind of people needed for modern manufacturing and the education system really hasn’t been producing enough people to fill this shortage. That becomes a long -term concern. It’s also something the Europeans have done a better job with than we have.

There are a lot of media and government reports that show the economy is improving. Do you feel it is improving, considering there are so many job losses and more to come?

Dr. Kuehl: We are definitely seeing improvements, but it will be a period of a fairly small recovery. I’ve been comparing it to the notion that the bleeding has been stopped, but you still broke every bone in your body. Recovery won’t be swift and it won’t be swift on the employment side.

The job loss has been concentrated in two sectors: manufacturing and construction. Construction may come back at some point if housing recovers, but that’s probably not till two or three years away at the most. Manufacturing could conceivably come back a little faster depending on how quickly people can convert from producing things that are not in demand to moving toward stuff that is in demand. There is a lot of pressure put on green manufacturing and that is a way to recover jobs. There are six different programs in place to promote green manufacturing, but the demand isn’t yet there.

You mention green technology, which is part of the government’s stimulus efforts. Do you see green technology having any long term effects on manufacturers?

Dr. Kuehl: It really depends on how universally it becomes accepted. You have so many different aspects of the green movement, from transportation to power generation to something simple as retrofitting a building so that it is more energy efficient. On the level of companies being able to save money by being more energy efficient, I think that will manifest more quickly, probably within the next year or so.

Getting people to convert to different types of energy use will be a slower process. Over time people will become more comfortable with alternative fuel cars but they will not be dominant anytime in our generation. Our generation still depends on coal for about 70 percent of power in the U.S. and only 5 percent is solar. It’ll be awhile before those numbers adjust. Because solar’s a new technology there is a lot of opportunity for companies to get engaged early, but my concern is companies that are a little bit slow to pick up on this will be getting into the market too late. The first groups that become involved will do well, but latecomers will struggle.

What would you say are the two major issues that manufacturers will be facing in the future?

Dr. Kuehl: First, training and hiring. Finding the right people to fill the jobs that manufacturers need filled now. The average person now is half engineer and half computer technician.

Second, maintaining the export sector. The U.S. can’t satisfy its growth needs by selling just within the U.S. borders, it needs to continue to sell into Europe and Asia and take full advantage of the rapid expansion in Latin America. We’re seeing pretty dynamic economies in Brazil. There is a lot of potential there for U.S. manufacturers, but it depends on how quickly they can get into those markets, knowing that the Europeans also want to be there. Exporting is going to be a pretty important factor for awhile. And even if the dollar comes back, there is a real hunger for U.S. goods as emerging markets become more brand-oriented and more sensitive to higher quality items from U.S. and European manufacturers.

You mentioned there is a shift to jobs that are more high-tech but there is a shortage of workers to fill these jobs. Is this a major issue?

It will get worse and is already happening. There are already companies finding difficulties getting people in place that they need. The education system has not emphasized those jobs. There has been a major effort on the part of manufacturers to convince people to that there are opportunities and a future in manufacturing. Unfortunately, a myth has taken hold that there is no future in manufacturing and the industry isn’t important.

Why would you say there is a myth that manufacturing is no longer important?

Dr. Kuehl: There’s a misconception that we don’t manufacture anything here -- we’re nothing but importers, and a service economy. In some aspects that is true -- service does account for 80 percent of jobs. But when you look at the value of manufacturing, we produce a tremendous amount of goods and sell them all over the world. We make airplanes and building equipment, trains and so forth. The reality is there is a lot of manufacturing going on and from the value perspective it is hugely important even if there are less workers doing it than 15 years ago.

Dr. Chris Kuehl is economic analyst for the Fabricators &Manufacturers Association, International and managing partner of Armada Corporate Intelligence. Dr. Kuehl is the author of Fabrinomics, a weekly economic analysis e-newsletter for members of the FMA. For more information, go to www.fmanet.org/fabrinomics.

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