The United States is enjoying a resurgence in manufacturing not seen since the 1970s, when the country shifted to a primarily service-based economy. Strong growth in machinery exports and auto sales are leading the rally in the chronically weak manufacturing sector, a trend President Obama said must continue in order to buoy the country’s depressed job market and lackluster economic expansion.
The president has crafted an ambitious plan to double exports over the next five years to jump-start the economy and energize job growth. “We are in a tough fight to get past the crippling recession,” Obama told Northern Virginia Community College students last week. “Before this recession, manufacturing had weakened. The answer is not to turn back. That’s how we’re going to win the fight.”
Recent data from the U.S. Bureau of Economic Analysis (BEA) show durable-goods manufacturing—which includes products such as automobiles and heavy-construction machinery—led the economic recovery in seven of the eight regions BEA tracks, with significant gains in Indiana, Oregon, Michigan, Wisconsin, and Tennessee.
Experts say a multitude of interrelated factors point to a longer-term “renaissance” in manufacturing — primarily increasing demand in rapidly growing emerging economies such as China and Brazil. “If you look at the industries that have been growing—machinery, for instance—they’re taking advantage of opportunities overseas,” says Chad Moutray, chief economist at the National Association of Manufacturers. “They see Brazil, China, India as major areas [in which] to grow.”
Multinational manufacturing companies based in the United States, such as Boeing and Caterpillar, have already seen the benefits of an uptick in demand abroad. Primarily thanks to increased demand and higher prices for commodities, Caterpillar’s exports surged to $13.4 billion in 2010, a 30 percent jump from the previous year. The company, which specializes in mining and construction equipment, also recorded its all-time best profits in the first quarter of 2011. “If the price of copper is above a certain threshold, those mining companies that are in the copper business are more likely to invest in increasing capacity to mine more, [which] creates demand for our products,” says Caterpillar spokesman Jim Dugan.
The rising middle class in developing nations also feeds into the relatively positive outlook for manufacturing. Aside from greater demand for the raw materials and components needed to produce consumer products like microwaves and cellphones, increased investment in roads and housing benefits companies like Caterpillar. “A big part of it is the commodity demand, but as this mass urbanization takes place and these developing countries see a rising tide in the standard of living, there’s also more investment in infrastructure and construction work,” Dugan says.
After decades of lagging the global manufacturing industry, the domestic sector will continue to bounce back, experts say, mainly because global economic shifts have increased the competitiveness of U.S. manufacturing. Two decades of tough competition from export-based economies like China has forced domestic manufacturers to cut costs and improve productivity. These adaptations have allowed companies to cull more “profit per job,” effectively easing cost pressures.
A weaker U.S. dollar has also helped the manufacturing renaissance gain traction. A stronger currency generally makes U.S. exports more expensive abroad, which has historically crippled demand for American products. But that trend has reversed as the dollar has fallen against other major currencies.
The changing fortune of the industry will likely be gradual. For those keeping close tabs on sagging
employment numbers and weakening GDP gains, the outlook for manufacturing might be an unexpected source of salvation for the U.S. economy in the coming years.
By Meg Handley
Meg Handley is a reporter at U.S. News & World Report. Contact: http://www.usnews.com/
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