Executive Briefings

Manufacturers Pick Up the Pace Amid Predictions of U.S. Resurgence

The economy did picked up steam through the first nine months of this year, expanding at a 2.5-percent annual rate in the third quarter - about the pace the National Association of Manufacturers (NAM) expects for 2012.

If the economy can do its part, manufacturers should gain some lift in 2012, especially in the durable-goods sector, says NAM chief economist Chad Moutray. Dave Rodgers, CFO of $2.1bn outdoor power products manufacturer Briggs & Stratton, notes that manufacturers generally have plenty of capacity to respond to new demand, aided by healthy balance sheets that were beefed up in the wake of the 2008 credit crisis.

Manufacturing's problems predate the recession, but its future may be - at least according to some experts - surprisingly bright.

The United States has lost nearly 8 million manufacturing jobs since 1980, but the sector still accounts for about 12 percent of GDP, employing nearly 12 million people, or about 9 percent of the workforce. And thanks to productivity improvements, the U.S. also remains the world's largest value-add manufacturer, at 24 percent, versus 15.1 percent for second-place China and 14.8 percent for third-place Japan.

In a recent and widely disseminated report, Boston Consulting Group argues that with Chinese wage rates continuing to rise, the U.S. will start to see a significant amount of manufacturing activity shifting back to these shores by 2015, as the U.S.-China labor-cost differential narrows. The shift will be especially pronounced, the consulting firm predicts, in seven manufacturing sectors: transportation, electrical equipment and appliances, furniture, plastics and rubber products, machinery, fabricated metal products, and computers/electronics. As companies in those sectors "reshore" manufacturing operations, BCG says, they could create 2 million to 3 million jobs in the U.S.

To be sure, many manufacturers will continue to produce goods globally, too, whether to comply with local-content laws, to enable speedy access to global markets, or, where labor costs remain a big component of total costs, to continue to take advantage of low-wage environments.

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The economy did picked up steam through the first nine months of this year, expanding at a 2.5-percent annual rate in the third quarter - about the pace the National Association of Manufacturers (NAM) expects for 2012.

If the economy can do its part, manufacturers should gain some lift in 2012, especially in the durable-goods sector, says NAM chief economist Chad Moutray. Dave Rodgers, CFO of $2.1bn outdoor power products manufacturer Briggs & Stratton, notes that manufacturers generally have plenty of capacity to respond to new demand, aided by healthy balance sheets that were beefed up in the wake of the 2008 credit crisis.

Manufacturing's problems predate the recession, but its future may be - at least according to some experts - surprisingly bright.

The United States has lost nearly 8 million manufacturing jobs since 1980, but the sector still accounts for about 12 percent of GDP, employing nearly 12 million people, or about 9 percent of the workforce. And thanks to productivity improvements, the U.S. also remains the world's largest value-add manufacturer, at 24 percent, versus 15.1 percent for second-place China and 14.8 percent for third-place Japan.

In a recent and widely disseminated report, Boston Consulting Group argues that with Chinese wage rates continuing to rise, the U.S. will start to see a significant amount of manufacturing activity shifting back to these shores by 2015, as the U.S.-China labor-cost differential narrows. The shift will be especially pronounced, the consulting firm predicts, in seven manufacturing sectors: transportation, electrical equipment and appliances, furniture, plastics and rubber products, machinery, fabricated metal products, and computers/electronics. As companies in those sectors "reshore" manufacturing operations, BCG says, they could create 2 million to 3 million jobs in the U.S.

To be sure, many manufacturers will continue to produce goods globally, too, whether to comply with local-content laws, to enable speedy access to global markets, or, where labor costs remain a big component of total costs, to continue to take advantage of low-wage environments.

Read Full Article