The importance of manufacturing to the U.S

How important is manufacturing to the economic welfare of Western nations? A lot if you are less fortunate than Australia and do not have a whole lot of minerals and fuels in the ground to export in these difficult economic times.   

First, manufactured goods make up 86 per cent of U.S. exports, despite its huge trade deficit.  

While manufacturing only represented 11.7 per cent of U.S. Gross Domestic Product (GDP) in 2010, it employed more than half of U.S. scientists and engineers, and accounted for 68 per cent of business research and development spending and 70 per cent of total research and development spending. With manufacturing a huge consumer of commodities and of high-value, high-wage business services in sectors such as law, accounting, computer systems and management, and scientific and technical consulting, the overall value of manufacturing shipments (including purchased inputs) is estimated to support one-third of total U.S. GDP in 2010.

In contrast to Australia losing further manufacturing jobs since 2012, U.S. manufacturing employment have risen by 489,000 (4.3 per cent) to 11.9 million after about six million jobs were lost between 1997 and 2010, albeit that most of the gain was due to economic recovery.

In 2011, all three major U.S. automakers (General Motors, Ford and Fiat-controlled Chrysler) actually took a bigger market share against foreign rivals, the first time in 23 years, although 2012 was expected to see greater competition again (Laurence Frost, Fiscal Times, 9 January 2012).

Second, prominent U.S. industry leaders call for extensive government assistance despite Christina Romer, the former chair of President Obama’s council of economic advisors, arguing against special treatment for manufacturers (Romer, Do Manufacturers Need Special Treatment?, New York Times, 4 February 2012).

On May 17, 2012, Dennis Muilenburg, president and CEO of Boeing Defense, Space & Security, argued that future growth in manufacturing depends on further collaboration between the government and the industry. He, and others, also urged a national strategy to strengthen the workforce as employers were struggling to fill skilled positions in terms of education and training skills, despite eight per cent unemployment .   

Third, U.S. debate focuses on a variety of factors, which may aid U.S. manufacturing in coming years and help.

In terms of labour costs, theBoston Consulting Group predicted in May 2011 that the U.S. “is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain U.S. states become some of the cheapest locations for manufacturing in the developed world”. It was estimated that net labour costs for manufacturing in China and the U.S. should converge by 2015.

Already General Electric (GE) has moved production of its energy-efficient water heater from Chinese contractors to its own factory in Louisville, Kentucky. GE took advantage of a 2005 labour contract under which Louisville plant employees are paid an average of $13 an hour, down from $22 prior to the agreement. GE also earned state and local tax credits of $25 million over 10 years, and federal incentives that encourage the manufacture of energy-saving products.

But there are other factors that help explain why a survey by Accenture of 287 manufacturing companies found a growing number are considering shifting operations closer to customers. This included providing better service, reducing total costs, and enabling accelerated growth. As the GE example indicates, by making the device in Louisville this allowed engineers to work closely with production managers and assembly-line workers to perfect the product’s design via rapid prototyping, thus helping to reduce per-unit costs by $20.

David Morgan, CEO of D.W. Morgan Company, a global transportation and logistics provider, states “In the first part of the rush to China, engineering and manufacturing leaders made outsourcing decisions based only on production and labour costs”. “Companies thought they would save 50 per cent, but ended up saving only 10 per cent once they factored in all the supply chain variables."