Hints of a manufacturing renaissance

The economic news has been so bad for so long that it took me awhile to digest last week’s good news. The economy created 243,000 new jobs in January, the most in a year. Job creation numbers were corrected upwards for November (to 157,000) and December (to 203,000). You don’t have to be a wild optimist to see that as an upward trend. Of course that could turn around on a dime, but if we are smart there is a good chance we can build on it.

Most encouraging of all was the news that we added 50,000 manufacturing sector jobs in January and have added 235,000 over the past year. Adding those jobs is particularly important because people getting paychecks in factories will spend money in ways that will create more jobs in retail, housing, and other sectors of the economy.

Any elation over these numbers has to be tempered by the heart-wrenching fact that 12.8 million Americans are still out of work, and 5.5 million have been jobless for more than six months. But there is no question that we have at least been heading in the right direction. Remember that in calendar year 2008 we lost 2.6 million jobs. We had our worst month in March 2009, when we hit bottom and lost 799,000 jobs.

In that month we passed the Recovery Act; the rate of job losses slowed and then turned positive. In the last six months the economy has created over 1 million jobs. Nowhere near enough, but we had dug an enormous hole.

From the beginning of this crisis it has been clear that recovery would be especially difficult because neither of the two major drivers of employment in recent years would be coming back soon. The housing bubble was so huge that it will take years for the housing industry to recover. And personal debt levels are still depressing the consumer market.

What goes around comes around. A lot of people over the past few years wrote off manufacturing as a significant part of the U.S. economy in the future, but I believe there are signs that the sector could be a new driver of economic recovery.

American corporations are finally loosening their purse strings and investing again. New manufacturing jobs will probably continue to be created; factory employees in January put in their longest work weeks in fourteen years and overtime jumped to its highest level since March 2007. In Pennsylvania the Bureau of Labor statistics reported that manufacturing job growth was the highest since 1990.

In the longer run, I would cite a May 2011 report from the prestigious Boston Consulting Group. In as soon as five years, the report says, the U.S. will “experience a manufacturing renaissance.” It gives two reasons for that prediction. One is the decrease in the wage differential between the U.S. and China. Chinese wages are increasing at a rate of about 17 percent each year. Second, the Yuan is rising in value versus the dollar.

The long and detailed report concludes by saying “executives who are planning a new factory in China to make exports for sale in the U.S. should take a hard look at the total costs. They’re increasingly likely to get a good wage deal and substantial incentives in the U.S., so the cost advantage of China might not be large enough to bother — and that’s before taking into account the added expense, time, and complexity of logistics.”

The BCG report did not factor in the deteriorating economic situation in Europe and the effect that may have on the world’s economy. We could still be blindsided by what happens in Greece, Ireland, Spain, and the rest of the Eurozone. But no matter what happens there, in order for our economy to continue growing, we must immediately extend the payroll tax cut extension and the cut in the social security payroll tax. We need to put some kind of a tax on pollution, so we can become a major player in clean energy manufacturing. We must expand spending for education, training, and research and development, most particularly in the science, technology, engineering and math (STEM) areas.

What has happened in the American automobile industry in the past two years is hopeful proof that this country can once again become a manufacturing powerhouse, if we make the right moves.

Originally published Feb 12, 2012 on delawareonline.com