April 9, 2014  
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U.S. Manufacturing Growing Steadily
(Editor's Note: The following is excerpted from an article that appeared March 14, 2014, on Kiplinger.com. It was written by David Payne and Glenn Somerville.)

U.S. manufacturing continues to step it up with another solid gain in output this year...3.5% or better. Nearly five years after the Great Recession ended, it continues to outpace the rate of overall GDP growth. New business and goods-out-the-door are up. There's more optimism and more hiring: For seven months in a row, the number of factory jobs has increased.

By year-end...100,000 more workers will be added to payrolls...there’s growth in every region of the country across a swath of industries

  • Aviation- Sitting on a backlog of orders.
  • Autos- with sales (including imports) likely to top 16 million this year, assembly lines will hum.
  • Chemicals- everything from paint thinner to plastic resins. Expanding on cheaper petroleum.
  • Pharmaceuticals- Continuing to chug ahead.
  • Biotech- Double-digit growth again in 2014.
  • Medical equipment- Steady gains in the U.S. and bright prospects for increased export sales.
  • Semiconductors- Next-gen chips going strong.
  • Even heavy equipment- Rising global demand for building, energy exploration and drilling equipment.

The expansion is partly just the pendulum swing after recession cutbacks (from 2008 to 2009, factory output fell 20% and 2 million workers were laid off). But it also reflects some big shifts in the global business environment.

The relative cost of producing on U.S. soil vs. overseas is declining. Productivity improvements...automation, etc...are shearing per-unit labor costs here while rising wages elsewhere in the world shove them up. Domestic energy supplies are abundant, thanks to the fracking boom. Lower shipping expenses help as well.

But a slew of less-obvious cost benefits are increasingly garnering recognition, too: fewer worries about intellectual property and technology theft. More timely delivery. Political stability. Legal & regulatory systems that are clearer and more easily navigated.

If you are skeptical about the value of such intangibles, a World Bank study found that in the U.S., a typical dispute over the sale of goods might take 370 days and cost 14% of the claim’s value to resolve. In East Asia..522 days and a whopping 49% of the claim. In Latin America...727 days and 31%. In South Asia...three years for a resolution. As for other highly developed nations? 510 days and 20%.

Another factor favoring the growth of U.S. manufacturing in the years ahead is the growing use of advanced technology and processing, an area in which the U.S. has a significant competitive advantage. With the exception of computers and electronics...the one advanced tech category that benefits from lower labor costs...industries requiring more sophisticated processing are more likely to stay put. They include aviation, auto making, biotechnology, industrial machinery and more.

37% of U.S. manufacturers and 45% of exported goods are advanced tech. Medicines and medical devices, power generation and transmission equipment, communications gear, navigational instruments, magnetic and optical media, etc. All told, such products account for nearly 5% of GDP. Related services...8% more.

Over the next decade, those shares will climb even higher, even faster. As a result, the long slide in manufacturing’s share of GDP may be ending. After dipping sharply during the Great Recession, it will approach 13% this year...roughly the same share as in 2004 to 2007. Look for factories’ share of employment, however, to continue to slide, as automation, including robots, takes on a larger role.

The above article can be found in its entirety on Kiplinger.com.

 

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