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Is US Manufacturing Really Getting Better? And If It Is, Is It Enough?

I wrote this post 3 weeks prior to some pretty sobering events from the past few days – an abysmal jobs report, the continuing housing malaise, a serious drop in the ISM, and a strong potential for a QE3. I’m not Chicken Little, and I remain optimistic. But we have serious injuries to our economy & manufacturing base, and we’re treating them with band aids and duct tape. Like I was sayin’, we’re not out of the woods yet. – AJ (02 JUN ’11)

For the past year or so, we’ve been hearing how manufacturing in the US is the one shining economic light leading the economic ‘recovery.’ I want to believe that. And I can see everywhere – via all manner of tweetage, articles and blog posts – that you want to believe it, too.

But there’s an article that I read a month ago that’s stuck with me, that I just can’t shake. Despite all the positive vibes and genuine  optimism and the incessant trumpeting of every index or survey of manufacturers from here to ISMville, none of it can shake the specter of this piece. And it – along with some other observations and perspectives that have managed to sneak into the conversation – has me convinced:

We’re not out of the woods yet. And we’ve got along way to go.

The article that has me by the neck is ‘A Road Trip Through America’s Wasteland,’ by Peter Cheney in The Toronto Globe And Mail. In it, he recounts traveling through Lima, Ohio, on a road trip from Canada to Georgia and what he found there.

It ain’t pretty. Rampant unemployment. A once-proud populace now rendered broken by the lack of gainful employment in manufacturing and the loss of the ancillary benefits and pride it provides. What he describes in it alludes to transformations we’ve seen repeated in town after city after ‘burg throughout the nation – assembly lines reduced to shuttered factories, paychecks earned become lottery tickets pursued, and so on. One good piece of news from the article, though: the drug dealers have left, ’cause no one can afford their drugs anymore.

Now, I understand change. Things migrate, morph and evolve. And often there are victims. There will always be Luddites. But there’s something very troubling about what we’ve abdicated this time, how much it’s going to take to really recover (& thrive), and the very real challenges we face to create a new, prosperous US manufacturing posture.

To paraphrase a friend of mine, celebrating growth in manufacturing these days “… is like the town drunk announcing he is a whole new man because he will no longer start drinking before breakfast.”

Consider these conditions and realities in the face of all the ‘good’ news we’re hearing lately, and tell me it’s time to pop the Moët:

  • The US Housing Market – What does this have to do with manufacturing? Plenty, on 3 counts. First, many individual homeowners (consumers) are underwater and struggling (see joblessness below, too). They’re not as willing to spend in their personal lives as they might be otherwise. Second, many of those homeowners are business owners in manufacturing industries and they’re personally influenced by it to postpone spending in their businesses. And third, many manufacturing professionals that would normally be willing to take employment in another town or state are tied down by an underwater mortgage, preventing the fluidity of inter-regional job growth and career advancement. Now Fannie Mae announces a loss of $8+-billion loss in the first quarter of 2011, and guess who’s gonna get stuck with the bill?  Housing malaise = stagnation that permeates the economy and the willingness to invest, from the loading dock to the C-suite.
  • A Lack Of A Comprehensive, National Manufacturing Strategy – I’m not sure what’s worse at this stage – not having a national manufacturing strategy, or having one. I mean, after the recent ‘overhaul’ of the US Patent System, can we expect a meaningful strategy from cats that have never managed a lemonade stand? I’m afraid that if you loved the War on Poverty & the War on Drugs, you’re gonna LOVE the manufacturing policy we get from the special interests that helped get us in this mess in the first place. Still, not establishing a set of principles now will present one of the greatest speed bumps in the road to meaningful, sustainable recovery later on.
  • Just How Productive Are We? Any of the flowery reports you see that use US Bureau of Labor statistics that support soaring US productivity are bogus. Don’t believe ’em. They’re misleading, because they count overseas production as US-based if the owner of the brand is in America. We ARE the most productive manufacturing workforce in the world, but we don’t have the numbers to know for sure.
  • It’s The Debt, Stupid – Our budget deficit is currently in excess of $14-trillion. The investments in education, infrastructure, policy, regulation reform and monitoring will cost money – and we can’t afford it. At least not all of it. Currency fluctuations and kismet won’t fix our fiscal issues. Serious cuts and belt tightening are critical, which leaves little to invest in manufacturing and the tangible support for a lucid, comprehensive strategy. If someone can explain where we’re gonna get the cash to fund growth in our factories in the face of higher taxes and little coordinated support, please explain it to me.
  • Rising Costs & Inflation – Add increased costs for logistics, energy, materials and services to the recovery mix, and a slow road gets even slower – particularly in the small & medium shops and plants where the vast majority of manufacturing employment is grown in the US.
  • Trade Policies & The Growing Trade Deficit – While there has been some action taken to adjust our policies with regard to trade with all nations, and recent rulings favor applying some anti-dumping and countervailing duties on imports to offset imbalances, these efforts amount to using a squirt gun on a forest fire. But even worse is the very real possibility of knee-jerk xenophobia. We can’t afford to ignore our role in an evolving global manufacturing economy, and doing so will cause greater long-term harm than it’s worth. As with the budget deficit, the trade policy bugaboo is gonna take time, finesse and dough.
  • How Can A ‘Recovery’ Be ‘Jobless?’ – Robots don’t pay taxes. They don’t buy cars. They don’t go out to dinner. And they can’t fix design or manufacturing mistakes on the shop floor that aren’t foreseen and baked into complex manufacturing processes ahead of time. Ultimately, jobs are a by-product of healthy fair trade and sound economic policies. To approach jobs as the cause overlooks the REAL causes and can ensure we’ll vacillate near double-digit unemployment longer than we can afford to.

And let’s not fool ourselves – ‘the invisible hand’ didn’t cause this. Through a premeditated course toward a nirvana nation of knowledge-worker-consumers wearing Radiohead t-shirts in cubicles with ferns and a Dilbert calendar, we’ve left ourselves with precious few resources or accumen with which to rebuild. No statistics or rose-colored surveys dripping with hopeful optimism will create the tangible gains in the short term that will  bring meaningful improvement.

Those statistics that economists and pundits point to may be measurable,  but that doesn’t mean they’re MEANINGFUL. At least, not to the people of Lima, they aren’t.

I’m not a negative person. I’m hopeful, confident, and I believe that if we’re given a level playing field we’ll hit home runs. Or at least stand-up triples.

But like the author on the road through America, I look around the Northeast, the Midwest & the South today, and I see a long road ahead for US manufacturing and the economy in general.

Now isn’t the time to build false hope with statistical parlor tricks. Now is the time to be pragmatic, face the hard truths, and find solutions based on reality.

Look around your own town, your state, your region …  Are the shuttered factories, store fronts and buildings reopening? Do you see vitality, or marginally better sameness?

What are you seeing – does the reality match the statistics?

AJ Sweatt
Website
2 Comments
  1. Thanks for bumming me out. Seriously, though I think your analysis on the overall economy and future is spot on, however, I have a feeling manufacturing is going to be strong in spite of these issues, and here is why. Rising energy prices and foreign labor costs are making more and more companies bring manufacturing back to the US. This is something that is just starting and I envision it happening a lot more then people currently expect. Secondly, as bad as regulation is in the US, it pales in comparison to what exists in Europe and many Asian Countries, making us more competitive.

    • Russ, thanks for the visit and taking the time to comment. I guess this does sound a bit Eeyore if taken on its own, but with all the rhetoric and flawed statistics floating around I just wanted to add some measure of balance. I am concerned about the two ‘drivers’ you mentioned – volatility in energy and labor costs. These are always gonna be fluctuating, and they should NEVER be the sole motivations to commit to an overall expensive, extended, nearly unsustainable sourcing strategy. Also, many see the ‘reshoring’ trend as a response to those prices, when the reality is that total costs of ownership aren’t easily found on a P&L. So, after some years companies are finding that managing those extended chains coupled with the costs from segregating production from R&D/Design (loss of agility, poor customer adaption, etc.) actually negate the ‘advantages’ of embedding production in a low-cost country.

      What I’m getting at is the term reshoring should actually be ‘manufacturing within the market of consumption.’ Companies like GE, NCT, Wham-O & Sauder are repatriating production here because they couldn’t respond to the market quickly enough.

      And I agree … we’re gonna be OK. As long as we pay down the budget deficit, get employment corrected and fix the (still) broken housing market. We’re in a very precarious time right now, and it could get real messy again before it gets better – unless we acknowledge what’s actually broke.

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