The Recession Spectator

Manufacturing Noises

Is that a job-making machine we hear?

By 2.16.12

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American manufacturing is coming back. By how much and for how long is uncertain, but the signs are clear and they are growing. For example:

General Electric, a huge conglomerate, may be in the forefront of the movement. Overall the company cut U.S. jobs when the recession hit, but has added 9,000 since 2009 and plans to add 4,500 or more this year.

Among its products are jet engines (it's the world's largest manufacturer of them). It has announced it will open three new engine factories this year, in Ohio, Mississippi and Alabama. When, last December, GE announced the opening of a new X-ray machine plant in China, many worried that the 120 workers in its Wisconsin plant would lose their jobs. GE says, no, tit wasn't a zero-sum matter. The China plant is expansion in that market -- not an outsourcing of U.S. jobs.

Last week GE opened a new appliance plant in Louisville, Kentucky to meet increased demand for energy-efficient water heaters and refrigerators. The company says it will create 1,300 new jobs there by 2014.

A smaller conglomerate, Carlisle Companies, makes restaurant supplies, insulation and tires.

It has announced it will open two new U.S. plants and bring its tire manufacturing back from China.

Union Pacific plans to double its purchase of locomotives this year, spending $400 million or so to buy them. Boeing says it added 10,000 jobs last year in U.S. plants to fill airline customer orders for new 737s and the much-delayed 787.

Caterpillar is closing a locomotive plant in Canada and bringing the work into a U.S. plant where wages are lower and productivity higher. 

Where is the Obama Administration in all this? President Obama has touted exports and U.S.-based manufacturing. He has called for a tax credit for companies that bring jobs back home. Generally, tax credits are not good policy because they add new complications to an already overcomplicated Tax Code and have very little effect on the economy. Mostly, Obama is paying lip service, but will of course try to take credit for any manufacturing job increases as well as increased exports.

The reasons are elsewhere and there are several. The low level of the dollar against several other currencies makes our exports very competitive. Several companies, seeing India and Brazil as promising growth markets, are building plants and distribution systems there.

China's domestic market is still a growth opportunity for many American companies. On the other hand, China's exports to here and elsewhere are becoming less competitive. For years, as it set out to build a major manufacturing infrastructure, China lured ever-increasing numbers of farm workers to its cities. Result: For years China became the favored source for inexpensive household goods, clothing and electronics. Now, however, its urban work force is beginning to decline. Women make up the work force in most garment and electronics factories. The United Nations estimates that China's women aged 15-24 will drop from 106 million in 2010 to 92 million by 2015. Add to that increased affluence in the population and wages that are growing faster than productivity, plus continued international pressure on China's currency and you have a recipe that means manufacturing benefits for the U.S.

A recent New York Times poll showed 52 percent of the public said it was important that the products they buy be made in the U.S. Two-thirds of those polled said that U.S. companies should take much of the responsibility for keeping manufacturing jobs on our shores.

They are, by reading the signals of the market. Will "insourcing" and domestic demand grow sufficiently to speed up the weak economic recovery and create enough jobs to replace the 8.7 million lost in 2008 and 2009? It was take more than manufacturing to do it. Its work force shrunk for 14 million in 2006 to a little under 12 million last year. Kurt Rankin, an economist at PNC Financial Services in Pittsburgh, predicts that job growth in 2012 will average 135,000 a month. At that rate it would take the economy -- manufacturing and service sectors -- five-and-a-quarter years, until 2016, to get there.

Presidential pep talks and speculating taxpayer money on risky "green" solar plants, wind farms and expensive automobiles won't do it Getting the government out of the way would give savvy businesses a chance to make it happen.

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About the Author
Peter Hannaford was closely associated with the late President Reagan for a number of years. He is a member of the board of the Committee on the Present Danger. His latest book is “Presidential Retreats.”