July 09, 2015

5 Myths About the State of American Manufacturing and What They Suggest for the Future

The demise of American manufacturing has been widely heralded. However, in a report on the state of manufacturing in America, economist Michael J. Hicks of the Center for Business and Economic Research at Ball State University recently renounced several myths about this segment of the American economy, giving clues about where manufacturers should focus in the future.

1. The manufacturing base is in decline.

In fact, national manufacturing production (adjusted for inflation) is on a steady and long-term growth path. By the end of 2014, the manufacturing economy had completely recovered from the recession of 2008. In 2014 and continuing in 2015, manufacturing levels have recovered, continuing an upward arcing trend in output that began in the early 1900s. Viewed in this context, the downward turn in manufacturing productivity during the late 2000s recession is a statistical blip, not a prediction of long-term manufacturing decline.

2. We haven’t recovered from the recession.

For the most valuable and refined manufactured products — consumer durable goods — 2014 was a record production year, and 2015 is expected to set a new record. The production of consumer non-durables — goods used for less than a year such as clothing and food products — is growing more slowly. These products face more global competition.

3. We cannot compete internationally, and therefore, we are losing jobs to foreign outsourcing.

Inflation-adjusted output per worker is actually higher today than in the late 1990s. Automation and information technology advances have been key drivers of this increased productivity.

Higher productivity per worker has impacted manufacturing job losses much more than international trade. Better supply chains, more capital investment, and better technology are driving greater manufacturing efficiency. Overall, only 4 percent of manufacturing jobs have been lost to international trade since 2000. Since the end of the recession, the economy has actually added 750,000 new manufacturing jobs. The biggest job losses have occurred in low productivity sectors with low transportation costs.

4. New jobs in manufacturing pay poorly.

The manufacturing economy is going through an historic generation shift in which older baby boomers are retiring and are being replaced by millennials at an unprecedented rate. Manufacturing jobs still pay substantially higher starting salaries than other segments of the economy, such as service, food and hospitality. The wage gaps between new and existing jobs are mostly age-related, as millennials replace baby boomers.

5. Good manufacturing jobs are no longer available.

Workforce retirements and turnover will be significant in the next 10 years, meaning that annual new manufacturing job openings will be substantial. Based on current projections, annual job openings will exceed the number of qualified new workers entering the economy, which suggests a different kind of challenge — but one preferable to the absence of good manufacturing jobs.

From a legal standpoint, what does this mean for manufacturers now and in the coming decade?

The manufacturing economy is growing and poised to grow further, but manufacturers seeking to prosper in the new economy need to understand the role of technology. Manufacturers should seek legal and business advisors who understand the opportunities and challenges of high-tech construction and manufacturing facility operation — these will be key aspects of successful and profitable manufacturing in the 21st century.

Manufacturers should also consider innovative construction project delivery approaches like integrated project delivery, design-build and others. Building or retrofitting manufacturing facilities faster, cheaper and better than with older, outmoded project delivery models is an essential competitive consideration. Smart, innovative construction is one key to being more profitable and successful in an increasingly competitive and flattened national and international economy.

Faegre Baker Daniels’ construction lawyers work on industrial construction and automation issues every day. Indeed, in the area of automation, we wrote the book: The Automation Legal Reference: A Guide to Legal Risk in the Automation, Robotics and Process Industries. FaegreBD’s construction lawyers have helped develop and refine new project delivery approaches in the construction and retrofitting of manufacturing facilities and advise clients on manufacturing projects from initial conception and design through project completion and operation.

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