Four reasons US manufacturing could shine
US manufacturing doesn't get the respect it deserves. Some dismiss it as a Rust Belt remnant of yesterday's economy; others claim it's dying outright.
In fact, it is becoming more competitive than it's been in a long, long time. This may have a lot to do with the falling value of the dollar and the elimination of the least productive factories in the face of the severe recession. Nevertheless, US manufacturing productivity topped that of 15 other nations and tied South Korea's for the No. 1 spot last year, according to an international survey released Thursday by the US Department of Labor.
Productivity is key to manufacturing's future because it plays a big role in determining how quickly the sector can grow. If productivity rises quickly, say, 4 percent in a year, then an employer can raise workers' pay 3 percent more and still sell widgets more cheaply. If productivity only rises 1 percent a year, it's very hard to boost workers' pay and still remain competitive.
Here are four reasons, gained from the survey, why the future is brightening for US manufacturers:
1) Productivity is rising short term: While most countries saw their factory workers become less productive last year, American manufacturing workers were 1.2 percent more productive than in 2007.
2) And long term: Since 1979, only Sweden (4.2 percent) and Taiwan (5.6 percent) have averaged more annual manufacturing productivity growth than the US (3.9 percent).
3) US workers are more competitive: The cost of a unit of US labor climbed 1.7 percent last year, less than 14 other nations who saw labor costs rise anywhere from 2.6 percent to 16.2 percent (measured in dollar terms). Only South Korea and Britain became more competitive than the US in 2008, because their currencies fell against the dollar.
4) Long-term cost trends look positive: US unit labor costs – the cost to produce a unit of something – rose 18 percent between 1979 and 2008. The average for 14 other nations was 90 percent.
The last piece of America's manufacturing puzzle is more problematic. China's growing manufacturing prowess has bulldozed much of the competition aboard, including in America. The Chinese seem to be sticking to their exporting ways at a time when many experts are saying they must export less and consume more for their own good – and for the global economy.
If China allows its currency to rise, US manufacturers would export more, America's trade deficit would narrow, and China's alarming hoard of US debt would shrink, helping to rebalance the global economy.
For three years, China helped this occur by allowing its currency to rise against the dollar, says Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Mass. Now, it's holding steady. China "didn't learn from the last recession," he adds.
The ball is in China's court. The world's manufacturers are eager to see if it's willing to step into this new phase of its growth.
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