Is U.S. Manufacturing in Decline or Experiencing a Renaissance?

Lower transport costs, cheap natural gas, stable labor costs and a productive work force have help to create a renaissance in U.S. manufacturing with many companies choosing to reshore production back to this country, said Douglas Wood, president of the Association for Manufacturing Technology, a national organization that represents producers of manufacturing equipment, speaking at a State of Manufacturing conference put on by Impact Washington today.

Wood pointed out that the U.S. manufacturing sector grew by 85 percent in 2010 and by 29 percent in 2011. He says the sector will grow by 5-7 percent this year pushing the industry past where it was in 2008 before the financial crisis.

We all understand that manufacturing is one of the best sources of family-wage jobs, said Attorney General Rob McKenna, who also spoke at the conference. He pointed out that Washington state exports $50 billion in manufactured products a year and that the average wage in the sector is $77,000. We should look at manufacturing as a bellwether for the state, a leading indicator to determine if the state has created the conditions necessary to create jobs in the sector.

Although recent surveys suggest many of Washingtons larger manufacturers have plans to hire new workers, they face challenges finding skilled workers, said John Vicklund, president of Impact Washington, a federally funded organization that helps state manufacturers improve their competitiveness. (Impact Washington is also a sponsor of Seattle Business magazines Washington Manufacturing Awards. The 2012 Awards program is accepting entries through January 20^th. Enter here.)

Its a skills gap issue, says Vicklund. Those who have been laid off in recent years dont have the skills to fill jobs available in manufacturing. Manufacturing is longer about putting widgets on a conveyor belt. These jobs require high skills.

Wood argues that in spite of Chinas emergence as an economic power, the U.S. economy is two times larger than China, (five times larger on a per capita basis.) And thanks to the skills of our workers and the highly automated state of our manufacturing plants, one hour of labor by an American worker produces the same economic output as 7.5 hours of a Chinese worker. And while China seems like an unstoppable juggernaut, Wood pointed out that the Asian giant faces a real estate bubble, major infrastructure challenges, social unrest, 15-percent-a-year wage inflation and a rapidly aging population.

The biggest challenge to U.S. manufacturing, said Wood is the tendency of American technology companies to assume that it is cheaper to produce any new product overseas, a tendency that can become a self-fulfilling prophesy by eroding the nations industrial base. There are companies that have made a conscious effort to source everything locally and find they can do so, said Wood.

Another challenge is the tendency of many U.S. companies to spend less on research and development. While U.S. companies, on average, spend about 6 percent on R&D, Chinese companies spend 26 percent on R&D. While the U.S. currently has a big lead in innovation, that lead will diminish overtime if companies underinvest in new technology.

Wood said the most important thing for the U.S. is to have a coherent national policy aimed at strengthening the manufacturing sector. Such a policy should include incentives for innovation; capital availability; reduced cost burden on companies; greater collaboration between government, academia and private industry and a better educated workforce.

New technologies are transforming manufacturing that could also give U.S. companies an edge, Wood said. Among those are: new standards that will allow companies to more easily tap spare capacity in other parts of the country, something called cloud manufacturing; The ability to build customized parts such as custom-designed hip replacement parts, on a mass manufacturing level; and the emergence of new machine-tools that can handle multiple functions that used to take several machines.

There are many reasons to be excited about manufacturing, Wood said.