Laurie Sullivan, EBN
US manufacturing grew more slowly in February. The Institute for Supply Management reported last week that the factory index fell to 52.4 from 54.1 in January. The good news is that manufacturing in the United States has expanded for 31 straight months, according to the index. New orders increased in the month, but at a far slower pace.
President Barack Obama continues to tell us that manufacturing matters. He is right. Manufacturing growth could, in fact, help the country climb out of a deep economic rut. In the fiscal 2013 budget submitted to Congress, Obama’s proposal creates a new $1 billion private-public partnership program aimed at commercializing and manufacturing US-developed technologies.
What would it take to bring back more electronics manufacturers to the United States, and would consumers support the move? In January, The New York Times ran an in-depth piece on how the US lost out on manufacturing the iPhone from Apple Inc. (Nasdaq: AAPL). Electronic industry executives know advanced manufacturing techniques drive increased productivity.
There are a couple of forces (rising labor costs in China and depreciating currency pushing up prices) working in favor of bringing manufacturing back into the US. A reduction in the time between product conception and delivery to customers is also in favor of US manufacturing as it increases the advantages of having plants closer to end users. However, entire supply chains for components have moved off shore, which makes it a big challenge, according to Andrew Bartels, vice president and principal analyst at Forrester Research Inc.
There are other challenges that could hinder the return of high-tech manufacturing to the United States. Many of the equipment and factories that once handled local production have been sitting idle for years. The cost of bringing them up to date would be extremely high. Moreover, the changing face of US workforce presents another problem. Not many high school kids graduating today say “I want a factory job,” Bartels said, unless the offer is from IBM, Hewlett-Packard, or Intel, three electronics companies still manufacturing in the US.
Companies would need to make a commitment to bring production for a range of products back in to the US, and schools would need to make the commitment to train workers. There are many technologically savvy workers in China. To compete, “we’re asking US high school graduates to become computer literate, mathematically sophisticated, and analytically capable with good mechanical skills,” Bartels said. “It’s not something the US education system is producing in mass quantity today. That’s a problem. It’s not impossible, but we need to do a lot of work on our education system and provide better guarantees they will have jobs.”
Bartels said the industry could also rethink the definition of manufacturing, moving away from hardware and more towards software or digital goods, which continue to be increasingly important for electronics manufacturers. Bartels said the US manufacturing tech sector is adding jobs, but these workers are in software manufacturing, rather than hardware.
Forrester estimates all segments of the US tech industry employed about 3.2 million Americans in 2011. The researcher further said:
Breaking down the industry by major sector, the telecommunications industry provided the most jobs, with 964,000. Close behind is the software industry, with 953,000 jobs, followed by the IT consulting and systems integration services industry with 689,000. The IT outsourcing industry employed 292,000; the computer equipment industry, 174,000; and communications equipment industry, just 114,000.
While the US private sector has added about 2.2 million total jobs since the recession in the first quarter of 2010, employment is still 6 million jobs below the pre-recession peak in the first quarter of 2008. In contrast, employment in US IT firms, excluding telecommunications averaged 2.2 million in the fourth quarter of 2011, up from 2.15 million at the pre-recession peak in the first quarter of 2008 and 2.1 million at the recession in first quarter 2010.
Changing the thinking of millions of US workers to focus on manufacturing in the short term might be easier than revamping the educational system and rebuilding facilities, but, in the long term, even this could hurt the economy and stifle any type of hardware manufacturing.
There are exceptions, according to Ann Grackin, founder of Chainlink Research, pointing to high-tech plants with low labor costs. The type of manufacturing that could come back to the US resides in jobs where the cost of labor as a percent of the manufacturing remains low. Those types of manufacturing jobs include semiconductors, biotech, and nanotechnology, even imaging equipment that’s low-touch and high-tech.
Grackin, however, doesn’t see electronics manufacturing returning to the US in a way similar to its heyday in past years. “The idea of lower-lower-middle class people being employed through manufacturing jobs won’t happen,” she said. “You also can’t compete against the inevitability of the global economy.”
Could consumers afford to buy goods made in the US? Yes, Grackin said, but they won’t. Consumers, for the most part, will buy the least expensive products unless they are visitors from another country and want to purchase something made locally. “The US isn’t the only one suffering from this disease where consumers want low-cost items no matter where they are made,” she said. “Again, there are exceptions. Some consumers will opt in for the locally organic grown or made items, from consumables to hardware.”
