U.S. manufacturing rebound driving optimism for global growth

Despite challenges, economists at MFG Meeting find "a bright future"

03/09/2012


Manufacturing productivity and growth is driving the U.S. out of its recession and toward a strong growth cycle for 2012 and into 2013, two leading economists told The MFG Meeting in Orlando Friday.

The Manufacturing For Growth meeting brings leaders from the Association for Manufacturing Technology, the National Tooling and Machining Association and the Precision Metalforming Association to discuss how to keep manufacturing growing. Despite the crises in Europe and Iran, economists see tremendous growth potential, and also see manufacturing leading the way.

“There is a growing optimism that we’ve passed the worst of it, that we’re entering a stronger growth rate,” said Adrian Cooper, CEO, Oxford Economics. “One of key foundation is foundation increased optimism about prospects in the U.S.”

“If you need to spend money on people and process, this is the time to do it,” said Alan Beaulieu, president of the Institute for Trend Research. “We see two years of economic expansion and won’t see any constraints along the way. The leading indicators are pointing up. Banks are lending, employment is rising, exports are up. If we had more qualified labor, we’d hire them.”

Beaulieu said the U.S. manufacturing market is driving such productivity that even Chinese manufacturers to locate in the U.S. “U.S. labor is good labor,” he said. “We make cars people want. We have the same cost basis as China, but we have a bright future and they do not. If you want to be encouraged, there is a lot to be encouraged about.”

Cooper said that labor costs in the U.S. have stayed relatively flat in the last decade, while labor costs elsewhere have gone up – and in the case of China, gone up sharply. “When you compare unit labor costs, it’s really striking. There’s been no increase over the course of last decade. That reflects constraints on wage growth and strong productivity increases,” he said. “We’ve seen very strong increases in China, but also strong in Germany. It has been transforming the attractiveness of U.S. for manufacturing production.”

Brian Norris, vice president of marketing for Sandvik USA, started the session by noting, “There seems to be a clear and common theme – business is great. But we also have to plan for tomorrow.” To that end, both economists indicated that global pressures and domestic policies could weigh on continued economic growth.

“This slowdown in 2011 we’ve seen have had a lot to do with sovereign economies in Europe,” said Cooper. “They’ve had to implement very severe fiscal austerity. These economies are facing very severe recession, which is pulling down Euro block.”

“We’re predicting a mild recession for 2013 and into 2014,” Beaulieu said. “It will have a mildly negative impact, but it won’t be anything like 2009. That’s not for a while down the road.”

One big issue is energy, and Cooper said contrary to popular perception, U.S. dependency on foreign oil is actually on the decline, a trend he expects to continue.

“In contrast to Europe and China, dependency on imported energy is going to be declining in the U.S., while in Europe and China it’s going to continue to rise,” said Cooper.

“Prospect for long term production is high, prospects for short-term disruption is high,” added Beaulieu.

Beaulieu said the machine tool industry expects to remain high, led by auto and aerospace industries. While growth rates are not expected to be as high as in 2011 as the recession began to drift away, both economists see string machine tool growth for the sector.

“When looking at baseline forecasts, we see solid growth this year and solid again in 2013 and 2014,” Cooper said. “It provides a platform on which we can see growth in the rest of the world.”