The United States often is considered a post-industrial, service sector-dominated economy. Much of what Americans consume is produced elsewhere and manufacturing employment as a percentage of total payrolls has declined from 25 percent in 1970 to just 8 percent today. About one in six factory jobs has vanished since 2000.
But there is plenty of evidence indicating the United States retains much of its rich industrial heritage. Despite the massive declines in industrial output during the Great Recession that began in December 2007 and worsened markedly in 2008, overall industrial production is only 6 percent of its pre-recession level. Manufacturing output advanced nearly 4 percent between August 2010 and August 2011, according to the
U.S. Federal Reserve, even as the broader economy slowed during much of that period.
America’s manufacturing recovery is attributable to a host of factors, including a weaker U.S. dollar. The greenback lost more than a third of its value relative to other major currencies during the past decade, which renders U.S. exports more competitive. Moreover, the performance of U.S. automakers improved significantly in recent quarters. The ongoing expansion of the global economy also helped support demand for U.S. industrial output.
According to the
Boston Consulting Group, the United States could be on the verge of a major industrial comeback, contending that sometime around 2015 “manufacturers will be indifferent between locating in America or China for production for consumption in America.” This calculation presumes wage growth will continue to average approximately 17 percent a year in China, but remain relatively slow in America given its roughly 9 percent unemployment rate. This also presumes productivity growth will continue at current trends in both nations.
Investment Pours In
General Motors announced earlier this year that it would invest $2 billion and add up to 4,000 jobs at 17 U.S. plants. The company has begun construction on its new $269.5 million electric motor manufacturing plant, which is a first for a major U.S. auto manufacturer. The plant, located in the GM Baltimore Operations Complex, is scheduled to come online in 2013.
Also earlier this year, Intel Corporation announced its intent to invest more than $5 billion to construct a new chip manufacturing facility in Chandler, Ariz. Similarly, GE Transportation announced it would open a new manufacturing facility in Fort Worth, Texas, that will employ more than 500 workers by 2012. The new 900,000-square-foot facility will house manufacturing and assembly of GE’s rail and transportation-related products, including fuel-efficient locomotives.
Though the cost gap between China and the United States continues to close, few expect a stampede of industrial capacity will return to America. Rather, higher wages in China and in other parts of the emerging world may induce certain U.S. entities to continue operating plants in America rather than shipping production abroad. This will not result in the creation of new jobs, but it could slow the pace of manufacturing employment decline.
Furthermore, certain industries will have difficulty finding their way back to America. For example, the United States no longer possesses the necessary supplier base or infrastructure in key categories such as consumer electronics.
That said, some emerging industries are open to American pursuit. For instance, the number of U.S. solar manufacturing plants is expected to skyrocket during the next few years. As of last year, at least 11 new manufacturing plants were expected to be built by 2012—a substantial increase from the 27 solar factories operating in the country at the beginning of 2009.
Manufacturers of small wind turbines also are setting up shop across the nation. According to Area Development Online, while industrial giants such as GE and Siemens dominate production of large wind turbines, a growing number of small and mid-sized companies are manufacturing smaller turbines designed for use at the top of office towers and in facilities like airports and shopping malls.
Like vehicles, wind turbines involve complex assemblies of small parts. Closed auto parts plants in the Midwest represent attractive candidates to produce these parts. Today, roughly half of the components utilized in U.S. wind turbines are made in America, up from 25 percent in 2004, according to the
American Wind Energy Association.
Volumes Stabilize
Because of the rebound in industrial production and the transformation occurring within the nation’s manufacturing sector, construction spending in this segment should stabilize. During the past three years, construction spending related to manufacturing has declined by almost 34 percent, according to the
U.S. Census Bureau. Though the economy and its manufacturing sector are positioned for some challenging times in the months ahead, the longer-term story for manufacturing-related construction is one of investment, modernization and perhaps even growing global market share.