Manufacturing’s potential for an economic boost comes with varied opinions

A little while back, I came across a New York Times article with this headline: “The Myth of Industrial Rebound” and this subhead: “Don’t buy the hype about a manufacturing revival. It is not enough to restore the U.S. economy.”

Given what we cover and keep an eye on at LM, it was hard not to take notice of this article for certain. At the same time, I had this thought in the back of my head: could this article really be true? If so, it would widely dispel the many data points, metrics, and cases (strong ones, too) being made for the actual strength of manufacturing in the U.S. and how it is serving as an economic driver, maybe not the force that pulls all engines but something to point to and see it for what it is, an economic catalyst.

Looking at things like the monthly manufacturing reports on business from the Institute for Supply Management (ISM) and decent volume numbers for many industrial commodities being hauled on the rails provided by the Association of American Railroads, as two examples, it made me very curious to see what the New York Times article was saying.

The article points out that there are some manufacturing success stories, with some companies bringing back manufacturing operations to the U.S. But its author, Steven Rattner, a former Wall Street executive who also served as President Obama’s lead auto adviser, maintains that the hype about any type of domestic manufacturing revival is overblown, as the “so-called renaissance…has in reality been a trickle of jobs, often dependent on huge public subsidies. Most important, in order to compete with China and other low-wage countries, these jobs offer less in health care, pension and benefits than industrial workers historically received.”

Rattner went on to say that dispiriting wage trends in manufacturing are a central reason for the slow economic recovery, as without sustained income growth, consumers can’t spend.  

The assessment of American manufacturing in this article was described as “one man’s opinion,” according to Brad Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, and lead author of the ISM’s monthly Manufacturing Report on Business.

“It is not supported by my data, which I try to stick with so what we can see and might agree on is that manufacturing is just 11-12 percent of GDP so in that regard it does not account for all of the U.S. economy,” noted Holcomb. “The services sector has to be paid attention to as well. And we should look at manufacturing and services combined and remember trends require many months of collective data, with manufacturing well- and appropriately-regarded as not the whole of, but a bellwether for the U.S. economy and rightfully so.”

And Josh Green, CEO of Panjiva, an online search engine with detailed information on global suppliers and manufacturers, said that while excitement about the possible resurgence of U.S. manufacturing is a good thing, he explained there is still a massive wage differential between the U.S. and other countries around the world.

“In one way, it is a fantastic thing for American workers as their wages are, relatively speaking, higher, but what it means for manufacturing is there is a relatively small slice of manufacturing that makes sense for it to be relocated to the U.S.

What’s more, to the extent that manufacturing does come back, Green said it is not going to be a cure all for the country’s jobs’ problem because it is not going to be as massive as it once was. What could make more economic sense, he said, is technology-intensive manufacturing rather than labor-intensive manufacturing although that comes with the caveat that with manufacturing there are not a high percentage of jobs being created.

When it comes to manufacturing’s staying power and subsequent job growth, it is fair to say there are—and will likely always be—differing opinions. That said, it is doing quite well, while representing less than one-fifth of our country’s economic output. Can it raise all tides and get the country back on its economic feet all by itself? Probably not but it still is a good thing to have on our economy’s side.