Dean Barber

Can Manufacturing Spur a Jobs Revival?

In Site Selection on April 14, 2014 at 8:35 am

Dean Barber:

My work load did not permit me to post a new blog on Sunday, so I am re-posting an earlier one. I promise not to do this too often, so please bear with me. Besides, this particular blog just might be worth reading a second time.

Originally posted on Barberbiz:

In his State of the Union address last week, President Barack Obama spoke in laudatory terms of “a manufacturing sector that’s adding jobs for the first time since the 1990s.”

Well, technically that is true. Manufacturing jobs, after a long and steep decline, have grown by about 570,000 since early 2010, coming out of what can only be accurately called as the Great Recession.

But what the president didn’t say was that job growth at factories has slowed sharply in the past three years — from 207,000 in 2011, to 154,000 in 2012, to just 77,000 last year, according to the Labor Department.

I think it is safe to say that much of what the president said about a resurgence of the nation’s industrial sector can best characterized  by what Peter Tchir of TF Market Advisors would call a big dose of “hopium.”

As a student of American history, I suspect that most presidents, past, present…

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Companies Behaving Badly

In Site Selection on April 6, 2014 at 7:56 am

Mitt Romney was right about this – corporations are people. Or rather, a collection of people.

And because people are what they are, they will inevitably mess up on occasion. In the past week alone, I have read a collection of news reports about companies making big mistakes if not behaving badly. Among them:

General Motors: Senators accused GM this past week of “criminal deception” over a decade-long ignition problem linked to 13 deaths.

CEO Mary Barra pledged that GM will be forthcoming with results of an internal investigation into what led it to keep using ignition switches it knew were faulty for years, then change the parts without alerting the public or regulators.

Toyota: A settlement with the U.S. Justice Department in March ended a criminal probe over the way Toyota handled its biggest recall ever. The Japanese automaker pay a record $1.2 billion fine for misleading and concealing information tied to American recalls dating back to 2009 – when vehicles sped up without prompting from drivers.

The $1.2 billion dollar payment represents the largest criminal penalty imposed on a car company in U.S.history and came with a rare admission of guilt from the company.

PG&E: The owner of  California’s largest utility, PG&E was charged this past week with 12 pipeline safety violations by the U.S. government for a 2010 natural gas explosion that killed eight people and left a crater the size of a house.

PG&E was charged in a grand jury indictment filed in federal court in San Francisco with knowingly and willfully violating the Natural Gas Pipeline Safety Act by failing to test and assess unstable pipelines to determine whether they could fail. The company was also charged with keeping incomplete and inaccurate records about the pipeline that exploded.

Duke Energy: CEO Lynn Good stepped before the cameras for the first time this past week to answer questions about the utility company spilling millions of tons of coal ash into the Dan River near Eden, NC., back in February.

“It was an accident and it resulted in an accidental discharge,” said Good, making no mention of any company wrongdoing. “And I just want to say we are accountable for this and are prepared to move forward.” 

North Carolina Gov. Pat McCrory, a longtime Duke employee, has urged the company to “come out of the shadows”.

German Beer: Germany’s Federal Cartel Office has fined a group of brewers 231.2 million euros ($319 million) for their part in alleged illegal beer-price fixing — the second round of punishment in the case.

The antitrust authority penalized six companies, with Radeberger and the German unit of Danish brewer Carlsberg accounting for the lion’s share of the fines. The office had already announced fines totaling 106.5 million euros in January against another five companies over price-fixing.

So there you have it, a spate of recent news stories about companies who are alleged to have acted bad;y. These reports show that even companies of substantial means, capabilities and reputation can and do mess up.

And that’s because corporations have yet to become fully digitized with a staff of cyborgs and robots, but instead rely on people, who are always hard to program.

If Management Will Listen

There is not a whole lot that a local economic developer can do when a company behaves badly. A viable business retention and expansion program would ideally give an economic developer a pathway to speak to senior management and possibly provide valuable counsel if management will only listen.

If a company views that local economic developer as a trusted ally, senior managers just might listen. Maybe.

Getting companies to listen has always been one of my biggest challenges as a consultant. I don’t think of other consultants as my chief competitors in site selection work. Rather, it is those companies who choose to do site selection on their own.

More often than not, they will fall short as site selection is not, never will be, nor should be their core function. But it is my core function, along with advising economic development groups on how to better compete for corporate investment.

Quoting the great management consultant Peter Drucker, I would urge companies to “Do what you do best and outsource the rest.”

Signs of Growth

To the millions of unemployed and underemployed in this country, this recovery may still feel like a recession. But there are continued signs that the economy is improving, albeit slower than we would like.

On Friday, the Labor Department said  the U.S. economy added 192,000 non-farm jobs in March. The nation has recovered all but 437,000 of the 8.7 million jobs, including those at government agencies, lost as a result of the last recession.

At the current pace of job creation, we should reach a new high for total employment sometime this summer. But it will come five years after the recession was supposed to have ended. Also, keep in mind that the labor force participation rate remains near its 36-year low. It stood at 63 percent last month, well below its long-term average.

Manufacturing reduced payrolls by 1,000 workers in March after adding 19,000 in February, according to Friday’s report. Construction companies boosted employment by 19,000 workers and retail payrolls rebounded 21,300.

Automotive in Gear

On another positive light, cars and light trucks sold at a 16.33 million annualized rate in March, the strongest since May 2007, according to Ward’s Automotive Group.

Demand is certainly the driver behind automotive companies investing billions of dollars in new capacity in the United States and Mexico. Last month, BMW said it would expand its assembly plant near Spartanburg, SC., creating 800 new jobs by 2016 and boosting production by 50 percent, to 450,000 cars a year.

The $1 billion investment by the Munich-based automaker would make the plant one of the largest in the U.S.

I Don’t Get It

Speaking about automotive, I’m not the only person scratching their head about the size and scope of Tesla’s so-called future $5 billion, 10-million square foot “gigafactory.” One of my better read blogs recently was “Skeptical Me” on this very subject.

“I don’t quite get it,” Volkswagen AG Chief Executive Martin Winterkorn told the Wall Street Journal last month. “We have enough suppliers and wouldn’t get the notion to build a battery factory.”

Sales of electric vehicles remain less than 1 percent of the total U.S. market. From 2008 to December 2013, over 170,000 highway-capable plug in electric cars have been sold in the U.S.

But here is Tesla, with sales of just over 22,400 cars last year, saying that it can sell 500,000 vehicles a year by 2020 if it can just build this plan and thereby reduce the cost of its lithium batteries by 30 percent. I’m sorry, but that looks like a stretch to me, as is the Obama’s administration’s goal of having 1 million electric vehicles by the end of next year.

Five years ago, Germany set a goal for 1 million electric vehicles by the end of this decade. A McKinsey & Co. study foresaw an average annual 25,000 new electric cars being added from 2011 to 2014. The average number of new registrations in the first three of those years was just 3,720 annually.

In January 2013, less than 0.1 percent of the passenger cars on German roads were electric.

It does make you wonder. I am reminded of Art Linkletter’s book from years ago called “Kids Say the Darndest Things.” Well, so too do company executives and politicians.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

Figuring Out This Renaissance

In Site Selection on March 30, 2014 at 6:15 am

So I am fast coming to the conclusion that this notion of a “manufacturing renaissance” in the United States is just a matter of semantics and maybe I should just leave it at that.

But here’s the deal: I keep reading about it and trying to discern what exactly the writers are referring to. What do they know that I am missing?

Now it cannot be denied that the state of manufacturing in this country has improved from what it was only a few years ago in the depth of a Great Recession. But isn’t that by definition what occurs following a recession? There is growth and recovery, although this one has been by historical terms very tepid. (See Feb. 9 blog, A Recovery at Half Speed.)

What makes this recovery so different by saying we are now in the midst of a manufacturing renaissance?

The manufacturing sector grew by 6.8 percent in 2010, the year after the Great Recession technically ended, outpacing the nation’s growth in gross domestic product of 2.5 percent. Increasing consumer demand in the U.S. and abroad propelled factory output. Exports grew 11.5 percent in 2010.

So Where is the Surge?

But a surge in manufacturing — as a share of the U.S. economy — has not happened. Growth in the manufacturing sector trailed the overall economy in 2011 and 2012, according to Commerce Department.

The pace of export growth has fallen since 2010 and net job growth at factories has slowed sharply in the past three years — from 207,000 in 2011, to 154,000 in 2012, to just 77,000 last year, according to the Labor Department.

While many folks are hoping for the domestic energy boom, rising overseas labor costs and stronger domestic demand (all of which I do believe are happening) to revive the long-stagnating manufacturing sector, a group of International Monetary Fund economists wrote a paper published in February that pretty much throws water on this notion of a renaissance.

“We find it unlikely for manufacturing to become a main engine of growth in the U.S.,” they said.

Still, the IMF economists said that the U.S. energy jolt, spurred by hydraulic fracturing technology that allows energy companies to tap massive domestic deposits of natural gas and oil reserves, could provide “non-negligible growth opportunities” for U.S. manufacturing when combined with further dollar depreciation and swelling consumer demand emerging markets such as China and India.

Earlier this month, a U.S. Conference of Mayors Advanced Manufacturing Task Force reported that metro area manufacturing employment has expanded by an average annual rate of 1.7 percent over the last three years, and that energy intensive manufacturing employment will expand by more than 1 percent annually nationwide through 2020.

Where Semantics Come In

Taking a historical perspective, which is what I like to do, manufacturing has posted a net loss of more than 9 million jobs since its peak in the late 1970s. However, it is important to note that labor’s importance in manufacturing has fallen off as automation continues to grow. That fact has resulted in the U.S. realizing substantial gains in output per labor hour in manufacturing from 2002 to 2012.

And here is where the semantics come in. If by “manufacturing renaissance” you are referring to manufacturing once again employing a large chunk of the population, well, don’t hold your breath. But if you see American manufacturing characterized by new products, higher productivity, more automation, well, then your renaissance is here.

A Congressional Research Service noted in a February report that “fewer than 39 percent of current U.S. manufacturing workers are directly engaged in production,” indicating the changing face of manufacturing in America.

A Minor Improvement

President Obama has often touted that in the last few years, 500,000 new manufacturing jobs have been created in the U.S. That is certainly true, and it represents great news for those workers who got those jobs, but in the context of the millions of manufacturing jobs lost, it’s a minor improvement.

But clearly this manufacturing renaissance, if it is happening, has not provided renewal to America’s middle class, because wages continue to stagnate. And it is my belief that our factory job wages have remained flat largely because plants today rely more on machines than people, as they (the machines) produce more for less. I write about this “Second Machine Age” in a blog back in January entitled “Can Manufacturing Spur a Jobs Revival.”

In a 2012 study, Jesse Rothstein, public policy and economics professor at University of California Berkeley, found that hires by manufacturers of durable goods (items lasting three years or more) were paid an average of 0.3 percent less in 2010 and 2011 than workers newly hired in 2007 and 2008.

Lower Labor Costs Here

The Boston Consulting Group surmises the U.S. is steadily becoming one of the least expensive countries in the developed world to manufacture. By 2015, average labor costs will be about 16 percent lower in the U.S. than in the U.K., 18 percent lower than in Japan, 34 percent lower than in Germany, and 35 percent lower than in France and Italy.

Now you would think such a discrepancy in the numbers would mean a resulting flood of manufacturing capital investment into the U.S., but that has still yet to happen in big way, despite all the re-shoring rhetoric. Certainly, there are examples of companies bringing back production to the U.S., but too often at wage levels that do little to rebuild a hammered middle class. 

In short, this story has yet to play out. Years from now we will know if this so-called manufacturing renaissance was real or a pipe dream.

Consultant Connect in Dallas

So the question was potentially unsettling, but I remained calm. No need to let anyone see me squirm.

“So how do you find your leads and how do you get paid,” an economic developer asked.

My first inner thought, which I kept to myself, was, “What makes you think we have leads and are getting paid?”

The attention was on three of us, three former economic developers who had gone over to the “dark side” by becoming site selection consultants. Consultant Connect was in Dallas last week, and I was one of 16 consultants talking about our craft to attending economic developers from around the country.

At a luncheon on the second day, Alison Benton of Aliquantus Consulting; Ray Watson of U.S. Consults; and yours truly – spoke on how and why we made the transition from economic development to consulting.

My reasoning on that question was supplied to me the night before at a reception where an economic developer told me how her board chairman had been pointedly asking why their community was not in front of Tesla making a pitch for the supposed future $5 billion gigafactory.

I could just imagine this man saying. “You know, we could use one of them gigafactories. You need to get out there and snag us one.”

And that, ladies and gentlemen, is one reason why I no longer practice local economic development. Managing expectations, keeping it real among stakeholders, is a crucial role for economic developers.

It is an area where I do believe that I can be of help to those economic developers who find themselves being asked questions by those who lack a fundamental understanding of what is doable and practical and what is not.

I joked that my career path was on a downward spiral – breaking bad from journalist, to economic developer, to consultant, with the next logical stop as an inmate in a penitentiary. (I assure you that is not my direction due to my deep-seated fear of showering near menacing men with tattoos.)

Indeed, I would recommend to any and all people that they should aspire to help others in need and refrain from criminal behavior unless they work on Wall Street or are elected to Congress. There, I realize such counsel would be pointless.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

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