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 and future, have and will use their office as a bully pulpit to instill hope among the American people. And maybe that is altogether proper. Maybe the nation’s highest office should be occupied by a cheerleader in chief, albeit one who can get things done.
But getting things done does not characterize the present environment in Washington. Indeed, a recent Gallup poll shows that the federal government, at 21 percent, leads the list of what Americans consider the most important problems facing the country.
Mega-Trends in Our Favor
Despite the uncertainties and frailties caused by a dysfunctional government, a cursory view would indicate that U.S. manufacturing is on a much better footing today than it was just a few years ago. We have some mega-trends in our favor.
Rising wages in China and cheaper energy costs in this country have raised hopes that more U.S. companies will bring back manufacturing work and jobs to America — a prospect that Obama specifically mentioned in his speech. And some of that has actually happened and no doubt will continue to happen.
A recent example is Kent International, a New Jersey-based bicycle maker, which announced that it will move its production to Clarendon, South Carolina, and create 175 new jobs and assemble 500,000 bicycles annually by 2016. The company had moved all of its production overseas in 1990s because of lower costs of production abroad. The company’s bicycles are sold at Wal-Mart and Target among other retailers.
But here’s the kicker — most experts don’t see a big burst of new manufacturing jobs taking place despite all the hopium about a “manufacturing renaissance” in this country.
The Second Machine Age
That’s because to some degree people, or at least most people, are becoming functionally obsolete for advanced manufacturing. Technological change has resulted in the automation of so many functions in the manufacturing process, in which software-driven machines have essentially become substitutes, not complements, to people on the factory floor. We are entering “The Second Machine Age,” which is the title of a new book by Erik Brynjolfsson and Andrew McAfee.
In the book, the authors tell of Dutch chess grandmaster Jan Hein Donner, who was asked how he’d prepare for a chess match against a computer, like I.B.M.’s Deep Blue. Donner replied: “I would bring a hammer.”
For those relatively few people who will still be needed to run increasingly automated manufacturing systems, plant managers say they can’t find enough of them with the desired skill sets required. That problem will likely only worsen by the fact that about 2.7 million manufacturing workers are expected to retire between now and 2018.
Confessions of a Plant Manager
I was recently in a manufacturing plant in Georgia, where the plant manager told me that his biggest challenge, the one thing that kept him up at night, was the prospect of finding suitable talent to take over from the process engineers and maintenance technicians who would soon be retiring after many years of service. The potential replacement candidates with the needed skills are few and far between, he said.
In his State of the Union address, Obama said improved job training will be key to his administration’s efforts to make it easier for Americans to join and stay in the middle class. At a General Electric factory near Milwaukee, Obama signed a presidential memo directing Vice President Joe Biden to lead the review, and to work with cities, businesses and labor leaders to better match training to employer needs.
“Our economy’s changing,” Obama said. “Not all of today’s good jobs need a four-year degree. But the ones that don’t need a college degree do need some specialized training.”
After his remarks, Obama signed a presidential memorandum directing a review of how to make federal training programs more focused on helping workers get the right skills for in-demand jobs and remain a part of the middle class.
The Great Uncoupling
Now that sounds all very good. I would be hard pressed to say that upping the ante on training is a bad approach. Certainly corporate clients that I have represented during site selection projects look favorably at those locations where training programs can be offered, usually through a local community college.
And the president’s idea of creating high-tech manufacturing research hubs around the nation to spark innovation, I mean, how could I be against innovation and research and development? Continued investment in technologies does for the most part drive future production.
But where this could all break down is in the cruel reality of the numbers. Does a manufacturing revival necessarily go hand-in-hand with a big jobs revival? The evidence would indicate that the two can be – and increasingly are – uncoupled.
History provides us with some important clues. Manufacturing in America accounted for slightly less than 20 million jobs at its peak in 1979. Today, it’s barely 11 million. The picture is even bleaker when you consider population growth, since the labor force in 1979 was about 105 million whereas it now stands at about 155 million.
Correspondingly, manufacturing accounted for 28 percent of U.S. gross domestic product in 1953; 20 percent in 1980; and 12 percent in 2012, according to the U.S. Bureau of Economic Analysis. Over that same period, GDP increased from $2.6 trillion to $15.5 trillion. In short, manufacturing output more than tripled during that 60-year span, but the stuff being manufactured was being produced by fewer and fewer people.
And that has been true in all developed countries – Germany, Japan, and even China.
Where Most Job Growth Occurred
Also keep in mind that nearly 54 percent of jobs created in 2013 were in the low wage sector, a key reason steady hiring has yet to strongly push up wages. The biggest percentage increase in job growth occurred in the temporary help industry, according to Labor Department data. Those jobs tend to pay less and provide fewer benefits.
Hotels, restaurants, amusement parks and other entertainment firms posted the next biggest percentage gain. The third-largest gain was at retail businesses.
None of this is to say that the United States won’t continue to be a powerhouse in manufacturing. I believe that our manufacturing sector, after sustaining some serious body blows, has found its technological footing to compete and win on a global scale. By virtue of the fact that more CEOs are even suggesting taking a long hard look at re-shoring would indicate as much.
With the shale gas revolution, which we are only now starting to understand, and disruptive technologies such as 3D printing, still in its infancy, you have to wonder if we may be at “the beginning of something big,” as noted by Bruce Katz, a vice president at the Brookings Institution.
Shooting for a Miracle
We just might. My gut says we are, even if I have my doubts as to whether that will translate into millions of new manufacturing jobs being created. With 6 million manufacturing jobs lost in the last decade, if we could recoup one-third of that number, I would chalk it up to be an incredible feat, a miracle in the making. But even the most bullish economists aren’t predicting that, as it just goes against the tide of history.
I did hear one featured speaker at a gathering of economic developers this past fall in Tucson, Arizona, predict that the energy boom, which is quite real, would result in millions of newly-created manufacturing jobs. He said that the manufacturing slice of the total workforce pie would rise to 15 percent from its current 12 percent.
Too bad that manufacturing represents only about 9 percent of all jobs today. Oh well.
So taking all these things in account, with some positive headwinds blowing our way, it is not surprising that President Obama speaks in terms of restoring lost manufacturing jobs. One could argue that would be his job as the cheerleader in chief.
But I have to wonder if the machines in this new age will permit that to actually happen. I’m not so sure. He might have to bring a hammer.
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.
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