Finally… manufacturing capacity approaches December ’07 peak
Earlier in November, I spoke at the Global Economics & Country Risk Conference hosted by IHS in D.C. Joining me were speakers from the World Bank, the Peterson Institute, and The Wall Street Journal. The main purpose of the two-day event was to explore how the global economy may react to geopolitical turmoil and how businesses can proactively adapt their strategies.
My presentation focused on U.S. economic growth and the prospects for a manufacturing revival. In short, numerous positive economic reasons support a possible revival; however, the data that could show this are scarce. We are now at a tipping point, with not enough major indicators for statistical confirmation. More domestic sourcing and rising export share would both go a long way toward realizing a revival.
Highlights:
• In my breakdown of capacity utilization by subsector for September 2014, petroleum and electrical equipment rank highest at 85% and semiconductors trails at the end with 70%. Overall manufacturing capacity utilization was 77% and is just now approaching its previous peak from December 2007.
• Job growth within manufacturing is slower than for the economy as a whole, but unemployment is lower (4.3% vs. 5.8% in October).
• The number of domestic manufacturing plants is finally starting to level off after a long descent over 15 years. In 2014, manufacturing is projected to be responsible for 12% of GDP, matching the share from 2009.
• One positive finding is how the U.S. stacks up for manufacturing unit labor costs relative to other countries. From 2002 to 2012, the U.S. achieved an 11.6% decrease for these costs, markedly different from the astronomical increases for Australia, Canada, and some major European countries.
• Several other factors are favoring U.S. production. The value of the dollar is down, natural gas prices are low, domestic customers are demanding just-in-time delivery, and China is facing rapidly rising labor costs
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