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Focus: Manufacturing

Feature Article from Our Manufacturing Subject Area - See All

From SCDigest's On-Target E-Magazine

- Jan. 15, 2015 -

Supply Chain News: New Report Claims Touted US Manufacturing Renaissance Mostly a Mirage


Most of Recent Growth in Output and Jobs is Cyclical, not Structural; Cheerleading Obfuscates Need for Policy Change


SCDigest Editorial Staff

Is US manufacturing on the rebound, with so-called "reshoring" becoming an important trend?

Well, it depends on whom you ask, it appears, as certainly many media sources and consulting firms have been touting the notion that US manufacturing really is on the ascent, driven by rising wages in China, low natural gas costs, regional manufacturing strategies and more.

SCDigest Says:


US manufacturing growth is substantially below the rate of overall GDP growth, meaning that in an era of a supposed US manufacturing renaissance the sector continues to shrink as a percent of overall US GDP.

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But SCDigest's position continues to be: Look at the numbers. And those numbers are positive, but hardly yet indicative of a major advance in the US' overall manufacturing position or strong growth in reshoring.

That view is one also taken by the Information Technology and Innovation Foundation (ITIF), which says it is a non-partisan policy think tank, in a new report whose title should make clear its position: "The Myth of America's Manufacturing Renaissance."

From reading the report, SCDigest would say "myth" is perhaps too strong a word - it's more like "there are still many questions." The report in our view is also hobbled just a bit by primarily only using data through 2014, when of course we have or will soon have full year data for 2014, in what looks like was a good year for US manufacturing. For example, starting in July total US manufacturing output finally exceeded pre-recession peaks, while the report often says US manufacturing levels are still below that 2007 peak.

Still, the report makes a persuasive case that there has been too much "cheerleading" relative to a US manufacturing comeback that distorts or ignores the real facts. It argues that this cheerleading is distracting policy makers from addressing the key issues central to truly getting US manufacturing going again, which it says include high effective corporate tax rates, limited public investment in industrial R&D and workforce skills development, and pernicious foreign "innovation mercantilism," which ITIF says include tactics by some countries from currency manipulation to intellectual property theft and more that distort international trade.

The report starts in part by noting just how far US manufacturing fell in the 2000s, with much of the work and jobs of course being offshored to China. During that decade, the report says that "U.S. manufacturing employment experienced a decade of unprecedented losses, shedding 5.8 million jobs, or about one-third of the workforce. Since the bottom of the recession, the US has regained some 720,000 manufacturing jobs through 2013 [more were added in 2014]," and while that's somewhat good news, it represents obviously a small fraction of the jobs that were lost.

It adds that "unlike the prior two decades, these losses were caused not principally by superior manufacturing productivity growth, as apologists for the health of U.S. manufacturing continue to assert. Rather, they were caused by significant losses in real value added output, in turn causing a large increase in the U.S. trade deficit, which by 2002 also included a deficit in advanced technology industries."

The report further says that the idea that the US was only shedding manufacturing in more commodity type products to focus on high value add and advance products is also something of a myth, noting that while the US has indeed shed the lower end manufacturing work in great numbers, it has gained relatively little back at the high end, and is even losing much of that.


It also states that the most of the gains in US manufacturing output and jobs since the recession officially ended in 2009 appear to be a result of cyclical improvements as demand recovers, rather than a change in US competitiveness.

ITIF also cites data from the Reshoring Initiative that says that while some 120,000 of the 720,000 regained manufacturing jobs were due to reshoring, "the increasing rate of reshoring had not yet overtaken the rate of offshoring, meaning that just as many jobs are leaving as arriving."

(Manufacturing Article Continued Below)




The report also includes this interesting chart, which compared growth in US GDP from 2007 to 2013 with growth in various areas of manufacturing, as shown below.


Real Value Added Growth in US GDP and Manufacturing  2007-2013



Source: ITIF

Some key takeaways from this data: US manufacturing growth is substantially below the rate of overall GDP growth, meaning that in an era of a supposed US manufacturing renaissance the sector continues to shrink as a percent of overall US GDP.

Second, US manufacturing growth since 2010 has been concentrated in durable goods, notably rising production of cars and aircraft. Non-durable goods US production continues to contract.

The report also hands out some shots, some aimed at the Boston Consulting Group, which in recent years has issued a series of reports predicting a US manufacturing renaissance, but most pointedly to the Peterson Institute for International Economics. ITIF says the Peterson Institute issues a report that "tortured the data" to make US manufacturing look healthier than it really was, in order to counter pressures to adopt various protectionist policies in the US.

The report concludes by noting that "Conditions for U.S. manufacturing are certainly better than they were a decade ago, as employment and output are both growing, albeit slowly. Despite this improvement, there is not yet evidence to support the notion of a U.S. manufacturing renaissance."

It adds that "The optimistic message of the manufacturing renaissance provides the public, business leaders, and policymakers with a dangerous sense of complacency that reduces the urgency and necessity for Congress and the administration to take the bold steps needed to truly and sustainably revitalize American manufacturing."

The full report can be found here: The Myth of America's Manufacturing Renaissance: The Real State of U.S. Manufacturing.


What's your reaction to this report? Do you think there has been too much cheerleading about US manufacturing? Let us know your thoughts at the Feedback section below.

Recent Feedback

I agree "myth" is a strong word and completely incorrect.

We agree that steps need to be taken.

We appreciate that Harry Moser, founder/president of the Reshoring Initiative was quoted in the ITIF report, which exemplifies the signifigance of reshoring.

We agree that we must not become complacent about the manufacturing renaissance and need a national manufacturing strategy to ensure the continued rebound of U.S. manufacturing.

According to Harry Moser, "Essentially, reshoring should be seen as not a measure of the renaissance but the most efficient tool to start achieving it."

The challenge is to pick the most effective and implementable actions to overcome the loss of manufacturing and the trade deficit.

The Reshoring Initiative sees two choices:
1. In the short to medium term: reshoring - getting companies to understand all of the benefits of local production and adopt a more comprehensive total cost analysis. This could cut the trade deficit by 25% and bring back 1 million manufacturing jobs. Mainly this requires education of companies and is entirely under the control of our society. Detailed, objective reporting is necessary to motivate companies to reevaluate offshoring.

2. In the longer term, to get the other 75%, requires improved competitiveness: taxes, currency/tariffs, skilled workforce, basic education, etc. All are political, most are cultural and endemic, currency/tariffs is subject to WTO rules, other countries' actions and our need to raise interest rates. There has been almost no progress on these fronts in decades of trying.

Ideally, it is best to do both sets of actions. We should be enthusiastic about reshoring but not optimistic about the renaissance until we begin to take the steps to allow us in the future to become optimistic about renaissance.

The Reshoring Initiative Can Help.

The not-for-profit Reshoring Initiative's free Total Cost of Ownership software helps corporations calculate the real P&L impact of reshoring or offshoring. In many cases, companies find that, although the production cost is lower offshore, the total cost is higher, making it a good economic decision to reshore manufacturing back to the U.S.

Sandy Montalbano
Reshoring Initiative
Jan, 21 2015