What’s Ahead for US Manufacturing?

Posted on 16 Dec 2014 by The Manufacturer

Depending on whom you ask, US manufacturing is creeping along - or maybe it’s flagging - or it could be on the verge of a boom, says Tom Bonine, president of National Metal Fabricators in Chicago.

Commentators from around the country have strong opinions about the future of the industry, and they all attribute them to different factors.

In general, outlooks are positive, although many industry speculators hedge their bets by saying what should take place for a domestic manufacturing revival and what to expect in the event of a new manufacturing age. Below are five notable predictions about U.S. manufacturing.

1. Things will never be how they were, but manufacturing has a comfortable future

The consensus among observers is increasingly that manufacturing in America is on the right track — that it’s even helping to power an economic comeback for the entire country. Daniel J. Ikenson, writing for the Cato Institute, says that a revival is coming but warns against nostalgia for the Old World of manufacturing. Further, he recommends tempering expectations, as a manufacturing revival might not translate to an industry capable of propping up the U.S. economy as it once did. Ikenson predicts a manufacturing future that is streamlined and more efficient, but not without its limits for job creation.

2. The future of manufacturing hinges on entrepreneurs and technology

Small businesses have long been seen as the backbone of the American economy, so it’s not entirely surprising that commentators see manufacturing’s resurgence as tied directly to the success of entrepreneurs and their ability to adapt to a new age driven by technology. Rebecca O. Bagley, a commentator for Forbes, predicts that today’s entrepreneurs are shaping a manufacturing industry that doesn’t resemble anything the current industry has grown used to. For example, Bagley sees a manufacturing future driven by software, data, 3D printing and so on. And what will they produce? Products that are hardly on the radar right now: eco-friendly batteries, smart cards and any number of new exciting technologies.

3. For better or worse, the robots are coming

Amar Toor, writing for The Verge, similarly investigated the possibility of a manufacturing landscape dominated by robotics — perhaps with a less optimistic view. While Toor writes that a robotic future appears likely, it’s unclear what that means for actual manufacturing jobs. Robots are increasingly capable of human-like tasks, setting up a possible “robots vs. employment” showdown. As robots work more quickly, take fewer breaks and don’t require a salary, it could be an easy choice for companies. Toor notes that some see a potential blow to manufacturing employment, while others believe that the cheaper, more efficient labor would lure businesses back to the United States and be a boon to the economy at large.

4. A Secret Boom Driven by High Fuel Costs

During a decade of headlines largely dominated by oil prices that have put the squeeze on Americans, U.S. manufacturing might have gotten a much-needed shot in the arm, writes James Pethokoukis, of the American Enterprise Institute. While much of the general public grumbled about the cost for a gallon of gas, energy companies were carrying out an aggressive search for new fuel, leading to an unexpected domestic energy boom. As a result, businesses see potential in investing in steel fabricators that produce steel and aluminum — not to mention newly manufactured technologies, such as machines that are powered by U.S. natural gas.

5. It no longer pays to outsource

During the 2000s, it seemed like a foregone conclusion that manufacturing jobs were packing up and going overseas, where labor costs and materials were cheaper. Consequently, the trend of jobs migrating back to America has taken many economists, like Rita Gunther McGrath of the Columbia Business School, by surprise. McGrath writes that the cost discrepancies between domestic and foreign manufacturing have shifted in a way that favors the United States. What’s driving the new trend? McGrath credits it to instability overseas — a Chinese inflation problem and changes in employee compensation demands there, for example — as well as investors who are skittish about sending intellectual property into regions where regulations can’t protect them. Then there are the domestic buyers who are enjoying a breath of fresh air after a seemingly endless recession and are eager to get back to buying. They want manufacturers who are close by so that the supply chain is more predictable. McGrath calls it “nearshoring” and says that increasingly makes more sense for manufacturers than outsourcing.

The hard lessons of the late 20th century and the decade that followed showed that no one knows for certain which markets will flourish when. Manufacturing tends to be more volatile than other markets, as it is subject to fluctuations in global productivity, changing regulations and unexpected innovations. For now, U.S. manufacturers can hope that the apparent rebound is real and that it has staying power and positive implications, but they must also brace for an about-face at any moment.