The dog days of manufacturing

As I’m writing this in mid-July, we’re experiencing uncomfortably hot and muggy weather in the Chicago area. I worked up a sweat just walking the dogs this morning—and they walk pretty slowly. It’s hard to want to do much of anything.

That description seems to fit the U.S. economy in general and manufacturing in particular. After a few years of solid growth in recovery from the Great Recession, manufacturing seems to be stalled, not going forward or back. Erik Johnson, senior U.S. economist for IHS Global Insight, probably said it best in his report, “Manufacturing Goes Nowhere in the Second Quarter.”

While total industrial production was up 0.3 percent and manufacturing also rose 0.3 percent in June compared to May, it was barely perceptible, Johnson wrote. “In level terms, industrial production is on par with March, while manufacturing activity is below that of February,” when U.S. manufacturing expansion was at its highest level since June 2011.

In other words, we’re stuck in neutral. “After an annualized 5.1 percent surge in the first quarter, manufacturing declined by 0.2 percent in the second,” Johnson stated. “Strong headwinds, including the sequester and growth issues in both Europe and China, have made it difficult for the recovery to gain momentum. The manufacturing revival should continue to be a measured one, and though we do expect a second-half rebound, we foresee annual growth in the sector of about 2.5 percent—which would be the slowest pace since the recession.”

So, there’s not much to get excited about in terms of production. How about employment? Is manufacturing creating more jobs, as it has for the past few years? Not lately. The U.S. manufacturing sector lost 6,000 jobs in June, according to the U.S. Bureau of Labor Statistics.

Is the road ahead any better? Not according to Economist Robert J. Samuelson. In his July 14 Washington Post column, “High Tech and the Long Road to ‘Full Employment,’ ” Samuelson wrote, “Here’s a somber thought: We may never—or at least not anytime soon—regain ‘full employment,’ meaning an unemployment rate between, say, 4 percent and 5.5 percent. It is now 4 years from the recovery’s start, and the number of jobs is still 2.2 million below the prerecession peak. Since World War II, this has never happened.”

He noted some economists are blaming high technology for this lag in job growth. I’ve touched on this topic in past columns, and the argument is basically that automation and robotics, while spurring innovation and more cost-effective manufacturing, have begun to act as a drag on job creation.

Samuelson sees the glass half full—but possibly draining: “It’s a stretch to see digital technologies (automated processes and robots) as a major source of today’s unemployment. In the recession, the economy lost 8.7 million jobs. Most were nondigital, concentrated in construction, finance, retailing and manufacturing. What seems less dubious is that, in a permanently sluggish economy, firms might favor digital investments that shave costs and sustain profits.” If, for example, warehouses are run by robots and trucks are driven by computers, “the digital revolution could stymie job growth,” Samuelson said.

In the meantime, some help on the manufacturing jobs front may be coming from an old friend—auto manufacturing. The industry is on the verge of a hiring spree as automakers and their suppliers look for engineers, technicians and assembly line workers to build the next generation of U.S.-built cars and light trucks, according to a report by the Associated Press. “From January to May, automakers and parts companies hired 8,000 workers, a relatively slow rate. But the pace is picking up,” the report stated. For example, the Center for Automotive Research expects the industry to add 35,000 total jobs in 2013. And one in every four manufacturing jobs added in the U.S. from June 2009 through May 2013 came in the auto industry—a total of 167,500 new jobs, according to the Manufacturers Alliance for Productivity and Innovation.

Let’s hope some other manufacturing industries pick up that hiring baton from the automakers. And let’s hope the A/C is cranking on all those new cars! CTE