Canadian metalworking recently interviewed Doug Woods, president of the Association for Manufacturing Technology (AMT) based in McLean, Virginia, to get his impressions on the state of the North American manufacturing sector. His prognosis is surprisingly upbeat and strongly optimistic. Woods points to “reshoring” as a positive trend while downplaying the impact of economic turmoil in parts of Europe. While Woods’ primary focus is the United States, much of what he says is very relevant to Canada as well.
“Politicians, economists, and the media have continuously predicted the imminent demise of the manufacturing-led recovery. The current recovery celebrated its third year in June and yet very few people even today seem to be ecstatic about the pace or the current outlook. Every quarter there have been warnings that the challenges facing a manufacturing-led recovery would sink the recovery. Stories that a double-dip recession was in the works filtered through the media throughout 2010. Economic experts declared the end of a recovery after the Japanese disasters of March 2011, again during the oil price spikes in late spring 2011 and once more at the beginning of the EU financial crisis in summer 2011. They were wrong,” states Woods.
Durable goods, manufacturing up
“Two indicators of future trends in manufacturing output or industrial production that are useful are orders for raw materials and manufacturers’ profitability. The demand for primary metals in June was one and one half times what it was in March 2009 and improving. Second, U.S. manufacturers are recording phenomenal profit levels in nominal terms. The previous two peak quarters yielded $115 billion and $134 billion in profits for durable goods manufacturers. The fourth quarter of 2011 netted a whopping $138 billion and expectations are that the first quarter of 2012 will top that when all the tabulations are done and the figures reported,” he continues.
Some pundits have predicted that the economic problems besetting parts of Europe will have a shattering impact on North America. Woods begs to differ.
“While clearly [Europe] is a big market, people sometimes overestimate what would happen [in North America] if something happened in Spain looking at the GDP side, some of these countries we’re talking about, there are U.S. states that are bigger than them,” he states.
“Ultimately, the economic conditions in Europe and the rest of the world have an impact on the U.S. No country is wholly insulated from the economic conditions in the rest of the world – not even China. However, it’s important to keep the European situation in perspective. Europe has been challenged since 2008. Their currency instability and debt to GDP ratio is no different than some states here in the U.S. – California for example. Certainly, if countries in Europe go bad it will make our recovery more difficult to sustain, but that alone will not sink our expansion,” Woods continues.
Reshoring gathers speed
Woods also has strong opinions about “reshoring”—the phenomenon of North American manufacturers bringing off-shore operations back home. Woods says he’s noticed reshoring for about three years now. The trend is accelerating through a combination of factors, including natural disasters in Japan and elsewher, armed conflict or the risk of conflict, and manufacturers finally clueing in to the “true cost of ownership.”
“Reshoring is building momentum and clearly hasn’t peaked as yet. More work comes back to the U.S. every month. The quality of U.S. work proves more valuable than thought in the off-shoring investment calculation. Companies face increasing costs in logistics issues, with the delivery of components and exportation of completed products to North America. Add to that the rapidly increasing labour costs in traditionally ‘low cost’ labour markets, and the continued decline of labour in the overall share of total production cost, and the reshoring picture becomes clear. When total cost of manufacturing is calculated, the United States is a very favorable environment. This has clearly been identified by foreign manufactures who have increased their investment in U.S. manufacturing facilities by 12 percent over the past year, continuing a growth trend spanning back 2002,” says Woods.
“Reshored manufacturing jobs represented about 10 percent of manufacturing job growth since the low of January 2010. The trend is driven by: past excess offshoring that ignored the total costs and risks involved, rapidly increasing Chinese wages, higher transportation costs and a need to respond faster to market demand. The economic value of manufacturing near the end consumer is valid worldwide, not just in the U.S.,” he continues.
Labour costs are competitive
“The Boston Consulting Group in a recent study projects that by around 2015 when higher U.S. worker productivity, supply chain and logistical advantages, and other factors are taken fully into account—it may start to be more economical to manufacture many goods in the U.S,” Woods adds.
All of which are points that could apply to Canada as well.
Woods is quick to add that the AMT is not opposed to off-shore manufacturing per se.
“We have members who we encourage to build plants in different locations around the world, to address the marketplace there,” he states.
In other words, if you want to build off-shore plants to produce products for sale overseas, fine. That’s different than setting up manufacturing facilities off-shore with the intended goal of bringing finished products home and saving a buck.
For all his optimism, Woods is no Pollyanna. He notes that skilled trades in North America are still beset with manpower shortages.
“There is no quick fix and the job situation remains unresolved, especially considering the projected numbers due to reshoring. Despite the high number of Americans out of work, manufacturing jobs continue to go unfilled. Why? The current factory floor is far different than before. It’s awash with new technologies and processes that require advanced training and adaptable skills. We need a ‘smartforce’ of workers up to the job,” he says.
Addressing the skills shortage
The AMT recently partnered with the Cleveland, Ohio-based National Coalition of Advanced Technology Centers (NCATC) which includes more than 160 American institutions of higher education. The AMT’s goal is to create education partnerships and direct top students to MTCareers.org. Run by the AMT, this webpage is designed to connect students and employers with open positions that require filling.
Something else: the IMTS show, held every two years in Chicago and organized by AMT, will feature a Job Center for the first time.
“We have a lot of unfilled positions. We figured, here’s a good way to get some of those unfilled positions hooked up with people. Get kids involved,” says Woods.
As for the future, Woods doesn’t hold back.
“Momentum is turning [to North America] as companies re-evaluate [true cost of ownership] and the quality and logistical advantages of making products here… more and more foreign companies are expanding or starting manufacturing plants here so it is obviously a trend that will continue with domestic manufacturers,” states Woods.
The “new world order” in manufacturing “is going to be much more heavily steeped in data, analytics, software, interoperability and burgeoning advance manufacturing technologies (i.e. additive, micro/nano, high functioning robotics, etc.),” he continues.
“In general, things are looking up”
Given North America’s position as a hive of innovation in the technology department, this trend bodes well for both Canada and the United States.
“In general, things are looking up for the manufacturing technology market. The market is expected to finish on a nice 10 -15 percent growth in orders for 2012 over 2011. This is phenomenal, taken in perspective. In 2010, the industry realized a 91 percent gain in 2010 over 2009 and another 66 percent last year. Capacity utilization rates for durable manufacturing are near 80 percent with some very important sectors doing much better. The fabricating metal products sector in the U.S. is operating at a near 85 percent rate. The industry that represents more than a third of all orders placed for production equipment in the U.S.—the job shop industry—is a part of this industry group and is expanding capacity at a rapid rate,” says Woods, citing statistics from the U.S.
“We are confident that manufacturing will continue to lead the recovery and stay strong in 2013. While not all the indicators are positive, we believe that the positive trends outweigh the negative ones and that manufacturing technology orders will finish up from a very healthy 2011 level,” he adds.
