Heavy-equipment makers, factory automation producers and steel companies have thick order books and busy U.S. factories. So do makers of packaging, cement, and bricks. Profitability isn't where many would like it to be at this point in the business cycle, but many manufacturers have boosted output through a combination of process improvements such as automation, outsourcing of basic parts and customers' desire for quick deliveries in a time of lean inventories.
Many industries face heavy legacy costs associated with pensions and health care similar to those burdening the domestic car makers, but sectors such as tires, steel, and textiles have been grappling with that for years, making changes that are only now starting to sweep Detroit. Costs for energy and raw materials are rising, but many manufacturers are passing them on to their customers, especially other manufacturers.
One measure of the industry's health is manufacturing output, which has increased steadily for the past several years, surpassing the peak of the last boom, which was reached in June 2000. Overall, manufacturing output is up 12% from 2002, according to the Federal Reserve.
Some sectors are clearly doing better than others. Business equipment is up 26% from 2002, information-processing equipment is up 47%, and defense and space equipment is up about 31%. "Manufacturing is on the upswing again, despite the woes in the Detroit-based auto industry," says Diane Swonk, chief economist of Mesirow Financial in Chicago.
Ms. Swonk said even within the auto sector, there is strength -- it just isn't in the U.S. car giants. Rather, car makers such as Toyota Motor Corp. of Japan and Hyundai Motor Co. of South Korea are investing in U.S. plants and helping to consolidate and reinforce U.S. auto suppliers that have faced declining demand from Detroit.
In recent years, production has been weaker in nondurable goods, including apparel and leather, which in December even enjoyed output gains of 1.9%.
But what about manufacturing jobs? Surely they're down.
Manufacturing has continued to produce more, while using fewer workers, thanks largely to automation and other process improvements. "Not only does the equipment allow you to be more efficient, but it gives you a quality edge," says Mike Nowak, president and chief executive of Coating Excellence International LLC, a Wrightstown, Wis., packaging manufacturer. The company has been able to expand since it was founded in 1997 by investing in technology, and Mr. Nowak said he expects sales, which were $120 million in 2005, to increase about 35% this year.
One machine helped the company win back business from a South Korean competitor to produce sugar pouches. Another has let it compete with a Chinese company that still stitches the string across the tops of fertilizer bags by hand. "We pay a good wage but use technology to lower the labor costs per unit produced." Mr. Nowak says.
So this surge in domestic manufacturing is great for machines but not great for workers. But wait, there's more:
Such automation has even led to greater demand for skilled machine-tool operators and other specialty trained workers among some companies, even as General Motors Corp. and Ford Motor Co. look for ways to cut their work forces.
Thomas J. Duesterberg, president and chief executive of the Manufacturers Alliance, says many U.S. manufacturers have survived by shifting low-margin products overseas, while keeping production of their most advanced products in the U.S., often in scaled-down but highly productive production facilities.
So, in this case free trade doesn't seem to be a race to the bottom, it seems that high skilled workers are still in demand. It's the low-skilled jobs that are being replaced by machines and offshoring.
Update: Cafe Hayek also weighs in on this issue.
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