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Tea Leaf: Renaissance manufacturing (part one)

Published: Wednesday, Feb. 15 2012 10:08 p.m. MST

Read part two here.

Ahhhh, the "common wisdom" in America — so easy to pass on to associates, to family and to friends

The common wisdom is that we have lost to China, Mexico, etc. our ability to "make things" in this country. Our nation is now a place where we simply trade information with each other and serve each other hamburgers.

The common wisdom — so often wrong.

The numbers

The American manufacturing sector added an estimated 50,000 net new jobs during January, the best performance in a year. Manufacturing job gains in January were second only to a larger estimated gain in professional and business services jobs. In addition, the Institute for Supply Management noted in its latest monthly release that new factory orders rose to a nine-month high in January. These manufacturing job gains are particularly important, given ongoing weakness in financial services and government sector employment.

The January gain of 50,000 jobs followed an estimated 32,000 manufacturing job rise in December. It is anticipated that the sector will add a few hundred thousand net new jobs this year, marking the third year in a row of gains, following years of job losses.

No question, the manufacturing sector has been hit very hard in recent decades. Total manufacturing employment peaked in 1979 at 19.6 million people. With job gains of the past few months and the addition of 338,000 net new jobs during the past year, total employment is roughly 11.9 million, down 39 percent from the peak, even as the population has risen sharply. U.S. manufacturing jobs accounted for 25 percent of American employment in 1970, versus 9 percent today.

Autos rebound

Again, the common wisdom: We can't make a quality car in this country anymore, having lost our way to the Japanese, the Germans and the Koreans. Wrong again. The quality of U.S.-made cars by the Big Three ranks with the best in the world. Note: My last three cars (I lease them) were two Chrysler 300s and a Jeep Grand Cherokee, among the best cars I have ever had the privilege of driving.

Recent American auto sales have run at a 14.2 million annual rate, the best in a number of years. Most of the strength in January manufacturing employment was in this durable goods sector (goods designed to last more than three years).

China's small share

The common wisdom now suggests that most manufactured goods we buy are made in China. Again, wrong.

The vast majority of goods and services sold in the U.S — 88.5 percent — are produced here, notes the Federal Reserve Bank of San Francisco in a report titled "The U.S. Content of 'Made in China.' " Obviously, part of the issue here is that nearly 70 percent of consumer spending is on services, which are primarily produced locally.

So many openings

We have discussed before the fact that one new wrinkle in the job frustration game is the inability of tens of thousands of skilled workers to move from Point A to Point B to fill skilled manufacturing positions. Too many skilled workers are buried in their homes, with mortgages that exceed the value of their homes. This is particularly true in the Upper Midwest. Fewer firms are willing to absorb major financial hits to get the skilled workers they need.

Perception

One of the challenges in coming years will be the need to change peoples' perceptions of manufacturing employment. Too many young people today, as with the previous generation, have visions of attending college and then making their fortune on Wall Street. Finance jobs are sexy — working in a manufacturing plant is typically not.

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