Fresh winds blowing through manufacturing

"Manufacturing stinks." I’ve heard that blunt assessment of the U.S. industrial sector plenty of times over the past 3 years. To all those who’ve uttered those words—or even blunter appraisals—I offer a small measure of comfort: Manufacturing stinks less now than it has in a long time.

The latest government and industry statistics show:

• New orders rose 0.7 percent in November 2010, the fourth increase in 5 months. (Excluding the transportation sector, new orders grew 2.4 percent.)
• Shipments climbed 0.8 percent in November, the third consecutive monthly increase.
• The December 2010 Purchasing Managers Index registered 57 percent, a 0.4 percent rise and the 17th straight month above 50 percent. (Fifty percent is the boundary line separating an expanding economy from a contracting one.)
• Plant capacity reached 71 percent in the third quarter of 2010, up 2.3 percent over the second quarter and 5.5 percent higher than the same period in 2009.
• Manufacturing jobs inched up 1.2 percent in 2010—to roughly 11.7 million—the first increase since 1997.

In a recent article in The Wall Street Journal, economists predicted that the U.S. would add approximately 330,000 manufacturing jobs in 2011. That certainly wouldn't come close to offsetting the 6 million jobs lost since 1997, but it could indicate the bleeding has been staunched.

Most of the manufacturing jobs lost the past 15 years won’t be coming back. This is due to aggressive off shoring of production by American companies and to technological advancements that have significantly raised U.S. workers’ productivity. From 1997 through 2009, factory productivity rose 54 percent, according to the Bureau of Labor Statistics.

Another factor limiting U.S. job growth is the changing nature of manufacturing itself.

“Twenty years ago, we were looking at big companies that carried on almost all of their activities within their own four walls,” said Massachusetts Institute of Technology Prof. Suzanne Berger during a recent interview on National Public Radio. “Everything from research and development to design to production and on through distribution. What’s happened is that production does not take place within the four walls of a single company anymore. The world of production has been completely broken up into independent companies. …Engineers and technicians can be located thousands of miles apart.”

This has led to the formation of manufacturing firms that have never manufactured anything. They design and prototype products, then outsource production to other companies.

MIT’s Industrial Performance Center—a research group dedicated to the study of manufacturing innovation, productivity and competitiveness—is looking at how the disconnect between design and production will affect U.S. manufacturing in the future. Specifically, the group wants to examine the impact of losing the wealth of design innovations that occur during the manufacturing process.

“I think as we look [at] new technologies,” said Berger, author of How We Compete and co-author of Made In America, “we’re going to see a lot of areas where keeping manufacturing closer to R&D and to design is going to be essential if we want to produce good products.”

Keeping production nearby would also be good for the U.S. economy in a multitude of ways, including the creation of well-paying—and much-needed—jobs.