Manufacturing Industry Gained Momentum In 2011
RENEE MONTAGNE, HOST:
Let's look now at another side of the economy: manufacturing. The Federal Reserve yesterday said American manufacturing had a very strong finish last year. To find out if that's likely to last and what it means for the big issue of jobs, we turn, as we so often do, to David Wessel. He's economics editor of The Wall Street Journal.
DAVID WESSEL: Good morning, Renee.
MONTAGNE: So after all the handwringing about the death of U.S. manufacturing, are American factories B-A-C-K?
(SOUNDBITE OF LAUGHTER)
WESSEL: Well, the arrow is certainly pointing up. As you noted, the Fed which had told us that manufacturing output fell in November, said it came back roaring back in December. A few big manufacturers have brought - have made a big splash bringing work back to the United States, talking about how the cheap wages overseas are not quite as cheap as they once were; natural gas prices being low in the United States makes energy costs more attractive for manufacturers. BMW is expanding its plant in South Carolina to make SUVs.
We're just beginning to get the profit reports from the end of the year from manufacturers. One of the early ones, a company called Fastenal in Minnesota, said this week that it's - it distributes parts to factories. It said its fourth-quarter sales were up a lot and its profits were out more than 33 percent in the end of the year.
But, and this is important, the output of American factories is still 10 percent below what it was before the recession, and there's still a huge amount of unused factory capacity. So things are definitely better, but they're not yet great.
MONTAGNE: Not yet back the way they were before. But what is your thinking, will this last?
WESSEL: I think the current thinking is there's a lot of momentum in manufacturing and it'll probably spill over into 2012. But there is one big, dark cloud on the horizon. The rest of the world is slowing down and that could hurt our exports. Here's just one fact that's worrisome: U.S. manufacturers generate, on average, about 22 percent of their sales from Europe, which is having a hard time. For the overall S&P 500 stocks on the stock exchange, it's only 14 percent. So they're very vulnerable to Europe.
MONTAGNE: Well, taken together, what does all this mean for hiring and jobs?
WESSEL: Well, that's a good question. So basically, factories have added more than 300,000 jobs in the past two years, and that's pretty good news - certainly better than losing jobs. But it would take two million more jobs to get manufacturing back to where it was in 2007 before the recession.
Factories are managing to produce more without hiring a lot more workers, because they're getting more productive; technology, reorganization, making people work harder, making them work smarter. It's all made for a remarkable surge of productivity. Factories get 40 percent more output out of every out of work today, compared to what they got 10 years ago.
MONTAGNE: Still though, if sales keep growing, would factories not hire more? Maybe not as many workers as they had before, but more, and couldn't that be one part of the answer, at least, to the jobs problem?
WESSEL: Well, it would definitely be one part, but it's a small part. For all the romance about manufacturing, we are no longer a manufacturing economy when it comes to jobs. Only nine percent of the jobs in America today are in manufacturing. It just isn't big enough to put Americans back to work. Even if factory employment doubled, which isn't going to happen, that wouldn't be enough new jobs to put all the 13 million unemployed people back to work.
So yes, it's a plus. But no, it's not enough to solve our unemployment problem.
MONTAGNE: Well, gosh, David, I mean does that mean, basically, manufacturing is irrelevant to the American economy?
WESSEL: No, it doesn't. One, the jobs they are often very good: paying well, steady jobs. Two, there are a lot side effect to a local economy when you get a new plant. The Wal-Mart comes when you get a new auto assembly plant, not the other way around. And finally, we need to be an innovative R&D oriented society. And if the jobs go overseas, the manufacturing jobs, R&D might follow. And that would really be a big problem for us.
MONTAGNE: David Wessel is economics editor of The Wall Street Journal. Thanks very much.
WESSEL: You're welcome.
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