Growth in Manufacturing Jobs – Why Not?

Unless the issue involves exporting jobs overseas, manufacturing isn’t exactly something that is on the minds of most economists. It should be, and here is why.

When you think of manufacturing jobs, don’t think of the 1950’s auto assembly lines. Set your sights on engineering, research and development, software, and other high value added jobs. Most of the auto assembly lines of the past are now robotic. The needed skills are maintaining and programming the robotic equipment.

Albeit slow and steady, manufacturing activity in our country had grown for 10 consecutive months through May, according to a report from The Institute for Supply Management (ISM). To put the numbers in context, the index of U.S. manufacturing was 59.7 in May. An index level higher than 50 signals manufacturing growth while readings below 50 indicate contraction. According to the ISM, the activity in May was brought about largely by an increase in employment and strong levels in production and new orders. Among the segments showing promise for employment is fabricated metal products sectors.

Manufacturing – in spite of everything we hear to the contrary – is “…the engine that drives American prosperity and is central to our economic and national security”. That is a passage from a recent policy update by the National Electrical Manufacturers Association (NEMA). In order for that to happen, NEMA suggests our policymakers form tough stances on many fronts.

Some of NEMA suggestions include:
• Adhere to international trade rules.
• Allow markets to set exchange rates.
• Help employers reduce the ‘cost’ of production by containing health care costs, enacting legal reforms, helping to ensure more affordable energy supplies and reforming the regulatory process as an avenue for better assessing costs and benefits, and its long term impact on the industry.
• Promote innovation, investment and productivity that encourages more research and development and tax rules that allow for a more level playing field in terms of the competition.
• Ensure an adequate supply of skilled workers by placing a greater emphasis on education in a way that encourages people to pursue manufacturing careers.

All of these suggestions would benefit all industries including the steel industry. We need to be realistic. These are strategic platitudes that take years to implement with the “help” of the Federal government.  What all industries need are tactical, short-term steps to help our economic position.

As a steel service center, the pain of 2009 is seared in our frontal lobe. Shipments were down as much as 50% versus 2008 (depending on what month you measure). Now, we are finally seeing signs of life.  The latest data from the Metals Service Center Institute (MSCI) shows shipments up 18% year-to-date.  That news is better than a kick in the head. Here comes the kick in the head:  2010 year-to-date shipments are still down 33% versus 2007, down 40% versus 2006, down 35% versus 2005, etc.

Back to the positive part, as this trend continues, it points to the kind of recovery that could bring about more jobs. The question we have been asking of our political leaders is how do we put more people back to work, and in the high-value jobs?  Instead of waiting for the actions of politicians, let us all take initiative and direct the following:

1.  Remove any interference from the Federal government. All reports to date show that the “stimulus” package did not create any new jobs. If we were to be honest with ourselves, and try not to be cynical, we would admit that the stimulus package was a giant “thank you” payback for the election. The stimulus was also filled with every possible piece of pork that the politicians could get in – both Democrats and Republicans. The Department of Labor (DOL) estimates that the US economy lost 131,000 jobs in July and 125,000 in June. The DOL reports that the unemployment rate is still at 10% (rounded up from 9.5%) because 181,000 workers exited the job force. If you were to exclude all of the new US Census jobs, the picture looks even worse. It is unfortunate that the fastest growing employment category is the Federal government, which is up over 10% from the start of the recession.

2.  Neuter the Federal government so that it cannot pick winners and losers. A US mining equipment company, Bucyrus International, was about to sell $600MM worth of equipment as part of a large power plant construction project in India. They were planning on a loan from the US Export-Import Bank, which is a vehicle to help US companies export goods and services abroad. In early June, the Ex-Im Bank denied the loan, because the project had too large of a “carbon footprint”. There was a tremendous and loud outcry from business leaders, union leaders, and Wisconsin voters. Everyone was concerned that the project would still go forward, but with non-US companies with non-US employees.  After a two-week period of reflection, the Ex-Im Bank is “reconsidering”. This interference is another example of the Administration picking the winners and losers. Anyone remember GM?  The 100,000 individual bond holders (which are made up of you and me in every mutual or bond fund out there…) are still waiting to get back their $5.4 billion?

3.  Loosen the reins to jumpstart private capital spending. There is still uncertainty about the US and global economy. Uncertainty keeps investors on the sidelines. That means the money to develop a new market, buy equipment, or hire people does not get spent. If investors see some stability in the near future, they will take more risk. The largest contributing factors to this uncertainty are taxes and spending. A massive tax increase will automatically occur in January – unless both the Congress and the President enact legislation.  The existing federal income tax brackets, capital gains tax rate, dividend tax rate, AMT threshold, and child tax credit were passed with bipartisan support in 2001 and 2003. These rates are set to expire automatically (politicians like to use the word “sunset”) and go back to the higher rates for all groups.  Spending is at such a level today that it is hard to comprehend. Current Federal spending is at 25%of GDP (above the average 20% from 1960-2009) and expected to rise with all current policies in place. Current Federal revenues are only at 15% of GDP (below the average 18% from 1960-2009). This mismatch does not count the expected taxes and penalties associated with the healthcare legislation. When the recession hit, we reduced our workforce, tightened our belts, and became more efficient. The State of Indiana acted in the same manner. Shouldn’t we hold the Federal government accountable for the same?

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