Manufacturing bounce real?
By McClatchy Newspapers
Published: Thursday, February 16, 2012
HOLLIDAYSBURG -- Don't tell Michael W. McLanahan that manufacturing in the United States is dead. His family-owned, privately held company in Blair County has made mineral processing and farm equipment since its founding way back in 1835, and it's enjoying a boom.
"It was our best year ever," said McLanahan, during a tour of the busy factory in central Pennsylvania that illustrates why manufacturing is growing twice as fast as the broader economy.
McLanahan, 73, is the fifth generation of his family to run the capital-intensive company. It builds equipment to help mining companies separate product from waste, the dairy industry to remove manure from sand and the energy sector to segregate gravel from silica sand used in hydraulic fracturing, or fracking, the process of drilling through shale deposits thousands of feet below ground to reach natural gas.
McLanahan Corp. boomed even as the U.S. economy struggled to gain momentum in 2011 and the global economy was panicked and fearful that Europe's debt problems would drag everyone down. One important reason for McLanahan's success -- and for American manufacturing's rising luster -- is an export revival.
McLanahan Corp. is no outlier. The manufacturing sector as a whole bounced back in 2011, adding more than 287,000 positions over the last 13 months and shifting into higher gear after a summer slowdown brought on by Europe fears.
During 2011, exports of American goods and services were up by 14.5 percent over 2010, to a record $2.1 trillion, the Commerce Department reported on Friday. And despite Europe's economic problems, exports to Europe rose 3.6 percent in December.
In the 1990s, as environmental regulation stiffened on the mining industry, McLanahan refocused the company to take advantage of export opportunities. Back then, about 10 percent of the company's product went overseas. Today it's about 70 percent.
Mineral-rich Australia is a big customer, and McLanahan has benefited greatly from that country's high labor costs and weaker manufacturing base.
McLanahan laments that mining in the United States has shrunken so much and with it, domestic sales opportunities. "I knew that the future of our company depended on a robust export effort."
Other data also signal a nationwide manufacturing rebound. December orders for durable goods -- big-ticket items such as cars, refrigerators and industrial equipment -- rose by a better-than-expected 3 percent. That was on top of November's upward revision to a 4.7 percent increase.
Similarly, Federal Reserve data for December show manufacturing output rose nine-tenths of a percentage point. For the final three months of 2011, industrial production rose at an annualized rate of 3.1 percent, the 10th straight quarter of growth.
It's good news for a sector that accounts for about 12 percent of the economy but lost more than 6 million jobs over the past decade. There's even anecdotal evidence that some companies that had shifted production overseas are beginning to come home, a process known as in-sourcing or re-shoring. Some orders for iron castings that McLanahan had lost to China are returning because of quality and supply issues.
How many firms are moving back• It's hard to know.
"It's a hard number to quantify -- the notion of out-sourcing and in-sourcing. There's a hype to both of those numbers," said Chad Moutray, chief economist for the National Association of Manufacturers. "We have a lot of foreign companies that are locating here. It's a global decision-making process right now."
Right now many factors are combining to make American manufacturing more attractive than it has been in quite a while. These include rising production costs in China, flat wage growth in the United States, corporate borrowing rates near historic lows, a weakening of the dollar against the currencies of competitors in hot emerging economies, and a boom in U.S. natural gas production that's lowering a key cost for American factories.
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