The United States is enjoying a resurgence in manufacturing not seen since the 1970s, when the country shifted to a primarily service-based economy. Strong growth in machinery exports and auto sales are leading the rally in the chronically weak manufacturing sector, a trend President Obama said must continue in order to buoy the country's depressed job market and lackluster economic expansion.
The president has crafted an ambitious plan to double exports over the next five years to jump-start the economy and energize job growth. "We are in a tough fight to get past a crippling recession," Obama told Northern Virginia Community College students last week. "Manufacturing had weakened, the middle class was treading water. I don’t think the answer is for us to turn back. That’s how we’re going to win this fight. That’s how we’re going to win the future."
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Recent data from the U.S. Bureau of Economic Analysis (BEA) show durable-goods manufacturing—which includes products such as automobiles and heavy-construction machinery—led the economic recovery in seven of the eight regions BEA tracks, with significant gains in Indiana, Oregon, Michigan, Wisconsin, and Tennessee.
But is the recent uptick a short-term anomaly or evidence of a more vigorous manufacturing revival? Experts say a multitude of interrelated factors point to a longer-term "renaissance" in manufacturing, primarily due to increasing demand in rapidly growing emerging economies such as China and Brazil.
"I don't think it's a flash in the pan," says Chad Moutray, chief economist at the National Association of Manufacturers. "If you look at the industries that have been growing—machinery, for instance—they're taking advantage of opportunities overseas. They see Brazil, China, India as major areas [in which] to grow."
Multinational manufacturing companies based in the United States, such as Boeing and Caterpillar, have already seen the benefits of an uptick in demand abroad. Primarily thanks to increased demand and higher prices for commodities, Caterpillar's exports surged to $13.4 billion in 2010, a 30 percent jump from the previous year. The 86-year-old company, which specializes in mining and construction equipment, also recorded its all-time best profits in the first quarter of 2011.
"If the price of copper is above a certain threshold, those mining companies that are in the copper business are more likely to invest in increasing capacity to mine more, [which] creates demand for our products," says Caterpillar spokesman Jim Dugan. While Dugan attributes part of those gains to a recovery from one of the deepest recessions in U.S. history, he says demand for Caterpillar's products remains elevated.
The rising middle class in developing nations also feeds into the relatively positive outlook for manufacturing. In addition to greater demand for the raw materials and components needed to produce consumer products such as microwaves and cell phones, mass urbanization in developing countries is benefiting companies like Caterpillar.
"As those countries that are developing—China, Brazil—[are] seeing an improved standard of living, those countries are also investing to build more roads and to build more housing in urban areas," Dugan says. "A big part of it is the commodity demand, but as this mass urbanization takes place and these developing countries see a rising tide in the standard of living, there's also more investment in infrastructure and construction work that supports Caterpillar."
After decades of lagging the global manufacturing industry, the domestic sector will continue to bounce back, experts say, mainly because of global economic shifts that have increased the competitiveness of U.S. manufacturing. Two decades of tough competition from export-based emerging economies such as China have forced domestic manufacturers to cut costs and improve productivity. While painful, these adaptations have allowed companies to cull more "profit per job," effectively easing the cost pressures facing domestic manufacturers.