A Surprising Jobs Recovery: American Manufacturing is Back

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Post Updated: 1:30, Monday, May 16.

The jobs rebound came early at the Case I-H farm equipment factory in Grand Island, Neb. Last September, when many companies were still cutting employees, Bill Baasch, the manager at the Grand Island plant, which manufactures combines – the large vehicles that harvest grain crops – was hiring. In the past eight months, Baasch has added 130 workers, increasing his workforce by 10%. He says rising crop prices this year has significantly increased the demand for farm equipment. “Business has been fairly strong,” says Baasch. “We have a full schedule on the floor.”

Across town, Global Industries, which makes construction materials, is hiring as well. Chief executive Jack Henry says his biggest problem is finding qualified workers. The company has been adding 50 employees a month, though most don’t stay long. In all, Global employs nearly 700 workers at three manufacturing plants in Nebraska and one in Kansas. Like much else in this part of Nebraska, the company is benefiting from rising crop prices. Global’s biggest seller is grain storage bins. And although more of the company’s sales are coming from overseas – Nigeria is Global’s fastest growing market – Henry makes all his products in the U.S. and plans to continue to do that. “Combine American made quality on top of a weak dollar and our sales have really taken off,” says Henry.

Amid a lackluster economic rebound, the manufacturing in this country has, for the first time in decades, seen an unlikely boom. And it’s not just in farm related businesses. The U.S. manufacturing sector overall, after shrinking by six million positions between 1997 and 2009, has added 240,000 workers since the beginning of 2010. In fact, the manufacturing sector has been one of the few stars of the poor economic recovery. Nearly one in every six jobs that have been created by the economy since the beginning of 2010 has been in manufacturing.

Politicians and economists have long given up on the idea that the U.S. would be a manufacturing powerhouse. And indeed, high labor costs in the U.S. have driven a number of U.S. companies to move their production overseas. But a combination of factors has caused U.S. manufacturing to see a surprising recovery in the past year and a half.

The sector’s growth is in part being propelled by the fact that U.S. companies are now restocking supplies and upgrading computers and machinery after putting off purchases in the downturn. Car and truck sales have rebounded as well. But perhaps the biggest driver is the weak dollar. That combined with continued strong growth in such fast-growing economies as China has boosted foreign demand for U.S. construction and agricultural machinery, and building supplies.

The result: In the first quarter of 2011, U.S. manufacturing output grew by 9%, or five times as fast as the overall economy, which grew by 1.8% in the first three months of the year. Profits are up as well. Earnings at construction equipment maker Caterpillar leapt 426% in the first quarter to $1.2 billion. Manufacturing conglomerate Untied Technologies, which makes Sikorsky helicopters, Otis elevators and Carrier air-conditioning gear, among other things, also reported strong earnings in the first three months of the year. And that is producing jobs elsewhere. Sales at Eaton Corp. and Honeywell, two companies that make parts for cars and other machinery, are up this year as well.

That knock-on job effect of manufacturing is one reason policy makers and economists have long lamented the U.S.’s manufacturing decline. What’s more, manufacturing jobs have on average tended to pay more than restaurant work or other service jobs. So the manufacturing rebound of the past few months has been a welcome turn for the economy. Still, some are predicting that the U.S. manufacturing revival could be short-lived. High commodities prices have driven demand for mining and agricultural equipment. If prices fall, as they did in early May, that demand could drop off. For this year, the concern is that problems in Japan may shake up the supply chain making it hard for manufactures worldwide to get parts. What’s more, even with the recent increase, the manufacturing sector makes up a small percentage of the workforce, accounting for just 9% of U.S. jobs, down from 16% at the beginning of the 1990s.

But that may soon be changing. A recent study from the Boston Consulting Group predicted that the U.S. was on the verge of a “manufacturing renaissance.” The report predicted that U.S. and Chinese wages would soon converge, and that some states in the U.S. may end up being some cheapest locations to manufacture goods in the developed world. The report predicted that products that are made in modest volume with relatively little labor, like household appliances and construction equipment, would likely shift to U.S. production.

Back in Grand Island that shift seems to have already happened. Global Industries  is looking to boost production 40% this year. That means CEO Henry is planning on continuing to hire new workers. But he is also buying new machinery to increase output. Some of that machinery will come from other U.S. manufacturers. Henry says overseas sales make up about 50% of his business these days. His company’s largest market outside the U.S. is Russia. Henry says his company has chosen not to sell in China. A competitor there makes grain bins for 25%, but Henry says they are far less durable than his product. Still, Henry says he has no plans to move production outside of the U.S. He says access to train lines make production in central Nebraska idea for shipping goods around the world.

Case IH makes the majority of its combines in Grand Island and ships the large machines to 32 countries, as well as various points around the U.S. Nearly, all of the plant’s 1,140 employees work on the factory floor of the 900,000 square foot facility. The combines in various states of completion weave their way through the over 30 stations on the factory floor, where workers do everything from assemble engine parts to shaping and painting the metal that goes on the outside of a machine. He says all of the workers have high-school degrees and that the jobs pay a solid middle class wage.

“Everyone took a hit in the recession,” says Baasch. “But we certainly didn’t feel as big a hit as most.”

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