Several recent news items report US economic improvement, and especially in manufacturing. This is particularly hopeful news for us all, and for the country at large. As our US Senator’s recent report says, “Manufacturing has a larger multiplier effect than any other industry. For every $1.00 spent in manufacturing, another $1.48 is added to the economy.”
We are vitally interested in US manufacturing, especially in the Midwest, and doubtless you are as well. While the national or even regional economic reports are valuable, the proof of the pudding is how each of us is doing. We would be most grateful for hearing your opinion on these optimistic reports on our blog.
We claim no expertise in economic measurement. If you are interested in a professional’s detailed look, consider attending the presentation described in the article that follows this one.
Nonetheless, business websites and news reports are full of optimistic stories. Here are but a few examples of the good news we have seen recently, which taken together paint a very rosy picture:
The 9/29/14 USA Today, Money section had an article “Factory Boom Cranks up Economy”. Most notably, “a 12.6% surge in spending…notably new and expanding factories…was a big reason for…economic growth. ….the strongest growth in 2 ½ years”.
The article continues, reporting factory output increasing, spending on construction or renovation of factories up, and “manufacturing employment is up by 105,000 so far this year, compared with an increase of 88,000 for all of 2013”.
Other reports say housing is recovering, auto sales are up, and we all know about the fracking increases in oil and natural gas drilling.
The Area Development Site and Facility Planning website (https://www.areadevelopment.com/) has a report “The States Leading the US Manufacturing Resurgance”. This report detailed the 19 states where manufacturing is leading the way in economic growth. Using a metric of manufacturing share of non-farm employment, their list had Indiana #1, Wisconsin #2, Michigan #5, and Ohio #6.
In the metric of manufacturing share of gross state product, Indiana was #2, Wisconsin #4 (tied with NC), Ohio #7, Kentucky #8 and Michigan #10.
Another good sign is continuing increases in reshoring. We found a most encouraging report on www.mondaq.com: “United States: Reshoring is Gaining Momentum:, updated in May, 2014. This report begins with this:
“More than a decade after the outsourcing trend reached its peak, a new trend, reshoring, is quickly gaining momentum in the manufacturing industry. For a variety of reasons, manufacturers are bringing production and the associated jobs back to the U.S., and the potential benefits to manufacturers, and the U.S. economy, are significant.
Several studies recently analyzed reshoring trends, and the number of companies looking to join the reshoring movement is remarkable. According to the Boston Consulting Group, 70% of U.S.-based manufacturers found sourcing in China more costly than they had anticipated; 92% believe Chinese labor costs will continue to rise; and a third of those with annual sales over $1 billion are planning or considering moving large-scale production from China to the U.S”.
It is true that the economic data are often based on statistics gathered in past periods, sometimes even a year or two ago.. It is also known that personal incomes are stagnant and the labor participation rate is very low by historical standards (percent of the workforce actually working). Finally, the labor statistics often do not differentiate between part time and full time employment and ignore hours worked per week. We also wonder if claims of new/created jobs are net jobs or just the positive side of the ledger, ignoring jobs lost during the same period.
This is all confusing, and we would be most grateful for your comments on our blog. In particular we are interested in what policies would be favorable to manufacturing, other than lowering the corporate tax. Here’s an example:
For years we have believed elimination of depreciation rules would be helpful to manufacturing. The ability to expense capital spending, so that it matches the financial treatment of new hiring, seems to us would encourage equipment acquisition and accelerate replacement. Things might even out over the long haul, but if a short-term positive bump would be useful, the treatment (elimination) of depreciation is a lever that could be impactful in a helpful direction, particularly for us manufacturers.
What do you think? Please give us your views in the comments.