Manufacturing demands new skills

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You have probably heard the warning that manufacturing in our country is dying and it won't be long before we will have no manufacturing at all. Is this truth or fiction?

We could look at some facts that would indicate it's partly true. Manufacturing's share of total employment has been falling steadily for more than half a century, a trend that accelerated with the start of the recession of 2001. Since then, the nation has lost nearly 33 percent of its manufacturing jobs.

The Congressional Budget Office attributes the steep decline in manufacturing employment to two interrelated factors. The first is a dramatic increase in productivity. U.S. companies needed a third fewer workers to produce the same output in 2008 than in 2000. The second is increased competition from companies worldwide.

That competition comes in two forms, a similar rapid productivity increase in developed countries as well as lower wages earned in emerging economies. Since 2000 the U.S. has netted a loss of 5.6 million U.S. manufacturing jobs. This certainly seems to support the conclusion that U.S. manufacturing is dying.

Yet here is a fact that indicates the manufacturing sector is doing fine. Over the same half century, the total amount of manufactured goods produced in the U.S. has increased at a healthy rate. It is not the quantity of goods produced, or the demand for goods, but the number of workers it takes to produce those goods that has decreased.

In the midst of these realities, Cincinnati and the nation recently experienced an unexpected uptick in manufacturing employment. In the first six months of 2010, the number of U.S. manufacturing jobs increased by about 1 percent. The Institute for Supply Management (ISM) identified many positive signs from surveyed manufacturers who said that business is continuing to improve at a steady pace.

ISM has also reported positive signs of growth in manufacturing employment for the ninth consecutive month. Part of this new vigor is due to sales to international emerging markets that are growing much faster than developed countries. The other part is due to replenishing inventories that had been severely depleted in 2009.

The production of durable goods such as steel, transportation equipment, apparel and appliances accounted for most of this growth. Non-durable goods, including chemicals and food products, played a smaller role.

Cincinnati's 2010 record is even more impressive. Here, manufacturing jobs increased by 3.2 percent for the first six months of the year, and 4.7 percent compared to a year ago. Cincinnati's longer term record in manufacturing supports the claim that it still holds an advantage over many other areas in the country. Since 2000, Cincinnati has lost about 25 percent of its manufacturing jobs, compared to 33 percent for the nation as a whole.

While the recent upturn in jobs is good news, it is too early to anticipate that it will be a long-term trend. These gains come after a long and brutal loss of jobs. Most economists don't envision a return to the level of manufacturing employment reached at the start of this century. These jobs are unlikely to be the principal source of economic growth in this region or the nation.

Productivity is likely to continue to increase which will benefit consumers through much lower prices of manufactured goods than would be otherwise available. Worldwide competition will continue to drive change, which will put a premium on the ability to effectively respond to that change.

This change creates a new demand for employees with critical thinking, problem solving and adaptability skills. These skills will be the foundation for economic growth and prosperity.