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News : US Economy Last Updated: Mar 11, 2015 - 7:15 AM


US factories remain in retreat despite cheap energy
By Michael Hennigan, Finfacts founder and editor
Sep 1, 2014 - 1:59 AM

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Jobs in US factories fluctuated around 18m workers between 1965 and 2000 (during a period of rising population) before plunging 18% from March 2001 to March 2007, according to a Federal Reserve paper [pdf] published last April. Employment has recovered from the trough of December 2009 but not to pre-recession levels.

In recent years Boston Consulting Group in particular has been predicting a turning of the tide of offshoring to China that accelerated in the noughties and according to The Wall Street Journal, the Reshoring Initiative, "a Chicago-based nonprofit that encourages companies considering moving work back to the US" has said  that "2013 was a turning point, with roughly 40,000 jobs added in the US by the return of jobs that were previously moved offshore - - equal to the number of jobs lost from the continued movement of work abroad. In 2003, an estimated 150,000 factory jobs left, while only 2,000 were brought back."

There were 13.7m employed in manufacturing in November 2007 just before the official start of the recession; there were 11.5m in Dec 2009 and 12.2m in July 2014.

The Census Bureau says that the stereotypical US manufacturing plant has thousands of employees filling a cavernous factory hall. This stereotype is seriously outdated. The United States now has very few large factories: of more than 295,000 manufacturing establishments counted by the Census Bureau in March 2011, only 815 employed more than 1,000 workers. The reported number increased slightly in 2011, marking the first time since at least 1998 that the number of large plants has shown an uptick. There were 1,504 in 1998.

Automation and the global supply chain has distributed manufacturing while the mean employment in US manufacturing establishments has fallen from 46.3 workers in 1998 to 37.2 in 2011. The number of US manufacturing sites fell from 397,552 in 2001 to 335,553 as of September 2012, leaving many factories abandoned.

Manufacturing employment peaked at 19.4m in 1979.

Of the 12m manufacturing workers, only 8.3m, or over 5% of the civilian labour force, are now engaged in factory production work. The remaining 4m manufacturing workers are engaged in management, product development, marketing, and other nonproduction activities conducted within manufacturing establishments.

Big US companies are no longer big employers. For example, General Motors had over 618,000 employed in the US in 1979 - - in well-paid jobs; today, General Electric employs 133,000 and Apple 47,000. The US needs to add about 90,000 new jobs monthly to just meet the natural growth of the workforce. General Motors' worldwide employment in 1979 was 853,000. Today it is about 202,000 with 80,000 employed in the US.

About 6 in 10 US export dollars come from manufacturers and pay is better than in many other sectors. See Census Bureau report [pdf].

In the US 'Personal care aides' for the elderly is projected to be the fastest growing significant jobs category in the decade to 2022 and this irregular demanding work is also one of the worst paid. Meanwhile, data from the UK and Ireland also show a rising trend in low-paid freelancing work.

The majority of Apple's employees in the US in 2012 worked in its stores and they were paid an average of $25,000.

Finfacts: Declining regular work; Rising low-paid freelancing in Ireland & elsewhere

Finfacts: Big US companies are no longer big employers

The Wall Street Journal reported last week that the US deficit on trade in goods swelled in the first half to $371.59bn from $354.64bn a year earlier. Imports rose 3.3%, while exports increased 2.6%. Manufactured exports, excluding petroleum and coal, rose just 0.8% - - far below last year's modest 2.1% gain.

The Journal says that while the US deficit in manufactured goods has expanded over the past 10 years, reaching $469bn last year, exports have increased 90% while imports have increased 70%, according to data from Global Trade Information Services.

Energy costs are dropping in the US as hydraulic fracturing and other techniques have unlocked huge deposits of oil and natural gas in shale. Prices are falling for utilities that use natural gas to generate electricity. Industrial users in Germany pay 2.4 times more for electricity than their US counterparts, according to the International Energy Agency.

Besides, US wages are stable, while wages in China have soared, narrowing the wage gap between the US and its biggest economic rival. Add shipping, inventory and other costs, and the outlay for producing some goods in the US can be roughly comparable with that of China, says Boston Consulting Group.

Electronics goods are mainly manufactured overs; commercial trucks in Mexico and steel capacity is not able to meet demand.

The Journal says petrochemical exports are expected to start rising rapidly in 2016 as new plants begin operating, reaching about $37bn in 2019 from $26bn this year, according to IHS. That will help. But it won't make a big dent in the trade deficit on goods, which totaled $702bn last year.

Finfacts: Capex: Average age of US industrial equipment at highest since 1938 - Part 1

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