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Tuesday, December 06, 2005
U.S. Manufacturing 2005
Search ThomasNet.com, the most comprehensive resource for industrial information, products, services, CAD drawings, and more published "A Panoramic View" of U.S. Manufacturing in 2005. David R. Butcher wrote:
Throughout the year, we’ve covered various trends of U.S. manufacturing. Now we’ll take our wide-angle lens to 2005’s overall industry. Like Sergio Leone, we’ll view the good, the bad and the ugly.
Counts from the United States Department of Labor’s Quarterly Census of Employment and Wages program show that the manufacturing sector employs many workers, “but in a relatively small number of establishments.” Of present, about 62 percent of workers in the goods-producing sectors are manufacturing employees, including those in natural resources and mining and construction. Yet manufacturing establishments account about 28 percent of goods-producing establishments. This year’s annual IndustryWeek/Manufacturing Performance Institute Census of Manufacturers showed that almost half of U.S. manufacturers are in the industrial equipment, automotive or construction sectors.
In the whole of the economy, manufacturing represents about 11 percent of all employment, yet less than five percent of all establishments.
Manufacturing in 2005 has been bittersweet.
The IndustryWeek/Manufacturing Performance Institute Census of Manufacturers reported the following: production output for three-quarters of respondent manufacturing plants increased over the past 12 months; nearly 75 percent also increased sales per employee in the most recent fiscal year; return on invested capital is up; and more than 80 percent expect improved revenues in 2005 and 2006 over the previous years.
In fact, the nation’s manufacturing sector continued to expand in November, albeit at a slower pace than the month prior, the Institute for Supply Management (ISM) reported on Dec. 1. Based on the private group’s survey of purchasing and supply executives, factory activity in the U.S. decelerated only slightly; the pace was slightly above what was expected. CNN/Money and Bloomberg described manufacturing as solid and strong, and the employment index rose to 56.6 percent from 55 percent. The price index fell to 74 percent from 84 percent.
Manufacturing is expanding as companies invest more to upgrade equipment and rebuild depleted inventories, economists said. Last week’s November gauge remains at a level that suggests factories will fuel growth in the economy, which expanded from July to September by the most in six quarters.
While revenue and productivity rose for many manufacturers throughout the 2005 year, however, continued escalation of costs across raw materials, energy and healthcare dilute the good news. Further, there exists a shrinking U.S. manufacturing base (see our following story), and some business executives have said disruptions related to the Gulf Coast hurricanes continue to hurt delivery of some products. (Some executives, according to a recent Washington Post article, also expressed concerns about the impact of a slowdown in the housing industry.)
Some 92 percent of respondents to the 2005 IW/MPI Census, conducted earlier this year, reported that component and raw materials costs for primary products rose in the past year. For nearly 39 percent of respondents, those costs rose by more than 10 percent. These data, IndustryWeek noted, were collected before Hurricane Katrina “added new woes to rising energy and raw materials costs.” Even prior to Katrina, there was evidence of some loss of momentum as a result of rising energy prices; the hurricane(s) further took the steam out of a worldwide rebound in manufacturing.
In addition to energy, another culprit was higher-than-expected commodity costs. The publication noted: “Eliminate the strain of rising purchased-material costs, however, and many manufacturing plants still continued to struggle with other escalating prices. Indeed, 50 percent of manufacturers reported in the Census that per-unit manufacturing costs rose in the past year even when purchased-material costs were removed from the equation.”
Although the Census did not ask respondents whether increased health-care costs were being passed along to employees, most U.S. manufacturers appear likely to face some of the same heavy healthcare burdens as recently witnessed in General Motors and other major companies in various industry sectors. According to the Census data, the cost of employer-provided healthcare benefits “rose a median 12 percent in the past year among respondents, with an average of 14 percent.” Healthcare costs for employer-sponsored plans recently have been projected to rise at a less than double-digit level in 2006, ranging from eight percent to 9.2 percent. In effect, next year’s gross healthcare expenditure is expected to rise by an average of $597 per employee, to an average total cost of $8,424, according to human-resources firm Towers Perrin. That represents a 140 percent increase over the last 10 years, the firm says. The Connecticut-based firm said that employees on average will pay $155 more in 2006, representing a 10 percent increase from the year before. On the other hand, employers will see an increase of $442 per employee, absorbing 74 percent of the total cost increase.
Yet manufacturers continue to deploy continuous-improvement methodologies and technologies to stem costs and improve quality. In fact, nearly four-fifths of Census respondents deploy some type of process-improvement methodology, whether it is lean manufacturing or Six Sigma or something else. As such, lead times and delivery rates and quality yields — they have all improved for many. Yet a large percentage reported no progress “toward world-class status,” and solutions remain elusive despite such efforts, as external costs — of which manufacturers have little control — are stronger in the fight.
Altogether, U.S. manufacturing this year faced the same challenges that will come next year. Its potential is still significant, though it needs to continuously improve on itself. But factors outside of its control just may have the last word, perhaps dictating domestic manufacturing’s future role in our nation. Only when the pain is felt by persons outside manufacturing will manufacturing receive the attention and resources needed to effect admirably better productivity and innovative products. The cliché is apt: From crisis comes change.
Throughout the year, we’ve covered various trends of U.S. manufacturing. Now we’ll take our wide-angle lens to 2005’s overall industry. Like Sergio Leone, we’ll view the good, the bad and the ugly.
Counts from the United States Department of Labor’s Quarterly Census of Employment and Wages program show that the manufacturing sector employs many workers, “but in a relatively small number of establishments.” Of present, about 62 percent of workers in the goods-producing sectors are manufacturing employees, including those in natural resources and mining and construction. Yet manufacturing establishments account about 28 percent of goods-producing establishments. This year’s annual IndustryWeek/Manufacturing Performance Institute Census of Manufacturers showed that almost half of U.S. manufacturers are in the industrial equipment, automotive or construction sectors.
In the whole of the economy, manufacturing represents about 11 percent of all employment, yet less than five percent of all establishments.
Manufacturing in 2005 has been bittersweet.
The IndustryWeek/Manufacturing Performance Institute Census of Manufacturers reported the following: production output for three-quarters of respondent manufacturing plants increased over the past 12 months; nearly 75 percent also increased sales per employee in the most recent fiscal year; return on invested capital is up; and more than 80 percent expect improved revenues in 2005 and 2006 over the previous years.
In fact, the nation’s manufacturing sector continued to expand in November, albeit at a slower pace than the month prior, the Institute for Supply Management (ISM) reported on Dec. 1. Based on the private group’s survey of purchasing and supply executives, factory activity in the U.S. decelerated only slightly; the pace was slightly above what was expected. CNN/Money and Bloomberg described manufacturing as solid and strong, and the employment index rose to 56.6 percent from 55 percent. The price index fell to 74 percent from 84 percent.
Manufacturing is expanding as companies invest more to upgrade equipment and rebuild depleted inventories, economists said. Last week’s November gauge remains at a level that suggests factories will fuel growth in the economy, which expanded from July to September by the most in six quarters.
While revenue and productivity rose for many manufacturers throughout the 2005 year, however, continued escalation of costs across raw materials, energy and healthcare dilute the good news. Further, there exists a shrinking U.S. manufacturing base (see our following story), and some business executives have said disruptions related to the Gulf Coast hurricanes continue to hurt delivery of some products. (Some executives, according to a recent Washington Post article, also expressed concerns about the impact of a slowdown in the housing industry.)
Some 92 percent of respondents to the 2005 IW/MPI Census, conducted earlier this year, reported that component and raw materials costs for primary products rose in the past year. For nearly 39 percent of respondents, those costs rose by more than 10 percent. These data, IndustryWeek noted, were collected before Hurricane Katrina “added new woes to rising energy and raw materials costs.” Even prior to Katrina, there was evidence of some loss of momentum as a result of rising energy prices; the hurricane(s) further took the steam out of a worldwide rebound in manufacturing.
In addition to energy, another culprit was higher-than-expected commodity costs. The publication noted: “Eliminate the strain of rising purchased-material costs, however, and many manufacturing plants still continued to struggle with other escalating prices. Indeed, 50 percent of manufacturers reported in the Census that per-unit manufacturing costs rose in the past year even when purchased-material costs were removed from the equation.”
Although the Census did not ask respondents whether increased health-care costs were being passed along to employees, most U.S. manufacturers appear likely to face some of the same heavy healthcare burdens as recently witnessed in General Motors and other major companies in various industry sectors. According to the Census data, the cost of employer-provided healthcare benefits “rose a median 12 percent in the past year among respondents, with an average of 14 percent.” Healthcare costs for employer-sponsored plans recently have been projected to rise at a less than double-digit level in 2006, ranging from eight percent to 9.2 percent. In effect, next year’s gross healthcare expenditure is expected to rise by an average of $597 per employee, to an average total cost of $8,424, according to human-resources firm Towers Perrin. That represents a 140 percent increase over the last 10 years, the firm says. The Connecticut-based firm said that employees on average will pay $155 more in 2006, representing a 10 percent increase from the year before. On the other hand, employers will see an increase of $442 per employee, absorbing 74 percent of the total cost increase.
Yet manufacturers continue to deploy continuous-improvement methodologies and technologies to stem costs and improve quality. In fact, nearly four-fifths of Census respondents deploy some type of process-improvement methodology, whether it is lean manufacturing or Six Sigma or something else. As such, lead times and delivery rates and quality yields — they have all improved for many. Yet a large percentage reported no progress “toward world-class status,” and solutions remain elusive despite such efforts, as external costs — of which manufacturers have little control — are stronger in the fight.
Altogether, U.S. manufacturing this year faced the same challenges that will come next year. Its potential is still significant, though it needs to continuously improve on itself. But factors outside of its control just may have the last word, perhaps dictating domestic manufacturing’s future role in our nation. Only when the pain is felt by persons outside manufacturing will manufacturing receive the attention and resources needed to effect admirably better productivity and innovative products. The cliché is apt: From crisis comes change.
