U.S. Manufacturing is Alive and Kicking

The United States' manufacturing sector, a behemoth during the industrial revolution, has supposedly been bleeding to death for more than a decade at the hands of China where materials and labor are cheaper. However, the United States' demise to its Far East competitor is pure speculation.

The United States remains the world's largest manufacturing economy, according to The Manufacturing Institute. China comes in second, followed by Japan in third.

The decrease in domestic manufacturing jobs is partly to blame for the misconception that the industry is dying. While many manufacturing jobs have been lost to outsourcing and factory closures, job growth is no longer an accurate measure of the health of the manufacturing industry, according to a new report from Wells Fargo that found the positive correlation between manufacturing output and job growth has been falling apart since the 80s.

"The correlations from 1947 to 1980 is 0.86, while from 1980 to 2010 the correlation reversed itself to -0.80, implying that as manufacturing output increased, employment decreased," says the reports. "Thus, the divergence between manufacturing employment and output suggests that the best measure to gauge the impact of manufacturing's contribution to the economy is to use output, and not employment, of the industry."

If output is the best indicator of the manufacturing sector's vitality, then the United States continues to thrive. In 2008, the sector accounted for $1.64 trillion worth of goods and from 1998 to 2008 manufacturing value-added increased 22 percent. The United States also remains the largest economy in the world when measured by total GDP (total value of all goods and services produced). Japan comes in second, and China recently took over third place from Germany. While China's economy is growing quickly, the total industrial output of China remains drastically smaller than the United States'.

Still, the United States' manufacturing industry is not without its challenges. According to The Manufacturing Institute, the U.S. share of global exports of manufactured goods declined from 19 percent in 2000 to 14 percent in 2007 and is now surpassed by China, the leading exporter of manufactured goods.

There is hope for future growth in domestic manufacturing and exports, though.

U.S. manufacturing is heavily reliant on technology to improve productivity and minimize cost, and while this technology has led to a decrease in need for workers, it actually could be the industry's saving grace.

Many of the technologies used to streamline manufacturing are made domestically, for instance, Computer Aided Design (CAD) was developed right here in the states. This burgeoning sector that creates manufacturing equipment to streamline industry processes - including factory equipment, supply chain consultants, and plant design and engineering firms - is a niche market, and it's one that the United States has an edge in.

U.S. manufacturers perform two-thirds of all research and development in the nation, driving more innovation than any other sector. This homegrown technology revolution is important on a global level because many developing nations need new technologies to improve their manufacturing processes. As transportation and labor costs in these countries increases, the need for technology will also increase, and the U.S. manufacturing sector stands to reap the benefits. This emerging industry may also eventually lead to in-sourcing of manufacturing activity and the creation of new domestic jobs.

If the U.S. can successfully export its manufacturing knowledge and technology to assist countries with emerging manufacturing industries, then the future of domestic manufacturing is not doomed, rather it has a bright and promising future.

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