Manufacturing in America: The State of the Industry

If there’s ever been a U.S. city whose ties to the manufacturing industry have taken it to its highest heights and lowest lows, it would have to be Detroit, Michigan. For many, the travails of this Midwestern U.S. city have been particularly emblematic of the fortunes of American manufacturing over the past century.

So it was fitting that the most recent update I received on the state of the American manufacturing industry took place in Detroit at the Manufacturing in America Symposium, hosted by Siemens and Electro-Matic. This is the third year I’ve attended this event and every year the sentiment around manufacturing in American has been positive. No big surprise there. After all, what industry supplier would hold a “Manufacturing in America” symposium to lament the sad state of the industry?

But this year, the proof points underscoring the health of U.S. manufacturing were more impressive than usual. For starters, there were visits to the Red Viking and Paslin facilities in suburban Detroit (see links to previous articles in Automation World about Red Viking at the bottom of this post).

At Paslin—where resistance welding and multi-fastening tooling and machinery are created for automotive Tier 1 suppliers and OEMs such as Honda, Ford, GM, Tesla and Toyota—business is booming in ways the company has never seen before, according to Carl Battista, executive vice president of sales. “We’ve added 100-150 employees in past 12 months and expect to do the same in next 12 months,” he said. “If we had 200 controls engineers available to us we could employ them across the country right now.”

Providing the economic back-story to the manufacturing success at companies like Paslin, Brian Beaulieu, CEO of ITR Economics (and brother of Alan Beaulieu, who provides the bi-monthly “Economy View” column for Automation World), pointed to insourcing, energy and capital trends as the keys to a projected long-term rise in U.S. manufacturing fortunes.

“The U.S. is not reliant on the rest of the world for our growth,” said Beaulieu. “We are the leading economic indicator for the world.” This fact is supported by the “very real trends around insourcing happening in the U.S. now.”

He noted that employment in the U.S. is growing nicely today, at a rate of about 2.4 percent; however, there has been a corresponding 16 percent increase in the number of job openings. “We have an amazingly large number of people structurally unemployed—who lack the necessary skills,” Beaulieu said. “And this situation is not going away any time soon and will impact the manufacturing industry.”

Compounding this issue are the trends surrounding manufacturing’s new workforce generation—the Millennials. “The ‘quit rate’ across businesses is rising,” Beaulieu said, “because Millennials tend to work in one place for about 3 years before moving on.” As a result, “Labor price inflation is just beginning in U.S. to occur.”

Beaulieu notes, however, that the changing structure of the manufacturing industries over the past few decades, along with the increased use of automation and digital manufacturing technologies, means that assessing manufacturing employment is no longer as useful a gage of manufacturing sector health as it once was. “We don’t need as many people to produce what we once did,” he said. “If we did, we would be losing the manufacturing race. The inability to find skilled people will continue to drive the automation and digitization of manufacturing.”

Such employment issues are not dampening Beaulieu’s outlook on manufacturing. “It's not who has the cheapest labor that determines the winner in manufacturing,” he said. “It’s who best deploys capital.” And nobody is currently in a position to do that as well as the U.S., considering the capital reserves of companies created here, as well as the companies that have chosen to set up strategic headquarters in the U.S., such as Siemens.

Foreign direct investment in China is declining, but it’s still increasing in the U.S., Beaulieu pointed out. “And the auto industry is good example of this. What’s happened in the U.S. automotive sector is a classic example of how you re-invent an industry,” he said, noting that there has been a 45 percent increase in robotic orders by the auto industry alone over the past year.

Plus, “we own our energy future,” Beaulieu said. The U.S. is largely energy independent today—that’s why the chemical industry is expanding as much as it is in the U.S. Half of our imported oil now comes from friends, like Canada and Mexico; and we’re learning to produce more with less oil. It truly is game changing.”

John Billings, vice president of the Automotive and Aerospace Business for Siemens, echoed Beaulieu’s comments, noting that Siemens is “bullish on manufacturing” in America because of predicted growth by analysts, plus the facts that consumer spending is at an 11-year high and capacity utilization is at pre-recession levels.

“We’re also living in age of transformative technology and the U.S. is the epicenter for it as the base for companies such as Apple, Google and Amazon,” Billings said.

He also pointed to the need for U.S. industrial modernization as being a potential boost for the industry itself, as well all the technology suppliers that support it. He cited ARC Advisory Group research that claims some $65 billion worth of industrial automation systems are currently at or near their end of life and a Morgan Stanley study that claims U.S. industrial equipment, on average, is the oldest its been since 1938.

Given the positioning of U.S. industry today and its long-term outlook, and considering the country’s energy independence, industry insourcing trends and high capitalization factors, industry suppliers like Siemens are betting big on the continued development of American manufacturing. And barring unforeseeable circumstances, all signs point to this being a very safe bet.

According to Billings, Siemens is betting on its “unique approach to industry” to secure its future. “We saw the digitization of manufacturing coming 10 years ago,” he said. “We have since invested $4 billion, along with $6 billion in R&D, on the backward integration of our hardware and software portfolio around the development of digital factory products that bring together PLM and MES technologies to address the entire scope of manufacturing—from product design through manufacturing and into services.”

Recent Automation World news from and about Red Viking: