U.S. manufacturing remains on top of the world
BY MORRIS R. BESCHLOSS
PVF and economic analyst
An oft-repeated quote attributed to the legendary writer-author-traveler Mark Twain notes that “the announcement of my obituary is greatly exaggerated.”
It may come as a surprise to most that the same can be said of the once global-dominating U.S. manufacturing capability. This fact came to my attention increasingly in December when PVF distributors were substantially increasing their orders at a time when they usually “clear the decks” in anticipation of year-end floor taxes. My curiosity was heightened even more by an emerging record boom of exports.
Further investigation emphasized that this phenomenon reflected a “reawakenin” of new projects, as well as maintenance and repair, which had dominated most of the activity in the commercial and industrial construction, energy and export sectors on which I do much of my analytical focusing.
My anecdotal commentaries on this evolving trend since that year-end surprising sea change have been emphatically confirmed by a recent study in the Wall Street Journal. It tells the story of a “thriving and growing U.S. manufacturing arena” that remains, by far, the world’s largest. The misconception of a disappearing American manufacturing base can be attributed to four salient factors:
• The seven million lost jobs, and the continuously shrinking manufacturing employment base, reflective of unskilled worker job opportunities in basic industry
• The massive emergence of foreign-based industrial manufacturing sites of some of America’s largest companies
• The accelerating influx of low-priced imports and America’s increasing dependence on them
• Such loss of high profile sub-sectors as automotive, electronics, textiles and footwear, etc. have projected the image of an American industrial entity forever lost
The Wall Street Journal article puts these conclusions into a realistic perspective. Respected international data indicate that America’s manufacturing output has continued to increase consistently from 1970 to 2009, the last year these figures were available. In that year, U.S. manufacturing output was $2.155 trillion (including mining and utilities.)
That’s more than 45% higher than China’s equivalent total revenues. Because the shrinking of industry employment has cast a particularly gloomy cloud on the manufacturing sector’s image, it may come as a surprise that the average American factory worker today generates $180,000 of annual output, triple that of the $60,000 attributed to manufacturing employees in 1970.
The American-led revolution in technological productivity, which embraces the agricultural sector as well, continues to expand immeasurably, producing new products not normally associated with the traditional manufacturing emblem of automotive, machinery and consumer products. With more than 20% of all the world’s manufactured goods output produced in the world as a whole, emblazoned with the highest quality reputation, the U.S. takes no back seat to any other nation, now or in the foreseeable future.
Oil and natural gas shale drilling in EPA jeopardy
As oil prices continue to climb due to geopolitical as well as to anticipated long-term global supply/demand problems, hydraulic fracturing (fracking) has raised hopes that America’s huge amounts of shale reserves containing oil and natural gas would hold the key to resolving another expanding cost bubble, stemming from progressive import energy dependence.
Fracking is a process that involves injecting various types of drilling fluids into wells to free oil and natural gas trapped in shale formations deep underground. Due to its practically unlimited profusion in the U.S., it has been anticipated as a major breakthrough to lessen U.S. dependence on foreign oil, especially at stratospheric prices that make such recovery feasible cost-wise.
This may all be for naught with the Environmental Protection Agency moving into the shale drilling imbroglio, which had previously been regulated by the states. This was to have been supported by 2005 congressional action, which had exempted hydraulic fracturing from the federal Safe Drinking Water Act.
This has rapidly become a political football. The minority House of Representative Democrats have recently issued a report showing that 29 known cancer inducing carcinogens were present in fracturing fluids used by oil and gas service companies. This report was based on data supposedly provided by 14 companies.
Under the direction of activist EPA chairman Lisa Jackson, that agency is destined to become a major stumbling block in the ongoing “fracking” process expansion, much of which had already been launched outside of the huge areas reserved under federal ownership.
The Petroleum Association of America, which often acts as an independent spokesman for U.S.-based oil and gas industries, sees the EPA’s direct intervention as a block for fracking in the future. The association has joined several oil and gas industries in a suit restraining the EPA’s direct intervention without receiving authority from the federal Administrative Producers Law. Under the current administration, you can be assured this suit will be dead-ended.
U.S. nuclear sites will keep operating
America’s 104 operating reactors now produce more nuclear energy than ever before, roughly 22% of US electricity, thanks to repowering in recent years to boost plant output but also to a quantum leap in efficiency in recent decades. In 1980, the average nuclear plant ran at just 56% of capacity. Today, that figure is in the low to mid 90% range. Meanwhile, outage time for refueling and repairs has been cut by two-thirds.
The key is the massive consolidation of ownership, most of which occurred during 1990s industry deregulation. Swallowing Wall Street’s badly mistaken conventional wisdom that competition would make nuclear plants worthless, dozens of owners sold their ownership to a handful of intrepid giants for pennies on the dollar.
Sellers were compensated with “stranded cost recovery” by regulators. Buyers, however, achieved scale overnight. The result was a newfound ability to make repairs at plants during ordinary refueling outages and before they required unplanned shutdowns.
The upshot is that today’s U.S. nuclear industry is more profitable and less burdened with debt than ever. Low natural gas prices and still slumping electricity demand have depressed wholesale power prices. But, in stark contrast to unregulated coal and gas-fired power producers, nuclear companies are well in the black. In fact, they’re still by far the least-cost game in town.
The Obama administration and the National Regulatory Commission refused to close any U.S. nuclear plants as Fukushima struggled. As for plant re-licensing, the NRC has indicated it will stick to its current multi-year approval process. As of now, 60 reactors at some 40 different sites have been cleared for license extensions. Nineteen others have submitted applications. The remaining plants are expected to file applications between now and 2017. There’s no indication that approval won’t be forthcoming.
Let’s hope that, for once, the needs of America’s business industry and the U.S. public at large will be considered in light of the nation’s increasing energy dependence.
Specialized U.S. job openings proliferating during unemployment continuity
While the overall U.S. unemployment picture continues to vacillate at an uncomfortably high level, the openings at the top of the jobs pyramid are increasing significantly.
Mid-April statistics indicated that such specialized, highly-skilled and technical openings had increased to 3.1 million, up from 2.7 million in January. Although encouraging as a positive sign in an otherwise drab unemployment scenario, much of this is due to the intense productivity drive of America’s privately-owned companies, which are universally subscribing to the philosophy of “doing more with less.” As these companies represent two-thirds of the 150 million potential nationwide employment pool, it’s become readily apparent that the shift to personnel capable of working with upgraded equipment on the shop floor and back office will be increasingly demanded as the global economy continues its halting climb out of the current recessionary morass.
Such technological evolution also signals that millions of hands-on jobs that were so prevalent in the decades after World War II — automotive, metal fabrication, construction, textiles — will never come back. This requires educational levels focused on the needs of the ever changing requirements of business and industry.
Science, mathematics and engineering degrees will represent the best future opportunities for successful job placement and promotion in the ever-expanding technological economy forthcoming in the emerging and developing world sectors alike.
Although many observers are waiting for China’s miraculous growth to collapse, it continues to surge unabated at a near double digit annual growth rate. With the world’s odds-on leading surplus of financial liquidity, its current and growing 5% inflation is no surprise but neither is the fact that its highly efficient, if amoral, capitalism, is not burdened by lobbyists, law suits and the constant political infighting that has become the increasing hallmark of the developed world, especially the U.S. The best advice for future educational success unequivocally dictates the acquisition of technical and creative skills for students and teachers alike.
North Dakota — exemplar of a realistic U.S. future
It would seem curious to most that one of America’s most barren and underpopulated states (672,000) would become the exemplar of what’s most impressive in today’s Obamacratic-dominated United States.
In a superbly-crafted Wall Street Journal article by writer Joel Kotkin, the statistics speak for themselves loud and clear. Key to the unlikely surge of affluence being enjoyed by the state’s fulfilled inhabitants is the largest land-based oil potential, recently developed — the increasingly publicized Bakken Belt. It is centered around a small-sized community, Williston, which has seen more mobile vans than homes lately to accommodate the necessary employment pool. This belt of shale oil, increasingly profitable at today’s prices, also extends into Montana and the provinces of Alberta and Manitoba in Canada.
As a result of such intense energy development activity, unemployment is down to an incredible 3.8% level, affording North Dakota the best job market potential in this country.
As if the blessing of such new oil wealth were not enough, the state encompasses heavy coal supplies and ranks ninth in the country in wind-generated electricity. With coal benefitting from worldwide demand, this former farm-dominated state is also experiencing record agricultural export sales but now employs only 7.2% of its workforce in that once dominant sector.
Most surprising is North Dakota’s attraction of high tech graduates, due to the success of Great Plains Software, founded in the 1980s and sold to Microsoft in 2001 for $1.1 billion. The firm now employs 1,000 persons. Also located in the state are such biotech firms as Aldevron, which manufactures protein for bio-medical research. Others are also starting to proliferate.
In addition to all the supplemental benefits of such largesse, North Dakota enjoys one of the nation’s highest median incomes and business activity at the wholesale and retail level that would be the envy of just about any of the other states in the Union.
The entrepreneurial drive that is springing up in all corners of North Dakota in a multitude of sectors could be a promising forerunner of such states as Ohio, Wisconsin and Pennsylvania, whose government leadership is now concentrating on the development of new entrepreneurial businesses to displace the vacuum left by the shrinking of the once huge automotive and construction sectors.
By the way, North Dakota is a right-to-work state, with low taxes and a minimum of government interference, either from federal or state agencies.
Morris R. Beschloss, a 55-year veteran of the pipe, valve and fitting industry, is PVF and economic analyst emeritus for The Wholesaler.