Manufacturing Thriving Even as Employment Falls
By MICHAEL M. WEINSTEIN -- May 15, 1999
When financial crisis swept through Asia,
Brazil and Russia last year, American
industry prepared to duck. With goods
accounting for over 70 percent of exports,
manufacturers were sure to take a hit.
And sure enough, they did. Manufacturing
exports, as estimated by the National
Association of Purchasing Management, fell
for 14 consecutive months starting in the fall of
1997. Employment in manufacturing,
meanwhile, fell by 400,000 last year, and the
association's widely publicized measure of
manufacturing production indicated steady
declines throughout 1998.
But the negative arithmetic misses the point,
says Jerry Jasinowski, president of the National
Association of Manufacturers, the industry's
largest trade group.
"The best estimates show that manufacturing
survived the Asia crisis just fine," Jasinowski
said. "In fact, it is thriving."
He backs his assertion with government
statistics different from those compiled by the
purchasing managers. His data show that
production, which certainly stumbled for a
while, has now recovered and is again rising at
a brisk pace.
Another sign of manufacturing's revival came
Friday, when the Federal Reserve reported that
industrial production rose 0.6 percent in April,
the strongest gain since August.
Industrial employment is continuing to fall, but
that trend actually reflects the sector's enduring
strength -- fast-paced innovation that drives up
productivity, allowing manufacturers to churn
out more automobiles, refrigerators and
computers with fewer workers.
Some of the productivity gains can be traced to
"hard technology" innovations embedded in
high-speed data processing systems and
computer-driven machinery. But other gains
are driven by "soft technology" innovations,
which alter the way people, equipment and
materials are organized and managed.
According to Mark Zandi, chief economist at
RFA, an economic consulting firm based in
West Chester, Pa., growth in production
peaked in November 1997 when it was
advancing by more than 7 percent a year.
Once Asian economies collapsed,
manufacturing slowed, but never actually fell.
Now that exports have stabilized, the vigorous
domestic economy is pulling demand for
manufactured goods back up. According to
government estimates, production rose more
than 4 percent last year, about the same rate of
growth as in the economy at large.
"The trade shock merely brought
manufacturing down from its giddy pace
before Asia collapsed to the pace of other
sectors of the economy," Zandi said.
That raises the question of how manufacturing
kept pace with services, which suffered little
shock from Asia. Chalk the neat trick up to the
Federal Reserve, which cut interest rates last
year as an insurance policy to keep the
American economy upright. Lower interest
rates made housing, autos and other goods that
Americans buy on credit cheaper.
According to government estimates, the
production of durables -- furniture, industrial
machinery computer equipment, automobiles
and the like -- rose over 5 percent from the end
of 1997 to the end of 1998. But the production
of nondurable goods like tobacco products,
textiles and apparel fell almost 1 percent during
the same period.
Economic collapse abroad hit particularly hard
at commodities. As Asia bought less oil, steel
and other basic goods, their prices fell to
punishing levels, forcing cutbacks. That was a
boon for consumers, but a blow to American
producers.
Yet American industry has proved remarkably
resilient. A striking feature of the last several
decades is that the share of manufacturing in
the overall economy has remained rock steady.
"It may appear to the public that we are
becoming a nation of hamburger flippers," said
Ed McKelvey, an economist with Goldman,
Sachs, "but the simple fact is that
manufacturers are holding their own."
Friday's report by the Federal Reserve on
production showed that manufacturing
advanced 0.6 percent during April after rising a
revised 0.4 percent in March. Mining output
increased 0.1 percent; output of utilities' rose
0.7 percent. Capacity use, meanwhile,
remained low, at 80.6 percent, compared with
80.4 percent in March.
Manufacturing accounts for about 20 percent
of total production today, and about 20 percent
for the last three decades. What has fallen is
the share of the nation's labor force working in
manufacturing -- from about 35 percent in
1947, to about 18.5 percent in 1988 and about
15 percent today.
The productivity record in manufacturing in
recent years has been striking. It has been
growing about 4 percent a year since 1995,
about twice the rate of productivity growth in
the overall economy. In the first quarter of this
year, manufacturing productivity advanced at a
5.8 percent rate.
Professor Paul Swamidass of Auburn
University says he thinks he knows why. In a
1997 survey of more than 1,000 factories
sponsored by the manufacturers' association
and the National Science Foundation, he found
that about 85 percent of the companies
involved had adopted computer-aided design
technologies that permit them to introduce new
products more quickly.
About 70 percent had adopted computer-run
machines. More than 60 percent of the plants
had built computer networks linking customers
to the plant and linking machinery within the
plant. And at least 25 percent of the factories
used robots for welding and other repetitive
tasks.
One of the newest innovations -- an
organizational concept known as cells, which
uses small teams of workers to make an entire
product rather than passing unfinished product
from department to department, each with its
own crew of workers -- is spreading fast. The
survey showed it had been adopted by more
than 50 percent of the companies.
John Heggestad, director of operations at Mine
Safety Appliances,a Pittsburgh company that
makes safety equipment, including gas masks
and other breathing devices, said that
"manufacturing cells have allowed us to cut
paperwork, transportation and inspections."
Under the new system, a worker inspects
aluminum forgings brought onto the factory
floor, and, using machines placed nearby, does
whatever milling, drilling and threading is
needed. Under the old system, the aluminum
would have been brought to a receiving area
by one worker, logged in by another, inspected
by a third, then transported to different areas
of the factory floor for milling, drilling,
threading and further assembly.
"By moving to manufacturing cells," he said,
"we doubled revenues per worker over the
past 10 or so years."
Peter Probst, manufacturing engineer at the
Falk Corp. in Auburn, Ala., tells a similar
story. Falk makes coupling devices that
connect motors to equipment.
Under its old system, the assembly of a new
coupler would start at one end of the factory
floor and finish at the other. Now machines are
arranged in clusters, sometimes run by a single
worker who completes all the steps himself.
The process eliminates the need to have
unfinished parts sitting around in various
stages; Falk has reduced its delivery times from
four weeks to one.
Swamidass, in his survey, found that
companies raised productivity by about 4
percent a year from 1993 through 1997 and
reduced inventories by more than 20 percent.
"The record suggests," he said, "that in a tight
labor market that chairman Alan Greenspan of
the Federal Reserve fears, the use of hard and
soft technologies can boost productivity and
take the pressure off of labor costs."
Copyright 1999 The New York Times Company |
