Will 2013 be the year of the manufacturing renaissance? Plenty of groups are hoping so. NAM issued its "manufacturing renaissance" strategy over a year ago. Willy Shih and Gary Pisano of the Harvard Business School, as well as Craig Giffi at Deloitte, are leading advocates for policies that will encourage manufacturing innovation on our shores. And Boston Consulting Group has issued a series of reports pointing to a steady rise in new investment in American manufacturing over the next five years.
A year ago, many experts would have even predicted we were on the verge of such a renaissance. Manufacturing has grown faster than the overall economy for several years. Further, in the first quarter of 2012, factory activity took off at a China-like pace, growing at an annual rate of 10%. With a disappearing cost advantage in China, higher U.S. productivity, a fresh awareness of overseas supply chain risks and the comparative advantage arising from a shale gas and oil revolution, a growing number of experts are talking of a dramatic resurgence of American manufacturing.
Indeed, in a recent MAPI survey, roughly one out of five respondents indicated that their companies have returned some activity to the United States over the past two years, and some of those companies plan to bring additional operations back in 2013. The leading reasons for this reshoring include declining labor cost advantage abroad, rising shipping costs and the desire to reduce supply chain uncertainty.
But many hurdles materialized in 2012 to prevent a U.S. manufacturing boom. First and foremost among these, of course, was the fiscal cliff. Combine that with a construction market just emerging from recession, continued economic decline in Europe, mounting concern over new federal regulations and uncertainty over tax rates, and many U.S. manufacturers felt compelled to remain on the sidelines in regard to investments and hiring. As a consequence, industry growth rates struggled to stay positive in the final three quarters of the year.
Reason for Optimism
No doubt, the long-term outlook for manufacturing in America is much brighter than it was a few years back. But there are simply too many domestic and global challenges in the coming year for significant expansion in the factory sector. MAPI Chief Economist Dan Meckstroth has looked into his crystal ball and is projecting only 2% growth for the sector in 2013. Fortunately, looking at 2014 and beyond, he sees more substantial growth -- 3.2% in 2014 and an average of 3.6% from 2015 through 2017.
MAPI's current forecast is for 14 of the 24 industries that we track to grow this year. Aerospace will be the star of the show over the next few years, with projected growth at 16% in 2013 and 17% in 2014 -- Boeing (IW 500/16) deliveries jumped from 477 in 2011 to 601 in 2012. Much of this growth is due to the continued increase in airline traffic both domestically and internationally. Pent-up demand for motor vehicles should continue to provide significant growth in the automotive industry over the next two years, with projected 5% growth in 2013 and 4% in 2014.
Housing starts are expected to grow 28% this year and 32% next year. As a consequence, industries related to housing construction will see a bump, though most of the expansion won't be seen until 2014.
Equipment Upgrading
One more important factor will have an impact on manufacturing growth. There is clearly a need throughout the business community to replace worn and technologically obsolete machinery and equipment, but firms avoided taking the plunge until they had a better idea of what would happen with the economy this year. With the fiscal cliff avoided, manufacturing and the overall economy should be helped by an increase in business investment in equipment and software. MAPI projects equipment and software spending to increase 6.1% in 2013 and 7.4% in 2014. Industrial equipment spending is forecast to rise 5.2% in 2013 and 8.6% in 2014. Transportation equipment spending is projected to increase 6.2% in 2013 and 4% in 2014.
There is every reason to expect a resurgence in manufacturing in this country over the next five years. If our elected leaders can tackle the biggest policy challenges facing industry -- including an uncompetitive corporate tax code and an overly complex regulatory system -- then there's every reason to believe the renaissance is upon us. But there are too many imminent hurdles for our manufacturers to overcome for 2013 to be the year of a manufacturing renaissance.
