KnowNOW!

Global Economic Watch

Syndication

Recent Posts

Tags

Archives

  • McKinsey Quarterly: The Next Trend in Manufacturing

    There was massive growth in "offshoring" in the years before the global economic crisis. Then some manufacturing jobs returned to the U.S. and we called it "reshoring." Are you ready for "next-shoring"? In the McKinsey Quarterly , Katy George , Sree Ramaswamy , and Lou Rassey take stock of the economics of manufacturing for today and the coming years, and they make the case for that new technologies are making labor costs less of a factor in choosing where to set up factories. More than two-thirds of global manufacturing activity takes place in industries that tend to locate close to demand. This simple fact helps explain why manufacturing output and employment have recently risen—not only in Europe and North America, but also in emerging markets, such as China—since demand bottomed out during the recession following the financial crisis of 2008. Regional demand looms large in sectors such as automobiles, machinery, food and beverages, and fabricated metals. In the United States, about 85 percent of the industrial rebound (half a million jobs since 2010) can be explained just by output growth in automobiles, machinery, and oil and gas—along with the linkages between these sectors and locally oriented suppliers of fabricated metals, rubber, and plastics (Exhibit 1).2 The automotive, machinery, and oil and gas industries consume nearly 80 percent of US metals output, for example. In China too, locally oriented manufacturers have contributed significantly to rising regional investment and employment. The country has, for example, emerged as the world’s largest market and producer for the automotive industry, and many rapidly growing manufacturing sectors there have deep ties to it. As automotive OEMs expand their capacity in emerging markets to serve regional demand, their suppliers have followed; the number of automotive-supplier plants in Asia has tripled in just the past decade. Read Next-shoring: A CEO’s guide here .
  • IMF: International Trade and Supply Chains

    All those consumer products people are buying today came from somewhere and were made by someone (or something being controlled or programmed by someone). Increasingly, these products are coming from several different places. According to the IMF , the volume of global trade is 27 times larger than in the 1950s, when we started to refer to this day as Black Friday. So if you can take a pause and put down the perfect holiday gift for you niece for just one moment, take a look at this IMF video on the global supply chain:
  • Brookings' Metro Freight Series

    The Brookings Institution 's Metropolitan Policy Program has a strong new series out called Metro Freight. The series takes an in-depth look at trade "at the metropolitan scale." As the report notes, "The rise of global value chains forces metropolitan areas to assess their relationship to the global economy." The animated video below sets up the series nicely. Take a look, and then view the report here .
  • Lost Momentum in Manufacturing Multifactor Productivity

    The Bureau of Labor Statistics has released some interesting data on the manufacturing sector today--specifically on multifactor productivity during the great recession and the ongoing recovery. Multifactor productivity--"the change in output per unit of combined inputs"--rose 0.8% (annual rate) in 2011. That rate of increase was a big dropoff from 2010, when multifactor productivity rose an unprecedented 4.5%. From the release: Multifactor productivity in manufacturing grew 1.3 percent annually from 1987 to 2011 with sectoral output increasing at an annual rate of 1.7 percent, faster than the 0.3 percent annual increase in combined inputs. During the same period, output per hour (labor productivity) increased 3.3 percent annually. (See table A.) Of the 3.3 percent growth rate in labor productivity, multifactor productivity added 1.3 percent, capital intensity contributed 0.6 percent, materials intensity added 0.9 percent, and purchased business services intensity added a 0.4 percent increase. The contribution of energy intensity was unchanged. For the 2007-2011 period, multifactor productivity rose at a 0.6 percent annual rate compared to a larger 2.0 percent annual growth rate in the 2000-2007 period. Sectoral output declined 2.3 percent and combined inputs declined 2.9 percent over the 2007-2011 period. In 2011, fewer NAICS three-digit manufacturing industries exhibited an increase in multifactor productivity growth and sectoral output growth compared to the previous year. The number of industries exhibiting an increase in combined inputs remained steady at 13, the same number as in 2010. Eleven out of 18 manufacturing industries exhibited an increase in multifactor productivity. Thirteen industries showed increasing output. Seven industries experienced a decline in multifactor productivity growth. Of these seven industries, two were durable manufacturing industries: primary metals and miscellaneous manufacturing. The remaining five industries were in the nondurable manufacturing sector: food, beverage, and tobacco products; textile mills and textile product mills; apparel, leather, and allied products; petroleum and coal products; and plastics and rubber products. Read the full release here .
  • Understanding Increased Efficiency Through One Potato Chip Factory

    Don't confuse the below video as being about a potato chip factory. It is better to view it as a short history of manufacturing in America. The video is from Planet Money , and it provides an interesting lesson in how technology has changed business. We hear so much about manufacturing getting so much more efficient over the last half-century, it is helpful to have a clear example of how exactly that takes place for one company: Secrets From The Potato Chip Factory from Planet Money on Vimeo .
  • Brookings Paper Calls on Regional Firms to Increase Exports

    Researchers in the Brooking Institution 's Metropolitan Policy Program have put out a new paper calling on the federal government to "initiate a short-term competitive Regional Export Accelerator Challenge (REACH) grant program." They argue that too many U.S. cities are too slow to engage in the global marketplace. From the paper: Despite the size and growth of foreign consumer demand, too many firms and too many parts of the United States remain domestically-oriented, thereby missing out on opportunities to innovate and expand. In addition, the national export service delivery system is too Washington-centric and does not embrace federalism’s opportunities to work directly with leaders in regions, and their state partners, to globalize traditional economic development strategies. The key problem is that both individual firms and entire regions under-export. -Too few firms are exporting and exporting regularly. As of 2010, less than 1 percent of U.S. firms sell a product abroad, a much lower share than in other countries, including major trading partners such as Canada, Germany, and Korea. While the number of new exporting firms continues to grow (with 16,500 firms beginning to export between 2009 and 2010), that pace is slower than the creation of all new firms, keeping the overall percentage of exporting firms low. As of 2010, the United States has 293,000 exporters. However, only 188,000 firms exported in both 2009 and 2010, suggesting that approximately one-third of exporters may be “accidental exporters” that react to one-time demand from international buyers rather than integrating exports into their long-term sales and marketing strategy. -The nation itself remains a patchwork of exporting activity. The share of the U.S. economy that is driven by exports is relatively small, at 14 percent. But even at that level, 74 percent of metro areas—and 86 of the 100 largest metro economies—underperform the national rate. Metro areas as large and diverse as Atlanta, Baltimore, Denver, Miami, New York, and San Antonio all generate less than 8 percent of their economic output through exports, placing them in the bottom quarter of performers among the largest 100 metro economies. Read the paper here . Amy Liu , co-director of the Metropolitan Policy Program, discusses the need for domestic firms to expand exports in this interview:
  • Big Shift in Outsourcing and Offshoring as Wage Gap Narrows

    With the current bleak employment picture in most developed economies, few topics become more emotionally charged than outsourcing and offshoring. But following a half decade of recession and slow growth, the outsourcing may be less appealing to some major multinationals. And that makes now a key moment to explore the benefits and challenges with the practice. The Economist features a special report on outsourcing and offshoring in the latest issue of the magazine. Here's a helpful look at some of the key takeaways from the report: The Economist's Europe Business Editor Tamzin Booth explains that it is indeed the narrowing of the gap between costs in developed and emerging economies--the US and China being the most important comparison--that has turned some companies off of outsourcing. "Global labor arbitrage," is the term Booth uses. Other key reasons are advancing industrial automation, and the reality check that outsourcing didn't work out quite as well as some companies expected. Listen to Tamzin Booth discuss the special report here . Access the special report here .
  • GE's Appliance Park and a Case Study in Manufacturing Jobs Returning to the US

    Charles Fishman writes In The Atlantic , writes about General Electric moving some manufacturing operations back to the U.S. It seems a bit of a stretch to say this is part of an "Insourcing Boom," as the article is titled, but the economic conditions that have led GE to manufacturing high end refrigerators and water heaters at Appliance Park in Louisville, Kentucky are important to note. Fishman: GE’s appliance unit does $5 billion in business—and today, 55 percent of that revenue comes from products made in the United States. By the end of 2014, GE expects 75 percent of the appliance business’s revenue to come from American-made products like dishwashers, water heaters, and refrigerators, and the company expects that its sales numbers will be larger, as the housing market revives. What’s happening in factories across the U.S. is not simply a reversal of decades of outsourcing. If there was once a rush to push factories of nearly every kind offshore, their return is more careful; many things are never coming back. Levi Strauss used to have more than 60 domestic blue-jeans plants; today it contracts out work to 16 and owns none, and it’s hard to imagine mass-market clothing factories ever coming back in significant numbers—the work is too basic. Appliance Park once used its thousands of workers to make almost every part of every appliance; today, every component GE decides to make in Louisville returns home only after a careful calculation that balances quality, cost, skills, and speed. Appliance Park wants to make its own dishwasher racks, because it can, and because the rack is an important part of the dishwasher experience for customers. But Appliance Park will likely never again make its own compressors or motors, nor is it going to build a microchip-etching facility. And of course, manufacturing employment will never again be as central to the U.S. economy as it was in the 1960s and ’70s—improvements in worker productivity alone ensure that. Back in the ’60s, Appliance Park was turning out 250,000 appliances a month. The assembly lines there today are turning out almost as many—with at most one-third of the workers. Read The Insourcing Boom here.
  • Investing in Skilled Workers and the Future of Manufacturing in the U.S.

    Last week the Brookings Institution hosted a forum on the future of manufacturing in America. Representatives from industry and Labor (and some Congressional Reps as well) discussed the potential for growth in the manufacturing sector, in spite of a half-century trend of business moving abroad. John White, Jr. , President of Taco-HVAC , sponsored the forum and participated. In this excerpt from the forum, he argued that one of the keys to improving growth in U.S. manufacturing is investing in developing skilled workers. Watch more excerpts from the forum here .
  • Brookings Feature: Manufacturing in America

    Brookings has a new interactive feature on manufacturing in America. The interactive graphics paint a fairly clear picture of the ups and downs of manufacturing jobs across the country. And the producers also make the case for manufacturing jobs remaining vital to a growing economy, even in this digital age. For one, they pay better. But manufacturers also drive innovation. From the report. Manufacturing firms are far more likely than non-manufacturing firms to introduce new products and new production or business processes. The most innovative manufacturing industries relate to computers, communications, and pharmaceuticals. Manufacturing makes up about 11 percent of U.S. GDP, but accounts for more than two-thirds (68 percent) of U.S. domestic company R&D spending-a key input to innovation Engineers are an essential input into technological innovation and they are disproportionately concentrated in manufacturing. Furthermore labor productivity growth-a broad measure of innovation-is higher in manufacturing than in the private sector as a whole. Below is a glimpse of what the interactive feature looks like. Click here to go to the site.
  • Labor Department: 4th Quarter Productivity up 0.9%

    Productivity continued to increase during the fourth quarter of 2011, but the rate of growth slowed, according to data released by the Labor Department today. From the Bureau of Labor Statistics report: Nonfarm business sector labor productivity increased at a 0.9 percent annual rate during the fourth quarter of 2011, the U.S. Bureau of Labor Statistics reported today. The gain in productivity reflects increases of 3.7 percent in output and 2.7 percent in hours worked. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the fourth quarter of 2010 to the fourth quarter of 2011, productivity grew 0.3 percent, as output rose 2.3 percent and hours rose 1.9 percent. Annual average productivity increased 0.4 percent from 2010 to 2011. Here is a look at the 6-year trend: The report suggests employers need to add more employees in order to keep growing output: Manufacturing sector productivity edged down 0.1 percent in the fourth quarter of 2011, as output rose 4.8 percent and hours worked increased 4.9 percent; this is the largest quarterly gain in hours worked since the second quarter of 1996 (6.2 percent). Over the last four quarters, manufacturing productivity increased 1.7 percent. Annual average productivity grew 2.6 percent from 2010 to 2011. Unit labor costs in manufacturing increased 2.0 percent in the fourth quarter of 2011 but were unchanged from the same quarter a year ago. Read the full release here .
  • Durable Goods Orders Decline For First Time in Three Months

    Durable good orders dropped 4% in January, the Commerce Department reports. That translates to $8.6 billion of orders less than in December. It is the biggest monthly drop in three years. It helps that the last three months saw durable good orders climb enough that this drop doesn't seem as ominous as the big drop in January 2009. Still, this is not the kind of news that suggests the recovery will speed up anytime soon. The good news in the report: shipments continued to go up: Shipments of manufactured durable goods in January, up two consecutive months, increased $0.8 billion or 0.4 percent to $207.8 billion. This followed a 1.9 percent December increase. Transportation equipment, also up two consecutive months, had the largest increase, $2.6 billion or 5.4 percent to $50.3 billion. This followed a 1.0 percent December increase. Meanwhile, orders for capital goods went down: Nondefense new orders for capital goods in January decreased $5.4 billion or 6.3 percent to $79.5 billion. Shipments decreased $0.6 billion or 0.9 percent to $70.9 billion. Unfilled orders increased $8.6 billion or 1.6 percent to $554.4 billion. Inventories increased $1.7 billion or 1.0 percent to $172.0 billion. Read the Census Department report here .
  • Brookings Discussion on Manufacturing, Innovation, and Productivity

    We have been trying to keep up with the very robust public conversation among economists about the state of manufacturing in the US. Ever since the president made a push for increased productivity in the manufacturing sector during the State of the Union, there has been no shortage of opinions, and, thankfully, analysis of the potential for manufacturing to be a significant part of the recovery. Yesterday, the Brookings Institution held a panel discussion titled Why—and Which—Manufacturing Matters: Innovation and Production in the United States . It was a thoughtful and informative--albeit wonky--presentation. Susan Helper was one of the participants. In this excerpt, Helper, professor of economics at Case Western Reserve University, speaks to how a successful marketing strategy features coordination of investment and creates both supply and demand: Here is the full panel discussion:
  • BCG's Hal Sirkin on the Rise and Recovery of Manufacturing in the US

    Add Boston Consulting Group's Hal Sirkin to the list of industry experts who believe that reports of the death of US manufacturing have been, as Twain might put it, "an exaggeration." With the decline of the dollar and the rise of wages in China, "It's now becoming more effective to produce in the U.S. than it is to produce in a lot of different countries," says Sirkin. Sirkin recently discussed the state of manufacturing in the US with the Knowledge@Wharton editor in chief Mukul Pandya .
  • Econbrowser: Rise in Capital Good Exports, and Overall Manufacturing Output, Since 2009

    Menzie Chinn has a collection of useful charts at Econbrowser illustrating the state of manufacturing in the US. Here's one, showing "cumulative changes in real exports vis a vis 2009Q2." Chinn writes: Clearly, export growth is decelerating -- not surprising given the collapse in trade volumes that took place during the great recession. Nonetheless, I find it interesting how much capital goods exports have increased. Now, as I mentioned in an earlier post, vertical specialization means that it’s unclear how much value added is incorporated in particularly the goods exports. Still, I think there is evidence for a manufactured exports rebound. Finally, there has been substantial skepticism that manufacturing employment will rebound strongly, even if the President’s initiatives outlined in the State of the Union are implemented. [4] I think that skepticism is largely warranted, given rapid productivity growth in that sector. However, that doesn’t mean that manufacturing value added won’t necessarily rebound. BEA only released data up to 2010 last month, so one can’t be sure. So while we have seen some marked improvement in U.S. exports and a a trimming of the trade imbalance, the question remains whether we will see sustained growth, and the sort of recovery-driving rebound of the manufacturing sector that President Obama has been calling for. Read Net Exports, Exports, Real Exchange Rates and Manufacturing here .