The U.S. manufacturing has been replete with good news in the last year and a half, and it would appear that streak will continue into 2015. A wealth of data indicates that businesses and consumers alike plan to invest heavily in manufacturing next year, according to Modern Machine Shop. Combined with the recent reshoring trend and Federal investment in manufacturing innovation, we could be in store for a new golden age in U.S. manufacturing.
Companies return to U.S. shores
The last few years have seen the growth of a trend called reshoring – essentially the reverse of offshoring that once plagued the manufacturing industry, according to A.T. Kearney. Manufacturers sent their plants overseas to countries like China and the Philippines, where they could optimize cheaper labor and more relaxed labor laws. However, recently that trend has reversed, as labor costs in China and elsewhere have been on the rise and manufacturers are opting for a homegrown product.
A.T. Kearney found that the reshoring index has actually fallen from 2013 to 2014, but there is still a positive trend of manufacturers returning their factories to the U.S.
"The 2014 Reshoring Index is not only an indicator of U.S. manufacturing capital flows, but also how the U.S. stacks up in terms of attractiveness as a source of manufactured products versus countries like China, Bangladesh, and Cambodia," explained Pramod Gupta, A.T. Kearney principal and study co-author.
In other words, the value of imported goods from low-cost Asian nations has been increasing as the number of companies that return to the U.S. rises. Still, the U.S. will likely enjoy the boost in labor that reshoring will offer. Plus, there are other positives to examine for the future of the manufacturing industry.
Equipment purchases on the rise
Spending on manufacturing equipment such as power tools, industrial fasteners and electrical supplies is forecast to increase dramatically in 2015, according to a Gardner Business Media survey reported by Modern Machine Shop. The survey predicted a 37 percent increase on such spending over last year's marks.
A few details from the survey provide the necessary context. For example, capacity utilization at automotive manufacturers reached 88 percent in July, marking its highest level in 25 years. That means automakers are the busiest they've been in some time. Additionally, the number of new car models slated for production in the next few years is going to spike, meaning that capacity utilization number could still go up. Aerospace orders have also been through the roof – up 387 percent in July. Airlines are investing in more efficient and comfortable planes, so manufacturers will be busy providing those parts. Finally, domestic gas and oil availability is outpacing the extraction and transportation methods available, so energy companies are investing in clean infrastructure.
Durable goods production is the highest it's ever been in the U.S., Modern Machine Shop asserted. As a result, manufacturers will have to up their efforts in order to keep up.
Still not perfect
While there is plenty of good news for the industry, there is still room for improvement. Industrial Distribution spoke with Jeff Reinke, editorial director of Manufacturing.net. While he was optimistic, he pointed out one persistent weakness.
"Currently, we are experiencing a skilled labor shortage in the U.S., particularly within the industrial industry," Reinke explained. "U.S. manufacturers are focusing on attracting and retaining the right talent, including engineers and machinists. As the economy improves and manufacturers look to ramp up activity, companies will need to invest in people in order to successfully carry out their operations."
With that said, the strength of the industry may be enough to attract the right talent and drive education programs in a more industrial direction.