Manufacturing Continues On a Roll

Last week's unemployment report was discouraging, but one month's data does not a trend make. The economy is much stronger than that, especially in manufacturing which entered 2014 on a roll. The latest preliminary ISM report was 57 for December 2013, a powerful indicator of growth. Manufacturing has expanded for seven consecutive months. The ISM readings for the second half of the year averaged 56.3 which is a most encouraging trend.

The deeper you look into the data, the better it looks. Subcomponents of the ISM manufacturing index show that more companies are optimistic as the New Orders Index hit its highest level since April 2011, and the Backlog Index to the highest since February 2013. The government data for durable goods and industrial production also looked strong in November.

IHS Global Insight projects that spending on equipment by manufacturing companies in 2014 will rise 7 percent from what it was in 2013 to $211 billion. In 2013, it grew 3.5 percent. Global Insight now expects it to double this year. Bernard Baumohl, chief global economist with The Economic Outlook Group, expects the broader measure of business investment to expand 7.3 percent in 2014. Capacity utilization is at 76.8 percent, another positive indicator.

A substantial portion of this investment relates to intensifying application of advanced digital technologies to manufacturing, and less to the traditional bricks and mortar. We are embarked upon the next industrial revolution - building a coherent digital web that ties every aspect of manufacturing together. In this new digital world, senior management will have its eyes and fingers on every phase of manufacturing operations 24/7.

Major industrial capital investment also is underway in response to the transformation of the U.S. energy environment, specifically with regard to natural gas. Manufacturers are changing their operations to take advantage of cheaper national gas, and the expansion of the natural gas industry in itself is creating markets for an array of manufactured products. Finally, the U.S. balance of trade is improving as petroleum imports decline.

All of which contributes to a re-shoring trend that began as a trickle a few years ago and is today picking up steam. The cycle life for many major consumer products like refrigerators has been shortened from seven years or so to two or three years as more innovations improve the product. If you are going to be upgrading your product every two or three years, you need to be closer to production, and you need to be able to work directly with the people on the production lines. Requirements to respond quickly to changing consumer tastes is occurring across the product spectrum.

On the ground, this means the competitive advantage is gradually coming home from foreign shores. There is a growing movement in our country to buy American. Major retailers are making a big splash out of shifting to domestic suppliers. This movement was a long time in the making, but it is real. A great new era of American manufacturing is poised for liftoff.

Jerry Jasinowski was President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements. January 2014