U.S. manufacturing employment has declined from a high of 19.5 million workers in 1979 to approximately 12 million today. And when walking down the aisles of large retailers, few “Made in America” products are visible on shelves. In turn, many assume that American manufacturing is in steep decline. Nothing could be further from the truth.

In fact, with the exception of recessionary periods, U.S. manufacturing value-added output has risen each year, jumping from $545 billion in 1979 to $2.1 trillion in 2013, the Bureau of Economic Analysis reports. And when accommodating for inflation, the story is the same.

The primary reason for the reduction in jobs has everything to do with technology, innovation and automation, which have empowered fewer employees to produce much more in less time. What is occurring in the manufacturing sector already has occurred in agriculture. For example, in 1940, 9.5 million U.S. workers were employed on farms, but by 2013, this number had declined to approximately 2 million. Yet, U.S. agricultural output skyrocketed.

Why so few American-made products on retail shelves?

Manufacturing trends

Why so few American-made products on retail shelves? Today, an increasing number of U.S. manufacturers produce high margin, higher technology products that incorporate significant levels of intellectual property, such as medical equipment, pharmaceuticals, aerospace equipment, and computer chips, and no longer focus on consumer goods to the extent they did in the past.

Another factor impacting the decline in jobs is this: 30 to 55 percent of manufacturing jobs are in service-type functions, McKinsey Global Institute reports. As producers continue to focus on their core competencies and contract various functions to local suppliers, many positions in marketing, design, payroll, accounting, and human resources are shifted to local marketing, accounting, payroll and employment agencies, and no longer are classified in manufacturing statistics.

Moving forward, various trends are strengthening — not weakening — the U.S. manufacturing sector.

The combined use of horizontal drilling and hydraulic fracturing has enabled American companies to exploit untouched domestic unconventional energy resources, such as shale gas, shale oil and tight oil, once considered too difficult to extract. In turn, due to improved recovery rates, assessments of these obtainable reserves have skyrocketed, even in already tapped fields.

In The Spotlight

In fact, it is estimated that a Persian Gulf may lie beneath North Dakota and Montana. And the Marcellus shale alone may hold 141 trillion cubic feet of natural gas reserves, an amount equal to estimated world consumption in the year 2024, says the U.S. Energy Information Administration.

In addition to falling world energy prices, which may rise in the not too distant future, the U.S. domestic energy revolution resulting from horizontal drilling and hydraulic fracturing will permanently bring down prices in the United States.

Backshoring boom

Due to decreasing U.S. energy costs relative to other countries, combined with competitively priced labor and other factors, U.S. manufacturing is becoming more competitive. And this is accelerating backshoring — the return of U.S. manufacturing activities that were previously offshored to China and other countries due to rising costs there.

But the benefits don’t stop here. The return of manufacturing to American shores also is projected to boost U.S. exports. In fact, Boston Consulting estimates that the United States will capture $70 billion to $115 billion in annual exports from other nations by the end of the decade.

And by 2020, Boston Consulting predicts higher U.S. exports, combined with production that likely will be backshored, may generate 2.5 million to 5 million American factory and service jobs associated with increased manufacturing.

This article appeared in American City Business Journals.

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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