How the recession remade manufacturing

US Manufacturing

There are many, many reasons to be fearful during a recession. Much of the population sits and waits nervously for the red numbers to turn green as they watch the television bring more news of businesses folding and entire industries teetering on the edge of collapse.

But a recession can also serve to keep a nation's economy dynamic. The threat of going out of business forces companies to shift focus and diversify capacity. The most recent recession, the worst in living memory, has reshaped US industry as companies increase capacity in some areas and cut it in others.

The Federal Reserve has released figures that show how a number of sectors, including semi-conductors and plastics and rubber products, have changed capacity through contraction and expansion over the course of the recession.

The figures basically translate that firms with commodity - or close to commodity - products have "closed US capacity and moved oversea", as Seeking Alpha's Gad Allon explains. Where a company moves operations to is often indicative of where the majority of that particular market now lies.

US manufacturing base being "remade"

The example given by Allon is of Huntsman Corp, a global manufacturer and marketer of differentiated chemicals, which has been expanding its production of basic chemicals in China and the Middle East in part because that is where they are being used. What it has left in the US focuses on industries such as aviation.

From this it is appropriate to conclude that the US manufacturing base is being "remade", as Allon puts it.

The flexibility of US manufacturing is the main reason behind it being one sector that has emerged from the recession relatively strongly, because even though many firms did choose to transfer operations overseas a lot of companies would still rather produce domestically - the semiconductor production industry falls under this category. But again, that's because the market is in the US with US-based design centers of major chip users like computer maker Dell and consumer-electronics makers like Apple.

Sustainable economic correction

This report arrives just as news circulates about how the manufacturing sector is largely responsible for the US economy correcting in a sustainable fashion. RBS point out that on both sides of the Atlantic the recovery appears to be gaining a firmer foothold in the manufacturing sector than in the larger service sector.

Furthermore, outlook for US employment became a bit less bleak with January's unexpected decline in the unemployment rate, which fell to 9.7 per cent from 10 per cent as more people said they had jobs. The manufacturing sector added jobs for the first time since January 2007 and its gain of 11,000 jobs was the most since April 2006.

However the majority of firms in highly productive industries that are keeping operations within US borders tend to be companies whose manufacturing entails little human labor or is highly complex. This means the prospect of a significant recovery in the job market still remains some distance away.

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Daniel Jones

Daniel is a Politics and Philosophy graduate from Cardiff University where he also worked as a section editor on the award winning student newspaper. After university he joined an IT support company where he was a B2B online writer. He loves anything to do with sport and joined GDS in July 2009.

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