Factory Jobs Obama Wants Are Unlikely to Return in Large Numbers

President Barack Obama challenged manufacturers in his State of the Union address to “ask yourselves what you can do to bring jobs back to your country.”

Their answer may be: less than you think, Mr. President.

Rising wages in China and new tax incentives at home won’t be enough to reverse the long-term erosion in U.S. manufacturing employment, even as some U.S. companies return production to shuttered Rust Belt plants.

“We’re no longer going to be the manufacturing country that we once were,” said John Russo, co-director of the Center for Working Class Studies at Youngstown State University.

Factory jobs, which have been shrinking as a share of total U.S. employment since the early 1950s, remain 2 million below their pre-recession level. Obama’s election-year plan “to bring manufacturing back” -- as well as a rival House Republican package that would reduce taxes and prune regulations -- fly in the face of structural changes that inexorably lower employment in goods-producing industries.

With each year, technology allows factories to produce more goods with the same number of -- or fewer -- workers. Since the landmark 1994 North American Free Trade Agreement, U.S. factory workers also have faced increasingly vigorous competition from low-wage countries. That one-two punch drove manufacturing jobs from their 1979 peak of 19.5 million to today’s 11.8 million even as industrial output almost doubled.

Lost Jobs

The vast majority of those lost jobs are gone for good, say many economists.

“I can’t really see a situation where manufacturing employment starts to rise significantly and takes a larger share of employment,” said economist Paul Dales of Capital Economics in London. “The United States is an advanced economy. It will gradually move away from manufacturing to services.”

That reality will likely mute prospects for Obama’s six- part plan to eliminate tax incentives for companies to go offshore and create new lures for them to bring jobs home. The president, who toured factories in Iowa and Arizona yesterday, said a reinvigorated manufacturing sector lies at the core of his economic strategy.

“We believe manufacturing punches above its weight economically,” said Gene Sperling, head of the White House National Economic Council. “The strength of your advanced manufacturing is critical to your innovation as a country.”

Production Increase

Recent months have brought a measure of good news from the nation’s manufacturers. As the global economy healed, U.S. companies gained market share, according to Capital Economics, which noted that industrial production in November rose at an annualized 3.9 percent rate versus a 3.2 percent increase in global output.

Employment likewise has increased for three consecutive months and is up 334,000 jobs since the December 2009 trough. Aircraft maker Boeing Co. (BA) added about 11,000 new jobs last year in South Carolina and Washington. The administration’s labor union allies want Obama’s new push to fuel further hiring.

David Caldwell, the assistant director of United Steelworkers District 1 covering Ohio and a former Columbus foundry worker, praised the renewed focus on manufacturing.

“It’s too little, but I don’t think it’s too late,” McCall said in a telephone interview.

Shuttered Plant

It is for Jim Hoisington, 53, and his wife, Patty, 64. They were among 2,700 workers who lost their jobs when Electrolux AB (ELUXB) closed its Greenville, Michigan, refrigerator plant and moved the work to Mexico. Swamped by debt, the couple declared bankruptcy.

Instead of making $16 an hour on the factory floor, Jim Hoisington now makes $10 an hour working at a local golf course and plans a state senate run in 2014. He wants the government to crack down on unfair trading by countries including China and Mexico.

“Manufacturing is the backbone of the United States,” he said. “All these jobs that left are not coming back. We have to invest in new jobs and new technology.”

In Ohio, where the jobless rate is 8.1 percent, now better than the national figure of 8.5 percent, Governor John Kasich, a Republican who took office in 2011, cited a resurgent auto industry and a boom in natural gas drilling for the state’s recent manufacturing gains.

Moves Into Ohio

Kasich pointed to Vallourec SA (VK)’s decision to build a new pipe mill in Youngstown to produce seamless tubes for drilling, and Honda Motor Co. (7267)’s announcement earlier this month that it will build its high-performance hybrid Acura NSX in Ohio.

The Rust Belt state lost 419,400 manufacturing jobs from 1999 through 2009, according to the U.S. Bureau of Labor Statistics. Since the low point that year, the state has added 30,000 manufacturing jobs, including 18,300 last year.

“We need to tell mothers and fathers, ‘Do not think manufacturing is a lost industry in America or in Ohio,’’ Kasich said a speech yesterday in Columbus.

Some companies, including General Electric Co. (GE), have even begun bringing jobs back to the U.S. from China. China’s economic development is driving wages up by 15 percent to 20 percent annually, according to a 2011 Boston Consulting Group study. Within five years, the cost savings of manufacturing in China compared with states like South Carolina, Alabama or Tennessee will be ‘‘minimal,’’ the study added.

Made in USA

Goods produced in modest volumes and that involve a comparatively small amount of labor -- including auto parts, construction equipment and appliances -- will be good candidates for the ‘‘Made-in-the-USA’’ label, the group said. High-volume, labor-intensive production of goods such as apparel and shoes may move from China to other developing nations.

‘‘For many products sold in North America, the U.S. will become a more attractive manufacturing option,’’ the study concluded.

GE returned production of its energy-efficient water heaters to Louisville after a new labor deal cut union workers’ starting hourly salaries to $13 from as high as $24.

‘‘There is a manufacturing renaissance which is going on and is likely to continue, but we need to put these things in perspective,’’ says economist Neil Dutta of Bank of America Merrill Lynch in New York.

Even as U.S. manufacturing output increases, and some work is brought home, the employment gains may be modest. U.S. factories boast high productivity thanks to widespread use of automation. GE’s move, for example, added 100 jobs to its Louisville payroll.

Slight Jobs Increase

Manufacturing employment rose 1.9 percent the past year compared with about 1.8 percent for other private-sector jobs, a slight outperformance that Dutta expects will continue for a couple of years.

‘‘Much of the growth in manufactured output in the recovery will be met by increased productivity with only modest increases in employment,’’ e-mailed Martin Baily, former chairman of the Council of Economic Advisers under President Bill Clinton. ‘‘In the longer run the share of employment in manufacturing will continue to decline.

Some CEOs are adopting a wait-and-see attitude toward promises of help from Washington.

Keith Nosbusch, chief executive officer of Rockwell Automation Inc. (ROK), says the government must cut taxes and regulation, curb the increase in health-care costs and deliver relief from frivolous lawsuits.

U.S. manufacturers suffer from a ‘‘structural cost disadvantage’’ and highly-automated U.S. factories require fewer workers, Nosbusch said. Yet even leaner operations have spillover effects on hiring beyond the factory gates, he said.

‘‘Manufacturing still has the highest leverage factor of any sector. It creates much more value and many more ancillary jobs than any other sector,’’ Nosbusch said. ‘‘That’s why it’s so critical. It’s not about just what is the direct manufacturing population, but do you have a competitive manufacturing environment so that you are able to create those indirect jobs that support automated manufacturing.’’

To contact the reporter on this story: David J. Lynch in Washington at dlynch27@bloomberg.net; To contact the reporters on this story:

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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