Reindustrialization in USA - Euler Hermes

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Euler HermesEconomic Outlook n° 1187 | Special Report | The Reindustrialization of the United States• • •u Broad improvement of the manufacturingsectorAs shown in Figure 10, while manufacturing productionis still 4.5% below its 2007 peak, it steadilyrebounded during 2010 and 2011, and continuedto grow in the first half 2012. Manufacturing productivityhas dramatically improved over the lastdecade (+45% in the first half of 2012 comparedto 2000) despite slowing somewhat during therecession. This improvement in productivity is aresult of a 6% increase in output from 2000 to2012, while the workforce shrunk by more than30% over the same period. U.S. manufacturingoperating profitability bounced back dramaticallyin 2010/2011, and has so far stabilized at thehighest level in a decade despite previous periodsof more robust economic growth. Unit laborcosts in manufacturing have fallen below their2000 level, with much of the downturn comingafter the recession. Manufacturing employmentbottomed out in 2010 and has started to slowlyregain ground after two decades of deterioration.Exports of manufactured goods have jumped formuch of the last decade and displayed recordgrowth in 2010 into 2011. ©10. Manufacturing ProductionIndex basis 100 =‐2000200150ExportsProductivityOperating profitabilityProductionUnit labor costEmploymentThe guest stars of reindustrializationu The “shining” manufacturing sectors during the2010/2011 rebound and afterwardU.S. manufacturing has continued along the pathbegun in the previous decade and the aforementionedleading sectors have played a crucial role inthe dramatic 2010 and 2011 growth. Let’s considermore precisely the underlying factors which contributedto these improvements amid the most buoyantsectors.u Computer and electronic productsmanufacturingThis sector has retained its leadership and evenstrengthened its weight within the U.S. manufacturingsector during the last decade. For the last threeyears, two segments have especially outperformed,demonstrated by current outputs higher than theirpre-recession levels:• Semiconductor and other electronic equipmentmanufacturing has proven to be a powerful engineof growth as its output skyrocketed more than fourfoldbetween 2000 and 2012. For the last five years(except for 2009), the sharp expansion of newmarkets fuelled by the emergence of electronicdevices, such as smartphones, tablets and e-readers,has continued to drive production (+32.7% and+12.0% in 2010 and 2011 respectively). Nevertheless,2012 saw a slowdown caused by less favorablesector and economic environments.• Navigational, measuring, electro medical andcontrol instruments manufacturing also helpedthe sector expand during the last decade andrebound in the wake of the crisis. While shrinkingin 2009, the segment posted 6.5% and nearly 11%growth in 2010 and 2011 respectively. Boosted byits markets (aerospace, automotive, machinery,semiconductor manufacturing), 2012 also saw afairly robust increase for this subsector.100502000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Sources: Bureau of Economic Analysis – Federal Reserve Bank – Bureau of Labor StatisticsAnother notable segment, computer and peripheralequipment production hit a landmark in 2008,punctuating a six year increase with an all-time high.But since then, lackluster PC and notebook salescontracted, with the first half of 2012 experiencing aslower rate of decline.14
Economic Outlook n° 1187 | Special Report | The Reindustrialization of the United StatesEuler HermesA final segment of note, communication equipmentproduction has been lagging far below its 2007 leveldespite a rebound in 2010.The 2012 output increase is expected to slow dramatically(estimated at +3.5%) because the two maingrowth drivers appear to have paused in their ascent.2013 will follow this downward trend (+1.5%).u MachineryThis sector contributed strongly to U.S. manufacturingoutput expansion with double digit growthin 2010 and in 2011. It is also expected to regain itspre-recession average annual production. All the subsectorshave posted significant production increasesduring this period following a rebound in investmentin the aftermath of the crisis. Two sub-sectors havebeen significant growth drivers and showed higherlevels of production in 2012 than in 2007/2008:• Mining, oil field and gas field machinery (output:+2.6%in 2010 and +21.3% in 2011 and+14.9% (estimated) in 2012). This segment hasthrived in the wake of the surges in oil industryextraction capacity and that of the shale gasindustry in the U.S., driven by the development ofnew technologies.• Engine, turbine and power transmission equipment(output: +9.7% in 2010 and +22.6% in 2011and +18.5% (estimated) in 2012). The noticeabledevelopment of the renewable energy sector hasfostered growth in this segment.The construction and metalworking machinery sectorsalso have fared reasonably well in 2012. Theunderlying conditions which stimulated machinerysector growth over the recent years - including11. Industrial Production Index:the “shining” manufacturing sectorsIndex basis 100 =‐2007among others, booming investments in fossil andrenewable energy, strong global economics favorableto U.S. exports - are likely to fade in 2013 withthe current fiscal/budget uncertainty weighing itsprospects down dramatically. The expectation is thatthe output growth of the machinery sector should berather limited (+3%).u Petroleum and coal product manufacturingThis sector has reclaimed its pre-recession benchmarkdue to momentum posted by the “paving, roofingand other petroleum and coal products” sector,which increased its production by 8.6%, 15.1% and13.1% (estimated) in 2010, 2011 and 2012 respectively.This momentum was due in large part to thefederal stimulus package aimed at boosting the U.S.economy and included $36.2 billion for transportation(highway infrastructure, high-speed rail corridors)and $30.0 billion for infrastructure. In 2013, thepetroleum and coal product manufacturing sectorwon’t be able to rely on such public support and islikely to suffer from this less favorable environment.u What about the car industry?Despite uneven global economic performance,including weakness in Europe, many global automakershave reported rising sales and profitability,driven by growth in emerging markets and China inparticular. In the U.S., auto sales posted a second yearof growth due to easier credit, low interest rates, andpent-up demand resulting from the recent recessionand an aging vehicle fleet. North American auto suppliersare benefiting from rising automotive productionand leaner cost structures. Many are now moreprofitable than before the downturn. The outlook forboth the automotive manufacturers and suppliers ispositive, reflecting expectations for rising demand inthe U.S. In addition, emerging markets led by Chinashould drive global demand, despite slowing regionaleconomic growth and debt issues affecting Europeandemand. The U.S. automotive market is still strengthening:it grew an estimated 12% to 14.8 million vehiclesin 2012 and we expect it to grow 5% more to 15.5million vehicles in 2013. That will still be 1.5 millionvehicles short of the pre-crisis benchmark.©Source: Federal Reserve Bank15
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