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The manufacturing recovery that wasn’t

By Neil Irwin,October 01, 2012

Employee Iris Acevedo, 28, finishes the edges of a stain job on a chair at… (Victor J. Blue/BLOOMBERG )

The resurgence of the American manufacturing sector has been an underlying theme for everything from President Obama’s reelection campaign to Chrysler’s soaring Super Bowl commercial starring Clint Eastwood.

But for all the hopes of creating millions of new jobs where hardworking Americans show up at a factory each morning and earn an honest living making things for the world to buy, the most recent evidence, including survey data released Monday morning, has been a disappointment. The U.S. manufacturing sector isn’t collapsing, but it is definitely flat-lining.

The Institute for Supply Management said Monday that its index of activity at manufacturers rose to 51.5, from 49.6 the previous month. In that survey, numbers above 50 signal expansion, so the rise was welcome. But it followed three months of contraction and reflects weak growth compared with the recent past. In 2011, the index averaged 55.2.

“Sales have tanked over the last two months, bringing a very concerned and stressed management team,” said an unnamed apparel and leather goods manufacturer quoted in the ISM’s announcement. “Not very optimistic for the near-term future.”

Other indicators paint a similar picture of a sector that is showing little growth. Industrial production by manufacturers fell in June, July and August at a 1.4 percent annual rate. The same story is evident in employment: The factory sector added an average of 5,000 jobs nationally each month this summer; in 2011, it averaged 19,000 per month.

Manufacturing recovery? What manufacturing recovery?

The good news, if it can be called that, is that the United States is not alone. The slowdown is a worldwide one, reflecting a soft global economy. China’s manufacturing sector contracted for the 11th straight month in September, according to a survey of purchasing managers by HSBC Holdings and Markit Economics released Monday. A survey in Japan, also out Monday, showed more pessimism among manufacturers in that nation.

But the fact that the others are doing worse doesn’t make for much of a salve for those counting on manufacturing to be a driver of American recovery.

The advocates of a vibrant U.S. factory sector have been fighting a longer historical tide. There were 17 million U.S. manufacturing jobs in 2000, which fell to 13.7 million even before the deep recession started at the end of 2007. (There are now fewer than 12 million such jobs.)

But there has been reason to think the United States might finally gain momentum. The decline in wages during the recession has made American companies more competitive in the global workplace, even as a booming economy in China and other emerging nations has put upward pressure on wages there, making them less competitive. Low interest rate policies from the Federal Reserve have put downward pressure on the dollar, further helping exporters.

What is hard to discern is whether the softening in the manufacturing data in the past few months is another disappointing moment in a recovery that has been full of fits and starts, or the longer historical trend standing in the way of the U.S. factory sector reasserting itself.

The fact that the manufacturing downturn is worldwide argues for the first theory and suggests there may be room for American manufacturers to grow. That’s the good news. The bad news, made clear in the past few months, is that they will need a healthier global economy to do it. And with Europe in recession and China in the midst of a confidence-rattling leadership transition, happier days for the world economy don’t appear on the horizon.