The great recovery in U.S. manufacturing jobs — a surprising five-year surge that blossomed in the aftermath of the financial crisis and added almost 900,000 people to payrolls across the country — appears to be dead. Or at the very least, on hold.
Factory employment fell by 27,000 in August and September, the worst back-to-back months since late 2009. To understand what’s behind those numbers, go right to the center of America’s heartland and take a look at a company nestled along the Illinois-Missouri border named Titan International Inc. It makes huge tires for tractors, backhoes and dump trucks, the kind of equipment that was in hot demand as the U.S. shale industry boomed and grain farmers flush with cash from soaring prices invested in new machinery.
But with commodities now collapsing, the demand for earth- moving equipment — and the tires they roll on — is drying up. The dollar’s rally during the past couple years, a reversal of the decade-long slide that had boosted U.S. manufacturing exports, is only adding to Titan’s struggles. The company is in the process of firing as many as 300 employees in the U.S.; when that’s done, its workforce there will be down by a third from a peak of about 3,000 in 2013. Chief Executive Officer Morry Taylor calls the firings “the hardest thing you have to do.”
“You have to keep dialing things down” until operations stop losing money, he said in an interview last week.
Manufacturers’ new-found struggles probably aren’t enough on their own to sway Federal Reserve policy makers as they decide when to start raising interest rates from near zero, but they do add to a picture of a slowing U.S. economy. The overall payroll increase of 142,000 in September fell well short of economists’ estimates of about 200,000, raising doubts that consumers can continue to drive growth.
What’s more, the industrial slump dims hope for the manufacturing renaissance economists and President Barack Obama touted earlier this decade. Obama set a goal in 2010 to double exports in five years; shipments actually rose a little more than half that amount. And hiring hasn’t come close to replacing the 2.3 million workers lost in the 2008-2009 recession. There are currently 12.3 million factory employees in the U.S.
“Those manufacturing jobs will shrink again,” said Barry Bosworth, a senior fellow at the Brookings Institution in Washington and former adviser to President Jimmy Carter. “This is a long-term problem, and I don’t think there’s evidence we’ve found an answer to it.”
Large industrial companies — including General Electric Co., 3M Co. and Honeywell International Inc. — are expected to announce workforce reductions during earnings conference calls this month, said Deane Dray, an equity analyst in New York with RBC Capital Markets LLC. With sales lagging, they need to cut costs to keep profits from falling.
“In unison, they’re all going to announce big restructuring actions,” he said. “There’s only so many ways you can provide relief when you’re selling less.”
Spokesmen from GE, 3M and Honeywell declined to comment.
Taking a Pause
With weak orders and large inventories weighing on growth, investors are asking whether U.S. industry is only pausing during an ongoing recovery or about to slip into recession, Dray said. “No one has that answer yet.”
William Strauss, a senior economist at the Federal Reserve Bank of Chicago, is betting it’s a pause. Bright spots, such as rising auto production and new-home construction, will help prop up activity, he predicts. While manufacturing growth has slowed to about 1 percent, he estimates it will regain its pace of about 3 percent by the end of this year or the beginning of next.
Factories have recovered about 90 percent of the output lost since December 2007, while only 40 percent of the jobs have been regained. That should be expected: As companies invest to improve efficiency, they need fewer workers to produce more, he said.
U.S. jobs aren’t the only ones hit in the global industrial slowdown. Kemet Corp., a producer of ceramic capacitors for electrical devices, will have shed 240 workers from September 2014 through December this year, but mostly in China and Europe.
China, Bulgaria Factories
The Simpsonville, South Carolina-based company moved from Cleveland in the 1960s to cut costs, CEO Per Loof said. In a mirror of the U.S. employment decline since the 1970s, it built factories in Mexico before expanding to China a decade ago and later to Bulgaria.
The company still has production in the U.S. to meet stringent requirements for supplying the medical and defense industries, and it also does engineering and design work there, Loof said.
“We’ve added some activity in the U.S.,” he said. “Today, we’re probably a couple hundred more people than two years ago.”
Taylor, the CEO of Titan, is hoping tire demand will bounce back by the end of 2016. In the meantime, he’ll “hunker down” and already is planning to ramp up slowly when orders begin to rise.
“When it really comes back strong, you’ve got to remember to not get wild and bring too many people back,” he said.
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