North American Manufacturing Industry Bounces Back, But Will It Be Enough?

Posted: 04/ 2/2012 6:28 pm Updated: 04/ 2/2012 6:40 pm

Manufacturing

North American manufacturing is bouncing back, but it's still a far cry from a complete recovery.

After a tough few years, a pair of indicators released Monday confirm that a rebound in manufacturing is underway. The first, the RBC Canadian Manufacturing Purchasing Managers Index, a monthly survey based on responses to questionnaires sent to executives in 400 companies, increased to 52.4 in March from 51.8 in February.

Despite still-weak production growth, which remains at the second lowest level in the survey’s 18-month history, job creation emerged as a particular bright spot, with one in five employers claiming to have hired staff in the last month.

“Business activity in Canadian manufacturing continues to expand so far this year with the pace steadily rising from a minimal gain in January,” Paul Ferley, RBC’s assistant chief economist, penned in a note to investors on Monday morning, adding that he was heartened by “the sharp jump in the employment measure,” which reached a four-month high.

Meanwhile in the U.S., the Institute for Supply Management's (ISM) manufacturing index rose to 53.4 per cent in March from 52.4 per cent the previous month on stronger economic growth, beating the 53 per cent analysts were expecting.

In this case, production growth and job gains were the primary drivers -- contributing to what TD Bank economist Alistair Bentley described as a “solid report.”

But while the recent data is prompting optimism, doubt persists that the sector will ever power economies -- or labour markets -- the way it once did.

“All the data that we’ve been getting so far is just that we’re recovering from the recession,” Ferley told The Huffington Post on Monday. “It’s not giving indication yet that we’re getting to or above pre-recession highs.”

Ferley says this is particularly evident in the case of U.S. auto sales, which have rebounded to some extent in recent months as competition increases from emerging economies.

“There is some debate about whether we are going to get back to previous levels and that’s yet to be determined,” he said.

In his note on Monday, Ferley said the uptick in the employment component in the March index “hopefully implies better news for this Friday’s March labour force report after essentially no job gains so far over the first two months of 2012.”

But few are holding out hope that the recovery will replace the hundreds of thousands of North American manufacturing jobs lost over the past decade.

As Bentley points out, particularly in the U.S., there has been a shift in the composition of the manufacturing sector toward more productive, high-value sectors such as technology and computers -- typically employing fewer people than the auto industry.

“You look at a semi-conductor firm, for instance, and […] you have a couple of really experienced engineers who man a $250-million piece of equipment and that’s considered manufacturing, but it’s not an assembly line where you need a lot of people working,” he told HuffPost.

This helps explain why manufacturing output is slowly regaining momentum, but manufacturing employment levels on both sides of the border remain 13 per cent lower than they were in December 2007, he says.

“Manufacturers are just finding better ways to produce the same amount or more goods,” he said, adding that the manufacturing sector is “never going to recover the jobs that it lost.”

“It’s just not going to happen,” he said.

All of which, says Jim Stanford, chief economist for the Canadian Auto Workers’ union, is proof that a robust U.S. recovery “will not fix everything that’s gone wrong in the last several years.”

“We need more than to just cross our fingers and hope the Americans start buying our stuff again,” he said. “What we need is a national economic strategy that includes a very concerted, proactive effort to rebuild our manufacturing base rather than just accepting its current atrophied state.”

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