The Manufacturing Institute, which is the research and education arm of the National Association of Manufacturers (NAM), and the Manufacturers Alliance (MAPI) jointly released a report yesterday that shows profits in five industries were 67 percent lower than they would have been during the recession between 2000 and 2003, due to what the report calls "adverse structural costs" in benefits costs, materials and energy costs, and import prices/exchange rates since 1999.

"Profit rates for durable goods and chemical manufacturing continue to be dramatically lower than their historic norm, primarily because of escalating domestic costs and intense international competition," says Jerry Jasinowski, president of the Manufacturing Institute, in an announcement of the study's findings. "These structural costs are having a far greater negative impact on manufacturing profits than the recent recession.

The Oct. 11 report focuses on five primary industries, the manufacturing groups hit hardest by the profit squeeze: fabricated metal products; machinery; electrical equipment and appliances; motor vehicles; and chemicals. Together, according to the report, these five industries represent more than half of all manufacturing production. (These five groups are also those for which import competition is most aggressive.) "Chemical and motor vehicle manufacturers face the most daunting challenges," according to the research.

The study's data show the main profit-squeeze drivers are rapidly rising costs related to health and pension, as well as elevated energy and material costs and misaligned exchange rates, the latter of which affects global competition. "Soaring health care and pension costs" account for nearly one-quarter of the profit squeeze, according to the study's findings.

"These factors have contributed to a secular decline in manufacturing profits, adversely affecting investment in equipment and R&D, job growth and training," notes economist and author Jeremy Leonard. As the study points out, "Concern about manufacturing profitability should thus stretch from the boardroom to the factory floor."

An IndustryWeek article notes how, in quantitative terms, "the biggest single squeeze on profits during that period" among the five groups "was the business-cycle downturn," accounting for 38.2 percent of the recent decline in manufacturing profits; as well as how import prices and exchange rates accounted for 25.5 percent; benefit costs 22.8 percent; materials costs 9.2 percent; and energy costs 4.3 percent.

"This study provides a sobering look at the ability of U.S. manufacturers to finance growth, innovation and job creation in today's highly competitive economy," says Thomas J. Duesterberg, MAPI president and CEO. "Without the robust profit margins characteristic of the 1980s and 1990s, U.S-based firms must work overtime to find the resources for investment in human and physical capital needed to stay one step ahead of the competitors."

"The historically lower level of profits has a negative impact on our ability to make investments, innovate, create new jobs and compete in the global economy," Jasinowski further adds. "We have placed extreme cost burdens on manufacturers and their workers relative to their primary competitors."

Profit growth, reports the study, is "so sluggish that manufacturing profits have risen only to what was the previous low point for profits in the past 40 years (in the first quarter of 1986)," hardly a positive trend for industry (or, as the report points out, "for the nation's overall economic health"). This sluggishness is in sharp contrast to profits for the economy as a whole, which have grown at double-digit rates for the past three years, and by 27.4 percent since 1999.

According to Jasinowski, "Our country has become complacent about the extraordinary extra cost burdens we place on competing profitably."

For the complete NAM/MAPI report.