Despite ending the year on a subdued note, the performance of the global manufacturing economy for 2006 as a whole was relatively robust. Rates of growth for production and new orders were (on average) higher in 2006 than during 2005, according to the JPMorgan Global Manufacturing Purchasing Managers' Index. The performance of the Euro zone was especially positive, with strong expansions recorded for Germany, Spain and Austria. The rest of the world tended to lag behind the Euro zone, with growth more subdued in Japan and China.

The Times this week noted that, after shrinking during 2005, UK manufacturing started to reverse its secular decline a year ago, "thanks mainly to the upturn of important export markets in continental Europe." The pace of recovery, however, has slackened a bit since mid-year. The UK's manufacturing base finished a better-than-expected 2006 on a disappointing note with expansion decelerating to its slowest pace in 9 months, The Financial Times reported this week.

Meanwhile, the U.S. Department of Labor's Bureau of Labor Statistics last month said that manufacturing productivity increased 6.7 percent in 2006's third quarter, as output increased 5.1 percent and hours of all persons decreased 1.6 percent (seasonally adjusted annual rates). This was the largest quarterly productivity gain since the third quarter of 2003, when manufacturing output per hour grew 8.6 percent. In durable goods industries, productivity increased 9.0 percent in the third quarter of 2006, as an increase of 5.9 percent in output combined with a decrease of 2.9 percent in hours.

Global manufacturing employment increased for the 19th successive month in December, according to the JPMorgan Global Manufacturing PMI.

Despite strong indicators of positive U.S operations, however, there is no getting around the fact that domestic jobs are being lost at a notable pace.

Of course, everyone has their opinions regarding the reasons for lost jobs, but the reasons may be fuzzy and less obvious. In the case of Detroit's The Big Three, for instance, union contracts may help explain why the automakers are more worried about paying healthcare costs and pensions than making automobiles.

Has "traditional" manufacturing in the United States suffered its share of blows? Without question. Is it dead? What a silly question.

The nation's small manufacturers, in particular, seem to have enjoyed a respectable growth year, according to results of a National Association of Manufacturers (NAM) survey released Nov. 16, at which time 63 percent of those surveyed expected sales to grow more than 5 percent by the end of the year. That is "the second most optimistic response in a decade," noted David Huether, chief economist for NAM. Only 11.5 percent expected 2006 sales to be less than the prior year's, reported IndustryWeek.

Where heavy industry once scattered the Midwest before heading the way of the Dodo, up have sprouted innovative, entrepreneurial manufacturers. For instance, consider Kalamazoo, Mich., which at one time was devastated by the decline of paper manufacturing — only to become home to Pfizer's largest manufacturing facility in the world, a large manufacturing operation of medical device maker Stryker and a number of other high-tech, skilled manufacturing.

According to an explanation of manufacturing in recent years, in July's The Economist, "Net profits have risen by nearly 9 percent a year since the recession in 2001, and productivity has been growing even more rapidly than is usual during economic expansions."

Data from the Commerce Department and the Bureau of Labor Statistics (via Manufacturing.net last month) noted, "Over the past 45 years, manufacturing growth has kept pace with the economy, and has grown significantly faster than the agriculture, mining and construction industries."

"To say that manufacturing is less significant today than it was 45 years ago is not the case," said Norbert Ore, chairman of the Manufacturing Business Survey Committee at the Institute for Supply Management (ISM), in the Dec. 28 article. "To grow 3.5 percent a year-over-year is not insignificant."

So, then, what can we expect of manufacturing in 2007?

In ISM's 72nd semi-annual economic forecast, purchasing and supply management executives in manufacturing have "relatively high" expectations for 2007. Nearly three-fourths (72 percent) of manufacturing-sector executives responding to an ISM survey expect their companies' revenues to be greater in 2007 than in 2006. The purchasing and supply guys expect a 6.4 percent net increase in overall revenues for 2007, slightly better than the 6.2 percent increase anticipated for last year.

Manufacturing industries expecting the biggest improvement this new year include the following: transportation equipment; primary metals; food, beverage and tobacco products; computer and electronic components; and electrical equipment, appliance and components, reported IndustryWeek.

According to NAM's 2007 economic forecast, the U.S. manufacturing sector should experience growth that is in line with that of the overall economy this new year. NAM's Huether said that continuing improvement in trade — with exports on the rise — and growth in business investment will allow industrial output to grow in lockstep with the overall economy. Huether sees the manufacturing sector growing by 2.8 percent in 2007, just below the 2.9 percent overall Gross Domestic Product.

"Fueled by soaring profits and corporate cash flow, business investment spending has increased by 8.3 percent over the past four quarters," Huether said in the announcement of NAM's year-end report. "This is the fastest fourth quarter pace of the current expansion. However, this spending will begin to decelerate, growing at a more restrained 6.4 percent in the coming year, and 4.1 percent in 2008.

Yet the NAM report also noted that "the downturn in housing that will extend into 2007 will have continued significant negative effects on some manufacturing sectors, chiefly wood products, nonmetallic minerals, and textile products." These sectors are not expected to show any growth in 2007.

Moreover, according to research group Manufacturers Alliance/MAPI:

When all the numbers are in, manufacturing production should show 4.8 percent growth this year. However, in 2007 the growth will slow to 2.6 percent, just about half this year's figure, before rebounding to 3.4 percent growth in 2008 ... Mining and oil and gas field equipment promise to be the big gainer in 2007, with production of such equipment expected to increase 11 percent from 2006. The alliance is predicting year-to-year declines as well for engine, turbines, and power transmission equipment (down 2 percent); iron and steel (down 1 percent); paper (down 1 percent); and construction machinery (down 1 percent).

And according to David Hensley, director of global economics coordination at JPMorgan:

PMI data suggest that the rebalancing of global manufacturing expansion following the highs earlier in 2006 continued into December. Signs are that the trends of the key output and new orders components are starting to rally, which should ensure that this is a soft landing. Manufacturers should also see further respite from cost inflationary pressures at the start of 2007.

As for specific trends, IT services provider EDS told IndustryWeek that manufacturers in 2007 will contend with increasing customer demands, outsourcing of non-core competencies and, finally, flexibility.

Said EDS:

Manufacturers who are agile, nimble and quick to adapt will grow, while those who are slow and large will struggle. Even if one's marketplace may have once upon a time been the United States, it is now, for better or worse, the world. This brings a whole new breed of global competitors.

Sounds about right.

We're looking forward to industry in 2007. What trends and developments do you foresee affecting manufacturing in a major way in this new year?

Resources

Global manufacturing expansion steadied in December after easing through much of H2 2006
by Finfacts editorial team
Finfacts Ireland, Jan. 3, 2007

Manufacturing recovery loses its momentum
by Graham Searjeant
The Times, Jan. 3, 2007

UK manufacturing slows at end of 2006
by Jamie Chisholm
Financial Times, Jan. 2, 2007

Productivity and Costs, Third Quarter 2006, revised
U.S. Department of Labor Bureau of Labor Statistics, Dec. 5, 2006

Small Manufacturers Concluding Good Growth Year
by John S. McClenahen
IndustryWeek, Nov. 17, 2006

Manufacturing Lies
by Tom Granahan
Manufacturing.net, Dec. 28, 2006

Manufacturing, Non-Manufacturing Have 'Relatively High' Expectations
by John S. McClenahen
IndustryWeek, Dec. 13, 2006

The Outlook for the U.S. Economy and Manufacturing
National Association of Manufacturers, December 2006

Manufacturing Production To Slow In 2007
by Adrienne Selko
IndustryWeek, Dec. 8, 2006

Manufacturing Trends To Watch In 2007
by Adrienne Selko
IndustryWeek, Dec. 28, 2006