Monday, October 02, 2006

The Cost of Manufacturing

There's never been a question that US-based manufacturing has been suffering since 2000 (that's when the recession started.) The National Ass'n of Manufacturers sheds some light on the problem: is time to look again at the external, structural cost pressures and evaluate how they have changed. This report, by the same author and using the same methodology as the 2003 report, presents the disappointing news that external cost pressures are 42 percent higher than
in 2003,
now amounting to a 31.7 percent disadvantage. [Against 9 major trading partners]

...A little-known aspect of the last recession is how large a part these cost pressures played, especially in the durable goods and chemicals sectors. Profits in these sectors plunged by an unprecedented 67 percent between 2000 and 2003. Yet less than 40 percent of the drop in profits was due to the recession.

A recent study we conducted shows that nearly 60 percent of the profit drop was due to rising costs for benefits, commodities, and energy, as well as an exchange rate imbalance.

...Over 45 percent of U.S. manufacturing output is traded internationally, either as imports
or exports, significantly higher than the mere 3 percent that the rest of U.S. business
trades internationally. This trade exposure has doubled in 20 years, meaning that
price for manufactured goods is set in Germany, China, and Brazil, not in a neighboring
city or in another state.

Because of the global nature of manufacturing, prices in manufacturing are generally flat
or declining. In the past decade, manufacturing prices have increased by only 4 percent,
while prices in construction, health care, education, and other non-manufacturing industries
have soared by nearly 60 percent

There's plenty more at the link (PDF.)

The costs are not limited to cost-of-employment (benefits); they include taxes and regs, (primarily environmental) and definitely impact competitiveness.

No comments: