US Manufacturing – productivity’s down so hiring’s up

The US manufacturing sector gained 50,000 jobs in January 2012, marking the biggest rise in manufacturing employment in a year. Overall, 230,000 manufacturing jobs were added between January 2011 and January 2012. Economists suggest the increase is due to the recovery of the automotive industry, falling productivity, and fewer worries about the European debt crisis.

During the recession, US manufacturing productivity — as measured by output-per-worker — understandably declined as companies tried to get by with fewer workers. Then in 2010 US manufacturing productivity rose more than 9 percent. The increase in productivity coincided with dramatic growth in new orders for manufacturing technology (read: machine tool purchases). According to the American Machine Tool Distributors’ Association (AMTDA), new orders for manufacturing technology in 2010 increased 85 percent over 2009 levels. Granted, 2009 was an abysmal year, but orders in 2010 were just below par compared to the years before the onset of the recession.

In 2011 manufacturing productivity continued to improve, but at a slower rate. The increase in output-per-worker in 2011 was only 3.5 percent compared to the 9.1 percent gain in 2010. Manufactures trimmed down to skeleton crews to cope with greatly diminished demand during and in the immediate wake of the recession. In 2010 many companies invested in machinery and equipment to further automate their operations. The spending was in part spurred by bonus depreciation tax incentives by the US government to help lessen the risk of capital investment. Manufacturers have squeezed about all they can out of their skeleton crews and their new machinery, so productivity is still rising, but at a much slower rate.

Demand for manufactured goods is definitely on the rise. January 2011 marked the manufacturing sector’s 33rd consecutive month of growth in new orders, according to the Institute for Supply Management (ISM). So if orders are coming in, you’ve got shiny new machinery, the guy or gal on the shop floor is grumbling about doing the work of two guys or gals, and your productivity is falling, what do you do? HIRE!

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Photo by Kazue Asano, used under a Creative Commons license.

James Bryant

James Bryant is a writer and editor for the First Research team at Hoover's.

Read more articles by James Bryant.

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