Recently, I was greeted with the news that US manufacturing has begun the new year with a bang. Preliminary estimates from Markit Economics reveal that the US manufacturing Purchasing Managers' Index (PMI) rose from 54.0 in December to 56.1 in January -- the strongest manufacturing expansion since March 2011.
A PMI reading above 50 indicates manufacturing expansion. The January estimates not only show the fastest rise in new orders in 32 months, but they also confirm improvements in overall business conditions. Additionally, the numbers suggest further strengthening in manufacturing employment.
Chris Williamson, chief economist at Markit, said in a press release:
Global economic growth is reviving, meaning companies are seeing stronger demand from emerging markets such as China and India as well as parts of Europe, notably Germany. However, it is the domestic market that is clearly providing the main impetus to the upturn, linked to improved confidence in the future given more aggressive stimulus from the Fed and reduced fears about the fiscal cliff.
The US isn't the only country showing solid improvement in its manufacturing performance. HSBC said China's manufacturing PMI rose from 51.5 in December to a 22-month high of 51.9 in January.
Though the world's top two economies are starting the year with great optimism, the high-tech industry recognizes that it will take much longer to identify how long-term growth (in these two nations and others) will impact manufacturing expansion plans.
Deloitte Touche Tohmatsu Limited's global manufacturing industry group and the US Council on Competitiveness recently released a report that predicts monumental changes. The report, based on a survey of 550 CEOs and other senior leaders at manufacturers around the world, says that emerging nations will become vastly more competitive as they persuade companies to start plants there during the next five years. China is expected to retain its position as the world's most competitive manufacturing nation, the report said, but India will supplant Germany in the No. 2 spot, and Brazil will replace the US at No. 3.
If we are to believe the predictions outlined in this report, Europe and North America, once the cornerstones of global manufacturing, are fading fast. By 2018, the majority of survey respondents expect Germany to fall to No. 4 and the US to fall to No. 5, only slightly ahead of South Korea -- think Samsung Electronics Co. Ltd. (Korea: SEC).
Germany isn't the only European nation set to lose its competitive edge. The UK, France, Italy, Belgium, the Netherlands, Portugal, Poland, and the Czech Republic are all expected to experience a dramatic drop in competitiveness on the global manufacturing landscape. Poland will drop from No. 14 to No. 18, according to the report, and the UK will drop from No. 15 to No. 19.
The more traditional manufacturing nations hold some advantages -- talent-driven innovation and advanced local economic, trade, financial and tax systems, for example -- but the report said these factors may not be enough.
More than 80 percent of respondents agreed or strongly agreed that the US, Germany, and Japan are highly competitive in terms of talent-driven innovation. Only 58 percent said the same about China, and 40 percent said that about Brazil. More than 70 percent of respondents agreed or strongly agreed that Germany and the US were extremely competitive in their tax systems. These two countries (along with Japan) also scored well in terms of their legal systems, infrastructure development, and supplier networks. However, one area where emerging nations have an edge is labor. Ninety percent of global executives called China extremely competitive in labor costs and availability, and 87 percent said that about India.
If the projections laid out in this report prove accurate, talk of a revived US manufacturing base might just be that -- pure talk. Certainly, for original equipment manufacturers in North America and Europe, ceding a high-tech advantage first to China and in the near future to countries like India, Brazil, Indonesia, and Vietnam will come with its own rewards and challenges.
In the US, manufacturing growth would boost the GDP, increase the number of higher-paying jobs, and advance research and development, to name a few critical benefits. That simply won't occur to the extent many had hoped.
Even in the face of obstacles, there is hope that enough high-tech manufacturing expansion will take place in the US to boost its economic growth in the years ahead. It might be best to hold on to whatever manufacturing we can realistically generate, rather than pining for what might have been.