MRO Today - Manufacturing Industry News archives

Manufacturing Industry News:
News from the week of Feb. 14, 2005

MAPI predicts manufacturing growth through 2006
Industrial production holds steady in January
Jobless claims slip in recent week
Report shuns offshoring as cause of manufacturing decline
Boeing celebrates completion of 777-200LR Worldliner
Fluke to unveil new line of indoor air quality test tools
Study: Welders face higher risk of Parkinson's disease
Dana workers vote to remain part of UAW
OSHA, chemical makers agree to boost safety and health
Machine tool consumption surges in December, 2004
General Motors fires up landfill gas in Oklahoma City
GM: U.S. manufacturing needs greater attention
Manufacturing report takes sting out of offshoring

MAPI predicts manufacturing growth through 2006
The Manufacturers Alliance/MAPI predicted a moderate growth trend through 2006 for the U.S. economy and expects the manufacturing sector to slightly outpace the overall economy, according to its quarterly economic forecast.

But the pace of growth in both sectors is likely to decelerate relative to a strong 2004.

The Manufacturers Alliance/MAPI Quarterly Economic Forecast predicts inflation-adjusted gross domestic product (GDP) growth to be 3.4 percent in 2005 and 3.3 percent in 2006. These numbers are unchanged from the November 2004 forecast.

“Economic growth will transition from being primarily led by housing and consumer spending to more broad-based growth that includes business investment and exports,” said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI.

Manufacturing activity should continue to grow faster than the general economy, with industrial production growth expected to increase 3.5 percent in 2005, down from 4.1 percent in the November forecast, and industrial activity is predicted to accelerate to 3.6 percent growth in 2006, down from 5 percent in November.

The largest percentage gains will come in the high-tech sectors of manufacturing. Information processing equipment is expected to rise 13.4 percent in 2005 and 10.7 percent in 2006. Computers and electronic products are expected to rise 12.5 percent in 2005 and 10.7 percent in 2006.

Non-high-tech industries will grow moderately this year and next, at 4 percent and 3.6 percent, respectively.

Real investment in equipment and software should increase 11.1 percent in 2005 and 7.7 percent in 2006, growing several times faster than the general economy.

Net exports also should contribute to economic growth. Inflation-adjusted exports should rise 5.7 percent this year and 9.9 percent next year, while imports are expected to increase at 6.1 percent in 2005 before retrenching to 3.3 percent in 2006. This is due to a continued decline in the value of the dollar, which makes U.S. goods more competitive, and stronger demand for U.S. capital equipment by the rest of the world.

The forecast also envisions the unemployment rate remaining stable at 5.2 percent in 2005 and in 2006.

To view the economic forecast tables, click here. Use the controls at the bottom of the Web page to switch between charts.

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Industrial production holds steady in January
Industrial production was unchanged in January after a gain of 0.7 percent in December, according to the Federal Reserve. At 117.7 percent of its 1997 average, overall industrial output in January was 3.9 percent above its January 2004 level.

The rate of capacity utilization for total industry edged down 0.1 percentage point, to 79 percent, in January, a rate 2 percentage points below its 1972-2004 average of 81 percent.

Manufacturing production increased 0.4 percent in January and was 5.2 percent higher than it was in January 2004. The factory operating rate, at 78 percent, was the highest since December 2000 but was still 1.8 percentage points below its 1972-2004 average.

The output of durable goods rose 0.3 percent, with significant increases in the machinery, wood products, computer and electronic products, and miscellaneous manufacturing industries.

Durable goods industries with declining output included transportation equipment, in which lower motor vehicle assemblies accounted for much of the weakness, and nonmetallic mineral products, in which the largest decline was in cement and concrete product.

"Today's report on January industrial production by the Federal Reserve suggests that manufacturing is strong going into 2005," said David Huether, chief economist of the National Association of Manufacturers.

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Jobless claims slip in recent week
New claims for unemployment insurance fell 2,000 to 302,000 for the week ended Feb. 12, according to the Labor Department. The four-week moving average was 311,750, a decrease of 4,000 from the previous week's revised average of 315,750.

The four-week moving average is generally considered by economists to be the more reliable of the two because it smoothes out week-to-week volatility. Both rates remained below 400,000, which is the level economists use to define a weak labor market and a stable one.

Continuing claims for unemployment insurance fell 14,000 to 2.7 million for the week ended Feb. 5. Continuing claims are those older than two weeks.

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Report shuns offshoring as cause of manufacturing decline
Outsourcing, offshoring and restructuring are not the primary causes of the shrinking manufacturing base, according to a new report from the Manufacturers Alliance/MAPI.

Author and Manufacturers Alliance/MAPI chief economist Daniel J. Meckstroth used the new data to show the decline in manufacturing plants is the result of a drop in the rate of business openings rather than a spike in plant closings.

The Dynamic Nature of the U.S. Economy: The Churn of Firms and Jobs uses the new data to argue that the lack of new plant openings and plant expansions -- not offshoring -- explains the weak job growth in the sector.

Meckstroth wrote in the one-year period ending in first quarter 2004, approximately 11 percent of all manufacturing plants opened and 14 percent closed. Research shows roughly half of all new plants do not survive five years, about two-thirds do not last 10 years, and the chance a manufacturing plant survives 20 years is less than 1-in-5.

However, since 1998, the number of plant closings outpaced that of openings.

The paper highlights a number of facts about the opening and closing in the manufacturing sector.

• From a peak of 375,000 establishments in 1998, the total number of manufacturing plants declined 9 percent to about 340,000 in early 2004.

• There is significant churn in the U.S. economy. The rate of manufacturing closings has been relatively stable over a long period of time, but it is the declining rate of new plant openings that accounts for the falling number of manufacturing establishments. This helps explain the lack of job creation. For example, in first quarter 2004, 2.6 percent of all manufacturing plants opened and 3.5 percent of all manufacturing plants closed.

• Global sourcing now favors imports, thus dampening domestic business opportunities in manufacturing.

• In December 2004, 45 months after the start of the 2001 recession, the manufacturing job count was still 15 percent lower than at the start of the recession, largely because job creation at domestic plants has been well below the historical average, and not because jobs are being moved abroad.

Meckstroth argues if the oft-cited problems of “outsourcing and offshoring” were the cause of the shrinking manufacturing base, the data would show an accelerated pace of plant closures.

This is not the case, he says, and the cause of the decline is a lack of new plant openings.

To refute the outsourcing and offshoring theory, the report notes that from 1999-2002 U.S. multinational corporations opened only 246 manufacturing affiliates in foreign countries, while the number of manufacturing plant closures in the United States fell by 20,000.

“It is clearly not a case where large multinational companies are simply closing up shop in the U.S., displacing workers and moving abroad,” he said.

Instead, the paper says there are many possible reasons for the lack of new business formation and job creation, among them:
• the speculative investment mania and merger and acquisition frenzy in the late 1990s that resulted in excess capacity;
• cost-cutting and space-saving techniques like lean manufacturing, Six Sigma projects, and just-in-time inventory management leading to productivity gains;
• an overvalued dollar that hurt U.S. exports;
• rising litigation, regulatory, energy and health care costs, and increased pension obligations;
• lack of pricing power due to intense domestic and foreign competition; and,
• a rapid decline in stock market valuations.

“The probability of plant survival does increase, however, when firms change in line with U.S. competitive advantage; that is, plants that increase capital usage and upgrade the skill level of products produced over time are more likely to succeed,” said Meckstroth.

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Boeing celebrates completion of 777-200LR Worldliner
Boeing today unveiled the first 777-200LR Worldliner -- the world's longest range commercial airplane -- at a celebration attended by more than 5,000 employees, airline representatives, suppliers, and government and community leaders.

"This amazing airplane will connect virtually any two cities in the world with nonstop service,” said Alan Mulally, president and chief executive officer, Boeing Commercial Airplanes.

Extending the range of the market-leading 777 family by more than 1,500 nautical miles, the 777-200LR (Longer Range) allows airlines to service nonstop routes such as New York-Singapore and Los Angeles-Dubai at full passenger capacity and carry revenue cargo.

The 777-200LR can carry 301 passengers up to 9,420 nautical miles (17,446 kilometers).

The first 777-200LR Worldliner is to be delivered to Pakistan International Airlines in January 2006. EVA Airways is also a launch customer.

Boeing hopes the new airliner, along with its breakthrough 7E7, will combat Airbus' recent introduction of the A380, its supergiant, long-range commercial and freight aircraft.

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Fluke to unveil new line of indoor air quality test tools
Fluke Corp. plans to introduce a new line of indoor air quality (IAQ) test tools during 2005, providing HVAC, building maintenance and IAQ professionals with a comprehensive portfolio of precision instruments for troubleshooting and maintaining indoor air quality.

This month Fluke introduced the first product in their new indoor air quality line, the Fluke 983 Particle Counter, a compact, highly capable tool that enables users to measure the presence of airborne particles and track down particle sources.

Its expanded data logging and six-channel particle size display (0.3 µm up to 10 µm) allow users to run more tests faster and spend less time cycling through screens to get the data they need.

"These new products are being designed in partnership with our customers," said Rick Pirret, manager of Fluke Indoor Air Diagnostics. "Fluke associates have been in the field, talking with users to insure the new products will exceed their expectations for performance, ease of use and value."

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Study: Welders face higher risk of Parkinson's disease
Welders exhibited a higher incidence of Parkinson's disease than non-welders in a study of more than 1,400 welders from Alabama, according to a published report in the journal Neurology.

The experiment was conducted on a group of mostly male workers between 40 and 60 years old. The group was seven to 10 times more likely to exhibit Parkinson's-like symptoms, including tremor, muscle rigidity and slow movement.

"This study is the largest, to date, implicating welding as a risk factor for parkinsonism," Dr. Bruce Racette told Rueters. "We feel that our study is preliminary and requires follow-up with an epidemiology study that incorporates a control group without welding exposure."

Racette was one of the doctors that conducted the recent study on 1,423 welders.

Researchers found in a study conducted in 2001 that welders began suffering Parkinson's-related symptoms at an average age of 46, as opposed to non-welders who noticed symptoms at an average age of 63.

This earlier study concluded that an unknown vapor in welding fumes may increase the speed with which the disease is contracted.

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Dana workers vote to remain part of UAW
Workers at a Dana auto parts assembly plant in Buena Vista, Va., have voted 3-1 to remain part of the United Auto Workers, rejecting a decertification petition. The vote took place Feb. 4.

Union supporters won 76 percent of the votes, with 169 in favor of union representation and 53 workers voting against.

“We got the union in here in 2003,” said Calvin Smith, president of the UAW Dana local union at Buena Vista. “We wanted to keep it so we could have a say in our workplace and on our wages and everything else.”

“This is good news for Dana and Dana workers,” said UAW president Ron Gettelfinger. “Workers at Dana in Buena Vista have made their choice clear – not just once, but twice.”

Workers at the Buena Vista plant first elected union representation in September 2003, through a card-check procedure, in which the company agreed to recognize the union once a majority of workers signed union cards.

The results of the vote show that union support increased since the card check, when approximately 67 percent of workers signed union cards.

UAW Dana workers at Buena Vista, who produce axles for Ford pickups and SUVs, are in the process of negotiating a first contract with the company.

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OSHA, chemical makers agree to boost safety and health
Furthering the safety and health of employees working in Louisiana's chemical manufacturing industry is the goal of an alliance signed today between the Baton Rouge, La., area office of the Occupational Safety and Health Administration (OSHA) and the Louisiana Chemical Association (LCA).

OSHA alliances are part of Labor Secretary Elaine L. Chao's ongoing efforts to improve the health and safety of workers. Businesses, labor organizations and education institutions are able to participate in a voluntary cooperative relationship with OSHA for training and outreach aimed at preventing workplace injuries and illnesses through alliances, trade and professional organizations.

"This is an opportunity for OSHA and members of the chemical manufacturing industry to come together through forums, round table discussions, meetings and conferences to discuss safety and health issues that affect the numerous Louisiana employees of this industry," said Greg Honaker, OSHA area director in Baton Rouge. "The alliance will increase the awareness of the hazards associated with reactive chemicals."

LCA is a statewide trade association representing Louisiana's chemical manufacturers. There are 64 member companies representing 100 sites in the state.

Members of LCA and OSHA will form a team to develop a plan of action based on agreed-upon working procedures, roles and responsibilities for the participants. Quarterly meetings will be held to track, analyze and share information on activities and results in achieving the goals of the alliance.

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Machine tool consumption surges in December, 2004
December U.S. machine tool consumption totaled $314.5 million, up 9.8 percent from November and up 41.4 percent from $222.4 million reported for December 2003, according to the Association for Manufacturing Technology (AMT) and the American Machine Tool Distributors' Association (AMTDA).

With a year-end total of $3 billion, 2004 was up 43.6 percent compared with 2003.

"Investment in new machine tools during 2004 was strong, up 44 percent over 2003," said John B. Byrd III, AMT president. "December's spike in orders illustrates the incentive for renewing our productive assets created by the 50 percent expensing allowance. Allowing it to expire at the end of 2004 will damage American manufacturers' ability to remain competitive in an increasingly cost-conscious environment."

U.S. machine tool consumption is also reported on a regional basis for five geographic break-downs of the United States.

Totaling $44.6 million, December machine tool consumption in the Northeast was 22.1 percent higher than November's $36.5 million and 52.7 percent ahead of December a year ago. The year-end total of $447.7 million was 60.2 percent higher than the comparable figure in 2003.

Southern machine tool consumption in December rose to $55.3 million, 13.6 percent ahead of November's $48.7 million and 69.1 percent higher than the total in December 2003. The year-end total of $455.2 million was up 16.3 percent compared to 2003.

At $119.4 million, Midwestern machine tool consumption in December was up 17.8 percent from November's $101.4 million and 32.6 percent higher than the total for last December. With a year-end total of $1.2 billion, 2004 moved up 39.6 percent compared to 2003.

December machine tool consumption in the Central region stood at $53.4 million, down 12.4 percent compared to November's $61 million, but up 41.3 percent compared to December a year ago. With a year-end total of $548.1 million, 2004 was up 48.3 percent compared to 2003.

Western machine tool consumption in December totaled $41.7 million, up 7.6 percent from November's $38.7 million and up 28.1 percent compared to December a year ago. At $386.8 million, the year-end total for 2004 was 78.9 percent higher than the comparable figure a year ago.

The United States Machine Tool Consumption (USMTC) report, jointly compiled by the two trade associations representing the production and distribution of manufacturing technology, provides regional and national U.S. consumption data of domestic and imported machine tools and related equipment.

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General Motors fires up landfill gas in Oklahoma City
General Motors's Oklahoma City Assembly plant became the company's seventh to utilize landfill gas as energy. The project is helping fulfill the company's goal to increase the use of renewable energy in its energy supply portfolio.

Four other GM facilities -- Toledo, Ohio, Powertrain; Orion, Mich.; Fort Wayne, Ind., and Shreveport, La., vehicle assembly plants -- also use landfill gas to power plant boilers.

In addition, GM's Service Parts Operations in Grand Blanc, Mich., and Flint, Mich. utilize landfill gas by purchasing 13 million kilowatt-hours of electricity annually, generated from the Granger Energy landfill gas-to-electricity project.

According to the World Resources Institute and the Green Power Market Development Group in a 2003 study, GM is the largest non-utility direct user of landfill gas in the U.S.

"GM is helping reduce coal and natural gas consumption at its plants and emissions by capturing methane that would have been vented to the atmosphere from the landfill and using it as a source of energy," said Joseph C. Bibeau, group director of GM's energy and utility services. "Additionally, GM's landfill gas projects have proven not only to be good for the environment, but to reduce spending costs, generating annual savings greater than $500,000 at each plant."

By driving energy conservation initiatives and by using various renewable energy sources, such as methane gas, GM reduced its natural gas consumption by 21 percent since 1995 and is on its way to achieving its 25 percent energy reduction goal by 2005.

The sum of the landfill gas capacity at the seven GM operations is 1.6 trillion BTUs per year, which is equivalent to the energy needed to heat more than 25,000 households.

Landfill gas is 50 percent methane and is released from waste as it decomposes in landfills. It is a significant greenhouse gas. When collected, methane is a clean-burning fuel and a reliable energy source for the boilers used to heat and cool the plant.

The Oklahoma City facility manufactures the GMC Envoy XL, GMC Envoy XUV and the Chevrolet Trailblazer EXT.

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GM: U.S. manufacturing needs greater attention
American business and government urgently need to endorse and enforce policies that will enhance U.S. manufacturers' ability to compete globally if the nation is to retain its economic leadership, said General Motors chairman and CEO Rick Wagoner.

"Business and government need to work together to address a number of important issues that put U.S. manufacturers at a severe disadvantage to overseas competition, the cumulative effect of many well-intentioned policies that now harm American manufacturing in general and, in particular, our nation's ability to compete effectively in the global marketplace," Wagoner told the Economic Club of Chicago.

Among the issues meriting attention, three of the most pressing facing U.S. manufacturers today are free and fair trade, the civil justice system and the nation's troubled health-care system, Wagoner said.

Wagoner urged the government to insist that Asian nations, particularly Japan, immediately and permanently stop intervening in currency markets, to allow the gradual depreciation of the dollar to continue.

"The massive size and frequency of Japan's intervention artificially weakens the yen, and in doing so provides a significant subsidy to Japan's exporters," Wagoner said.

Wagoner also said government and business need to work together to reform the civil justice system, in part by placing reasonable, common sense limits on excessive damage awards.

"Lawsuit abuse runs rampant in certain state courts thanks to an entrepreneurial plaintiffs' bar," he said. "The perverse result in a lot of these cases is the majority of the settlement goes to the plaintiffs' lawyers, not the injured party."

U.S. health-care costs have been increasing at double-digit rates for many years, accounting for about 15 percent of GDP in 2003. At the current rate of increase, health-care costs are projected to exceed 18 percent of GDP by 2012, which would be about 30 percent higher than the next-most-expensive nation. GM alone spent $5.2 billion on health care in 2004 for 1.1 million U.S. employees, retirees and dependents.

"The cost of health care in the United States is making American businesses very uncompetitive right now, vs. our global counterparts," Wagoner said. "Failing to address the health-care crisis would be the worst kind of procrastination, the kind that places our children and grandchildren at risk, and threatens the health and global competitiveness of our nation's economy."

Wagoner said there is no single or simple solution to the crisis, that it will require a collaborative and creative approach by government, business, the health-care system and consumers to resolve it. As a nation, the United States must "bring all of our capabilities in quality, productivity and information technology to the health-care industry."

He cited this week's announcement of an electronic "e-prescription" initiative by GM, Ford Motor Co., DaimlerChrysler Corp. and the UAW as an example.

The nation also must find a way to provide affordable health-care coverage for all its citizens, support efforts to provide better information on the quality and efficiency of health-care providers so Americans can become better health-care consumers, and reduce the high inflation rate in health-care spending, particularly the excessively high cost of prescription drugs.

Wagoner said the only way to ensure the United States retains its manufacturing and economic leadership is to make it the best place in the world to do business.

"Today, we have the chance to impress the world all over again," he said. "And we'll do it by working to change policies that hamper our own competitiveness: By standing up to unfair currency manipulation, by reforming a legal system that no longer makes sense, by improving a health-care system in need of serious medicine."

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Manufacturing report takes sting out of offshoring
The reality behind the politically charged concept of offshoring, usually linked with the exporting of American jobs and the decline of U.S. manufacturing, is less grave than widely perceived, according to the Manufacturers Alliance/MAPI analysis Offshoring: Challenges and Opportunities for U.S. Manufacturing.

But there are areas of concern, according to the report.

The report draws on various data sources that indirectly measure offshoring to rebuff the argument that other countries gain an inordinate amount of jobs that displace American workers.

“Strong productivity growth, not offshoring, is the primary factor behind recent employment trends, which demonstrates the U.S. economy’s ability to meet growing competitive pressures,” said Jeremy Leonard, economic consultant and report author.

Leonard’s analysis highlights a numbers of key points.

• U.S. multinational corporations are not creating overseas employment at the expense of domestic jobs; in fact, they have created substantially more domestic than foreign jobs over the last 15 years.

• Foreign-owned multinationals have created 70 percent as many new jobs in the United States as U.S.-based companies have created overseas.

• Import penetration of U.S. manufacturing markets increased markedly in the past 15 years, but only a small proportion is due to re-exports from U.S.-owned foreign operations.

• The surplus in tradable business services has increased, not decreased, in recent years.

• China’s advantage in labor costs will diminish over time, both because of double-digit annual wage growth and the fact that labor is a small and declining share of costs in many manufacturing industries.

• Much of the U.S. cost disadvantage relative to China is due to nonwage costs that can be reduced via changes in U.S. public policy.

• Today’s manufacturing puts a premium on short lead times, slim inventories, and an ability to react rapidly to changes in demand. Many industries have strong incentives to be geographically proximate to end-user markets, including the consumer-driven U.S.

“Labor costs are but one of many factors affecting decisions on where to locate production facilities, and the evidence on offshoring to date suggests that it is far from the most important,” Leonard said.

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