After more than a decade of seeing American manufacturing plants shut down, 2012 could be the year the U.S. finally reverses that trend and opens more plants than closes. It’s an important step, one that demonstrates the steady recovery of American manufacturing. But analysts say the sector is far from what it was 15 or 20 years ago.
Since 1999, two recessions and the globalization of manufacturing meant plant closings exceeded openings in the U.S. every year of the last decade.
During each recession, the gap between openings and closings expanded dramatically. For example, in 2009 plant closings surged to approximately 14,000, while the number of plant openings dropped to 8,000. By Q3 of last year, as the manufacturing sector rebounded, the “plant closing gap” had shrunk to approximately 1,000 (10,00 closings vs. 9,000 openings) and some believe there’s a strong chance that gap will close completely when we see the numbers for the first quarter of 2012.
“We already know manufacturing construction is growing, ” says Dan Meckstroth, vice president and chief economist of Manufacturers Alliance for Productivity and Innovation. “I think it’s only a matter of time until we see more plants open than close.”
What’s driving the growth in new manufacturing plants? It’s a combination of the need for plants that are increasingly dependent upon technology and the need for greater efficiency. In short, the replacement of older plants has been delayed by the last two recessions and consolidation within the industry. “The plants have become so old that in many cases it’s best to replace them,” says Meckstroth.
Some of the industries adding plants include beverages, aerospace, electrical equipment and agriculture/construction machinery.
Even if the U.S. starts to gain manufacturing plants, don’t expect a big surge in manufacturing jobs. During the most recent recession, an estimated 2.3 million manufacturing jobs were cut. Since December of 2009, when the economy started to slowly recover, just 500,000 manufacturing jobs have been added. Meckstroth says manufacturing companies are still replacing jobs they had stripped out and that may not change for a while. For example, the auto industry has added thousands of jobs as sales and production have rebounded, but the industry is far from employing as many people as it did before the recession.
There are a number of major threats to the U.S. and global economy that could cause another spike in closings of U.S. manufacturing plants.
The faltering European economy, a slowdown in demand from China or a new spike in oil prices are just a few of the threats to the recovery in manufacturing. Still, after more than a decade of downsizing and consolidation American manufacturing companies may be at a point where they are once again expanding their footprint in the U.S.