31 May 2012 22:12 [Source: ICIS news]
CLEVELAND, Ohio (ICIS)--The recovery in the US manufacturing sector has outperformed the general economy, especially in terms of productivity, an economist with the Federal Reserve said on Friday.
Many durable goods, such as computers and automobiles, are major downstream markets for chemicals, resins and derivatives used in manufacturing processes or as end-product components.
Durable goods are manufactured products meant to last three years or more and include such items as automobiles, appliances, transportation and manufacturing equipment.
Productivity in the overall economy has grown at a rate near the low end of previous expansions, said William Strauss, senior economist and economic advisor for the Federal Reserve Bank of Chicago.
Strauss spoke during the 2012 NABE Industry Conference, held by the National Association for Business Economics.
In contrast, productivity in manufacturing has been performing at the high end of historical levels, he said.
"The recovery has also been broad-based, with motor vehicles and primary metals manufacturing leading the way," he said.
Meanwhile, manufacturing has made substantial gains in productivity during the last several decades, he said. "What took 1,000 workers to produce back in 1950 can be done with 170 workers today."
In fact, Strauss compared this trend to agriculture, which is producing much more food with fewer workers.
"When you look at the factors that are driving this productivity, I remain exceedingly optimistic about manufacturing," he said. With rising productivity, labour becomes a smaller part of the overall cost of making a product.
Plus, the US economy has some strong advantages, such as the high intellectual content of its products, the sector's business management, its legal system and its infrastructure, said Jim Meil, chief economist of Eaton, a US-based manufacturer.
An emerging advantage is energy costs, said Sandra Pianalto, chief executive of the Federal Reserve Bank of Cleveland. She made her comments on the sidelines of the conference.
The low cost of natural gas has made US manufacturing more competitive, she said. "I do see the outlook of manufacturing is bright."
Any recovery in manufacturing, though, is coming after a sharp fall from the previous recession.
Strauss said that after December 2007, US manufacturing output fell by 20.4% over the subsequent 18 months. Utilisation rates for the sector fell to 70-year lows, with the automobile industry hitting rates of about 30%.
"We saw a lot of manufacturers go out of business," said William Hartmann, chief credit officer at Key Bank. "We saw a lot of manufacturers shed product lines."
On the plus side, the surviving manufacturers have become much more efficient, Hartmann said. "The ones that are surviving today are really good operators."
Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy
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