Biden’s Next Economic Challenge: Getting Manufacturing Jobs Back

LAGOS (Capital Markets in Africa) — Joe Biden began his presidency much as his predecessor did, promising to restore hope to a blue-collar middle class battered by decades of relentless job losses from automation and foreign competition. But the realities of trying to stoke U.S. manufacturing employment in the wake of an economic crisis are quickly endangering his plans.

After a period of recovery last year, U.S. factory payrolls stagnated in recent months, then went into reverse in January. The country is on course to repeat a pattern seen in every recession since manufacturing jobs peaked in June 1979: a structural step-down in employment even amid a sustained expansion in output.

As Biden starts to layout plans for the long-term economic rebuilding program designed as a follow-on to his $1.9 trillion Covid-19 relief bill, the business calculus of American manufacturing looms as a headwind.

A Bloomberg analysis of plant-closure notifications sent by companies to state officials around the country shows the fallout from the pandemic is far from over. Employers, who have already cut a net of 582,000 factory jobs compared with the pre-Covid-19 level, aim to emerge leaner and meaner from the crisis.

In Ferndale, Washington, Mayor Greg Hansen watched Alcoa, the biggest U.S. aluminum producer, close a smelter last year that operated for more than half a century. The decision put 700 workers, the equivalent of 5% of the town’s residents, out of work without any obvious pathway to another job.

In nearby Bellingham, Safran Cabin, which makes overhead baggage compartments and ceiling panels for Boeing airplanes and Mitsubishi regional jets, will be shutting its local plant by year-end, laying off another 250.

That’s left Hansen confronting the same problem plaguing small American factory towns for decades. “We need to try to figure out what do we do now and make sure we have good blue-collar jobs” for those affected, Hansen says. “That’s a much bigger, more difficult puzzle to figure out.”

Companies like Caterpillar Inc., one of the world’s largest machinery makers, are trying to plan for what remains an uncertain recovery. Wall Street analysts don’t expect its sales to return to pre-pandemic levels until at least 2025.

In a move intended to boost morale, the company has reinstated employees’ annual salary increases and kept health care premiums unchanged for at least some employees for the first time in years, according to a person familiar with the moves, who asked not to be identified because they were not authorized to speak with the media. But its 2020 annual government filing will likely show employment dropped for a second straight year. Caterpillar didn’t immediately respond to a request for comment.

Papermaker Georgia-Pacific announced in January it would close its Easton, Pennsylvania, cup plant by year-end, with 190 workers losing their jobs in three waves beginning in March. The work — making cups for theme parks, hotels, offices and other commercial users — will shift to a plant in Lexington, Kentucky, where only 50 jobs will be added. The privately held company won’t specify whether that capacity boost will entirely make up for the Pennsylvania loss. But it’s hard to see it as a bet on a rapid rebound in demand for paper cups, which collapsed in the pandemic. “This was a strategic decision based on business needs,” says spokesman Eric Abercrombie.

How much U.S. industrial capacity will end up being cut is unclear. Industrial production in December was 3.6% lower than a year earlier, with capacity usage 5.3 percentage points below its 1972-2019 average, according to the Federal Reserve. More recent data from purchasing-manager surveys show orders for manufactured goods expanding at the start of 2021.

But there are bigger questions over the return of jobs — and the political reverberations that would accompany a failure to bring them back in important swing states like Michigan and Pennsylvania. States like those helped Donald Trump win the White House in 2016 and Biden win it back in 2020, and are likely to continue as partisan battlegrounds for many elections to come.
Competing campaign signs in the historic industrial town of Braddock, Pennsylvania, on Sept. 12, 2020.

United Steelworkers President Tom Conway is already worried about a jobless recovery. “That’s what happened in 2009,” Conway says. “We’ll see productivity take a big pop with no significant increase in the workforce” and remaining employees “working 12-to-16-hour days for months on end,” he fears.
What Bloomberg Economics Says…
“Chip shortages are wreaking havoc on the manufacturing sector — particularly autos — and job losses are likely to extend over the next several months.” — Carl Riccadonna, Yelena Shulyatyeva and Eliza Winger. 

Biden and his team are well aware of the danger. Even as the president woos business support for his relief plan — showcased in an Oval Office meeting Tuesday with chief executives — he’s planning a bigger role for the government in this recovery, with money for both research and demand creation, via infrastructure programs, procurement policies, reshoring initiatives and long-term priorities including climate change.

Signing an executive order Jan. 25 to encourage more federal government purchases of American-made products, Biden dismissed “the defeatist view” that the U.S. couldn’t create more manufacturing jobs. “I don’t buy for one second that the vitality of American manufacturing is a thing of the past.”

Biden is due to visit the industrial state of Wisconsin next week. That’s in the run-up to a congressional address in which he is expected to lay out his “build back better” plan, including components to create more manufacturing jobs that advisers hope will spark some bipartisan action.

“In the area of manufacturing and infrastructure — and they are related — there could be and should be some bipartisan interest,” Biden economic adviser Jared Bernstein said in an interview. “There are lots of states that are red, blue, and purple that would very much be interested in signing on to a jobs agenda with high-value-added manufacturing jobs.”

U.S. manufacturing still faces plenty of long-term challenges. In a forthcoming study of Indiana, experts at the left-leaning Brookings Institution and right-leaning American Enterprise Institute found that the most manufacturing-intensive U.S. state was plagued by declines in productivity and investment and a rotation from production jobs to warehousing ones.

Indiana’s Pain
Between 2001 and 2019, Indiana lost 72,000 manufacturing jobs, the report found. This puts the last year in perspective: there were 36,000 fewer factory workers in Indiana in December than just one year before.

Mark Muro, one of the report’s authors at Brookings, says the ominous reality is it will likely take Indiana years to get those jobs back — if it’s even possible.

Meantime, Indiana companies are signaling more pain. In Silver Lake, the Wabash Valley furniture factory is due to shut in early April. At the Manchester Tank and Equipment Company plant in Elkhart, some 128 job cuts will be final by the end of July. In Fort Wayne, the Avery Dennison plant on Independence Drive will be gone by year-end.

Some aren’t waiting around.
When Matthew Cunningham went to work at what is now the Acuity Brands plant on the outskirts of Indianapolis at age 19, he expected it to be a job for life. But when the maker of industrial-grade lighting fixtures announced before Thanksgiving it was closing the plant, Cunningham, now 42, decided not to wait for the $6,000 severance the company was offering.

He found a job at a tomato cannery earning $22 per hour before tax — better than the $19.78 an hour he had at Acuity. But he’s now laboring on the overnight shift, and nervous about the future he and his family of five faces. He has new anger over “corporate greed.”

“I wanted to stay there. I wanted to end my life there,” Cunningham says. “It’s sad that it had to end that way.

Source: Bloomberg Business News