Factory Rebirth Fizzles in U.S. as Work Shipped Overseas

Randy Webb sees scant evidence of a U.S. manufacturing rebound in the Ohio plant where he’s fixed aircraft electronics for 25 years. Honeywell International Inc. (HON) is closing the shop in 2014 as it expands such work overseas.

Webb is among 80 employees poised to lose their jobs in Strongsville, Ohio, outside Cleveland, near where General Electric Co. (GE) will shut a lighting factory in favor of production in Hungary. Delphi Automotive Plc (DLPH) is sending parts assembly to Mexico from Flint, Michigan, and Eaton Corp. (ETN) will make extra-large hydraulic cylinders in the Netherlands, not Alabama.

Factory Rebirth Fizzles in U.S. as Work Shipped Overseas: Jobs

Higher taxes and employee benefits boost U.S. manufacturing costs to 9 percent more than the average of the country’s nine-largest trading partners, according to a Sept. 3 report by a team of JPMorgan Chase & Co. analysts. Photographer: Daniel Acker/Bloomberg

“Manufacturing is clearly on the downswing,” said Webb, 49, who was told in April that the Strongsville Service Center would close. “Everybody I know is jumping to the service industry or taking some other kind of job.”

The U.S. industrial comeback, an idea embraced by President Barack Obama and some economists as 12 years of factory-job losses gave way to three annual gains, is now sputtering. Even with nonfarm payrolls up 1.1 percent in 2013 to 136.1 million, manufacturing has stagnated at less than 12 million. Factories added more than 500,000 positions after falling in February 2010 to the lowest since 1941.

That left the factory workforce through August about 13 percent smaller than the 13.7 million when the U.S. fell into recession in December 2007. In 2000, the tally was 17 million.

“I know all of us are concerned about manufacturing, but it’s not going to come home to the degree that it used to be,” Federal Reserve Bank of Dallas President Richard Fisher said at a Sept. 5 event in Dallas.

Cost Disadvantage

Higher taxes and employee benefits boost U.S. manufacturing costs to 9 percent more than the average of the country’s nine-largest trading partners, according to a Sept. 3 report by a team of JPMorgan Chase & Co. analysts.

For GE, higher U.S. expenses mean sending assembly of high-intensity discharge lamps to Budapest from a factory with 160 workers in Ravenna, Ohio.

“This particular product that was at Ravenna was made more cost competitively in Hungary,” said Christopher Augustine, a spokesman for Fairfield, Connecticut-based GE.

Hungary is GE’s global production center for that product line, just as fluorescent-lamp output is centered elsewhere in Ohio, in Bucyrus, Augustine said. Many of those lights go to U.S. customers, he said.

Expanding Abroad

Honeywell has cut its U.S. workforce by 5,000 positions to 52,000 since 2007 while adding 15,000 employees abroad, for a total of 80,000 outside the country.

Strongsville is one of two avionics repair shops closing in the U.S., along with one in Irving, Texas, said Steve Brecken, a Honeywell spokesman. U.S. operations are being consolidated in Renton, Washington, and Wichita, Kansas, and part of the work is being transferred to a U.S.-based contractor, he said. Morris Township, New Jersey-based Honeywell is expanding outside the U.S. at shops in Singapore and Shanghai to meet rising demand there, Brecken said.

“The world has opened up and it’s providing more choices for manufacturers that are global companies and supply a global customer base,” said Stephen Stanley, chief economist for Pierpont Securities LLC in StamfordConnecticut. “We’re going to continue to see a globalization of manufacturing.”

Obama’s efforts to nurture a manufacturing comeback include the National Export Initiative he announced in March 2010, a month after factory payrolls slid to 11.5 million. The goal was to double U.S. exports and create 2 million jobs, with programs such as financing for small- and medium-sized businesses to boost sales overseas.

No Easing

In February, he laid out a four-point plan to revitalize manufacturing in his State of the Unionaddress, including cutting the tax rate on manufacturers to 25 percent from a top federal corporate rate of 35 percent. Seven months later, tax changes remain stalled in a gridlocked Congress.

The National Association of Manufacturers, often at odds with Obama over policy issues, agrees with him on the prospect of a factory rebirth.

With cheap natural gas from U.S. shale deposits and increased automation reducing labor’s share of manufacturing costs, U.S. factories can compete with those in low-wage countries, said Chad Moutray, the Washington-based group’s chief economist.

“People want to locate and invest here because they want to sell to us,” Moutray said. “Multinationals may be investing overseas, but they’re also investing here.”

Payrolls, Productivity

One discouraging sign that manufacturing employment is recovering: the 13 percent gap between factory payrolls now and before the recession occurred amid a rebound in output, said Tim Quinlan, a Wells Fargo & Co. economist in Charlotte, North CarolinaIndustrial productiontrails a 2007 pre-recession high by only 1.9 percentage points.

“Whereas I do see manufacturing underpinning overall U.S. economic growth, I don’t see hiring in the factory sector underpinning growth in jobs,” Quinlan said. “It will be a long, long time before we get back to pre-recession highs for employment in the factory sector.”

With manufacturing employment up only 0.1 percent through August, job growth is just about keeping pace with losses such as the pending shutdown in November of Delphi’s Flint factory, with 300 employees.

The work is being moved to Mexico, according to a Trade Adjustment Assistance petition filed with the U.S. Labor Department. Tom Wickham, a spokesman for General Motors Co. (GM), which supplied unionized hourly workers for the plant supervised by Troy, Michigan-based Delphi, confirmed the closing.

Eaton, Jabil

Eaton said in a petition that it shuttered its hydraulic-cylinder plant in Decatur, Alabama, in July. Scott Schroeder, a spokesman for Dublin, Ireland-based Eaton, said consolidating production boosts efficiency. In Tempe, Arizona, contract electronics manufacturer Jabil Circuit Inc. (JBL)will eliminate about 500 positions with a factory closing.

“We are in the process of moving several assemblies to other Jabil facilities in Mexico and Asia in order to reduce labor costs and meet our customers’ pricing expectations,” the St. Petersburg, Florida-based company said in a Trade Adjustment Assistance petition. Beth Walters, a Jabil spokeswoman, said by e-mail that the plant will close within a year.

Webb, who said he helped train Honeywell employees from abroad who now perform work once done in the U.S., can relate to displaced workers at other U.S. manufacturers. If he can’t find a job near Strongsville with equal pay, he may pursue a long-held desire to become a high school teacher.

In the meantime, he goes to work each day amid the strain of a months-long wind-down before what may be the end of his career in avionics repair.

“It’s like dying a death of a thousand cuts here,” Webb said, “because it’s going so slowly.”

To contact the reporter on this story: Thomas Black in Dallas at tblack@bloomberg.net

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

2 Responses to Factory Rebirth Fizzles in U.S. as Work Shipped Overseas

  1. Robert H. Scarlett says:

    No surprises in this announcement … about the loss of jobs among the largest U.S. multinationals. They have been steadily losing U.S. jobs for the past three decades and longer.

    Since 95% of their customers are outside the U.S., why would anyone expect them to be holding onto or increasing jobs in the U.S. That would be foolhardy, wouldn’t it? They have to locate their manufacturing assets closer to either raw materials or to their primary customer bases. Transportation costs will eat them alive, otherwise.

    It is unlikely that U.S. labor costs are driving these decisions; although, it is ideologically correct to point the finger in that direction. High labor costs are not a problem in industries where companies invest in modern manufacturing technologies (e.g. Germany) and provide adequate continual training for their workers.

    The companies mentioned in this article are part of the 0.3% of all business units in the U.S. If you want examples of manufacturing growth in the U.S., I suggest looking among the other 99.7% of business units – that do most of the exporting and create most of the jobs in today’s U.S. economy!

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