- The Washington Times - Monday, October 13, 2003

U.S. manufacturers are increasing productivity rapidly as they fight for a share of the global market.

“We’re always looking for new products, new processes,” said Scott Macdonald, an owner of Maryland Thermoform.

The Baltimore company has annual sales of nearly $10 million from manufacturing plastic packaging — products such as the clamshell-shaped containers used to hold cosmetics.

Maryland Thermoform has adopted automated technology that counts products as they come off the assembly line, instead of counting by hand. It saves the work of four employees, about $100,000 to $120,000 per year, increases accuracy and makes for happier customers, Mr. Macdonald said.

Such improvements have been steady across the manufacturing sector. Labor productivity in manufacturing grew 6.4 percent last year, the fastest rate of increase since 1987, said a Bureau of Labor Statistics report released last month. Output per hour in the manufacturing sector increased 3.7 percent in the second quarter of this year.

“I think we fall into a trap when we say the manufacturing … sector is not doing well. Because it is a powerful force in this economy. The productivity gains have been remarkable,” Commerce Secretary Donald L. Evans said recently in a meeting with editors and reporters at The Washington Times.

But for factory workers, it has been a losing fight because greater efficiency does not translate into more jobs.

The Bush administration hopes to solve the problems through policies that result in faster economic growth to make U.S. firms more competitive in a global market.

In the meantime, U.S. companies scrape for savings, new customers and new market niches while they fend off foreign competitors and wait for increased demand from overseas.

For companies such as Boones Mill, Va.-based Metwood, a manufacturer of light-gauge-steel structural beams for construction projects, such increased productivity means sales doubling and tripling over the past three years.

“[New software] allowed us to get the tools to make our sales reps more productive, so that increased sales. That increased our productivity in the shop. Because we were able to increase productivity in the shop, we took on more work,” said Shawn Callahan, vice president and general manager.

That also meant an increase in workers to 22 from eight.

While Metwood’s productivity jump is part of a trend, its hiring is not. The manufacturing sector as of September had lost almost 2.5 million jobs since President Bush took office in January 2001.

For a company such as Maryland Thermodynamics, increased productivity and a slow economy mean a decrease to 65 employees from 100 two years ago, Mr. Macdonald said.

For others, increased productivity buys some time but little else.

My Room Inc. of Warrenton, Va., manufactured furniture in southern Virginia. In 2000, the company adopted “lean manufacturing” techniques — such as inventory reduction and control, and shorter buying cycles — to increase productivity. But competitive pressure became too great and in March the firm moved production to Mexico. Employment fell from more than 50 to nine, said Will Johnson, company president.

“With the pressures from overseas … it’s very, very tough,” Mr. Johnson said.

A slow economic rebound, caused by weak export markets and limited business investment, is part of the problem for manufacturers, said Dave Huether, chief economist for the National Association of Manufacturers.

“Even when that gets going, there are still some structural challenges that manufacturers are going to face,” he said, pointing to increased international competition that keeps down prices, and rising costs at home related to regulations, health care, litigation, energy and taxes.

“This combination is something that hasn’t happened before, Mr. Huether said. “I think we’re entering a new era.”

Mr. Evans last month previewed Bush administration initiatives for manufacturing, including creation of an office to study the economic effects of new regulations. Positions were created for an assistant secretary for trade promotion and an “unfair trade practices team” to confront unfair competition.

Competition from overseas, especially China, is gaining the most attention.

The Bush administration, spurred by many domestic manufacturers, has been critical of China’s policy and trade practices.

The yuan is pegged to the dollar at an undervalued rate, leaving China’s firms able to export goods more cheaply, critics say.

Lawmakers are urging the administration to help pry open the Chinese market.

Sen. Charles E. Grassley, Iowa Republican and a leader on trade issues, has sent a letter to China demanding improved compliance with World Trade Organization obligations.

Rep. Bill Thomas, California Republican and chairman of the House Ways and Means Committee, scheduled hearings for this week to consider China’s progress in meeting its new trade commitments.

U.S. manufacturers are watching for developments with the Asian country.

Maryland Thermodynamics is worried that Chinese manufacturers are becoming more sophisticated and entering more segments of the market.

“We had no direct competition until the last six months. Now we see Chinese manufacturers just like us. That’s frightening,” Mr. Macdonald said.

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