From Henry Ford’s assembly line to adopting lean principles in the 1990s, the U.S. manufacturing industry has a long history of being at the forefront of innovation. Success in the sector requires evolving and transforming—adapting to shifts in the market and adopting new technologies. Companies that failed to adapt and adopt—or those that have done so slowly—have seen a sharp decline with many failing to maintain profitability.
There are signs that the U.S. manufacturing industry as a whole is in a rocky state. Bankruptcies and signs of employment slowdowns are early indicators of potential trouble looming on the horizon. With manufacturing being the largest sector of business in the U.S., its health has a seismic impact on the economy.
The Auto Industry: Deceleration in the Future
Many point to the auto industry as an indicator of the overall health of the US manufacturing sector. While the past few years have shown growth and innovation, a glance in the rear-view mirror reveals this wasn’t the case as recently as 9 years ago.
In 2008 the auto industry was in a steep decline due to the recession with jobs cut, manufacturing plants shut down, and towns starting to resemble ghost towns. The government intervened to help pull the auto industry out of its tailspin, and for the past 7 years it was in soft recovery.
Auto manufacturers started to invest in new technology to meet the market’s demand for more energy-efficient cars. As the economy started its recovery people started to purchase cars again. However, that recovery is currently hitting its plateau point. Layoffs have already started with the Big 3 as they try to free up capital to invest in new technology, i.e. self-driving cars. While every business has life cycles of growth and decline, the auto industry serves as the American public’s gauge regarding the strength of the American economy.
The Steel Industry: Facing an Uphill Battle
The steel industry has historically played a prominent role in the U.S. manufacturing sector. However, the once proud US Steel Industry is in a decades-long decline due to cheap foreign imports and unfavorable trade and tariffs. With that decline, towns that once thrived from the steel economy have either transformed or been nearly abandoned. In many rust-belt communities, restaurants, pharmacies, and retail stores were forced to close once the steel mills shut down.
In an effort to place US Steel manufacturing on a level playing field globally, the current administration is exploring ways to increase exports by renegotiating or more strictly enforcing existing trade agreements. An increase in exports will have tertiary benefits—namely increased production and increased investment in new, more efficient technologies. Whether or not these attempts are successful in reversing US Steel’s long term decline is still up in the air.
Chemical Manufacturing: Rising to the Challenge
With major manufacturing industries like steel and auto in a downturn, new industries have to rise up to lead the manufacturing sector. As one of the only manufacturing based industries showing growth, Chemical Manufacturing is a strong candidate to meet this challenge.
This is an industry segment on the upswing as demonstrated by a growth in exports and in the textile chemical market. Adopting a new technology—hydraulic fracturing—allowed access to massive natural gas reserves and has spurred sustained growth. Adding fuel to this industry’s growth, capital investments have been continuously flowing, allowing for new projects and manufacturing to take place.
What Bankruptcies Mean for U.S. Manufacturing
The US manufacturing industry consists mostly of businesses with long and storied histories, which demonstrates both the health and positive impact this sector has had on the overall US economy. However, many of these mainstays are now facing lay-offs, employment freezes, lower sales, and even bankruptcy. While bankruptcy is a way for companies to re-organize themselves, many times it’s used as a last-ditch effort to prevent the inevitable—complete liquidation. This affects the American public’s perception of the economy and can place them into panic mode. In our report, “The Creditsafe Guide: US Manufacturing—Globalization, Automation and Robotization, we take a look at the credit ratings of this sector and its potential growth or decline.