Manufacturers in the United States are suffering from a cost crisis that is keeping them from being competitive against foreign competition, according to a group that helps manufacturers.
Manufacturing is lagging the overall economy, according to Jeremy Leonard, economic consultant with the Manufacturers Alliance/MAPI based in Arlington, Va. Leonard works out of the group's Montreal office.
``We look at the period 2000 to 2002 in particular, and we see a manufacturing recession that in fact is the worst in 20 years,'' Leonard said in a presentation at Packaging Strategies, held Feb. 28 to March 2 in St. Petersburg.
Although manufacturing output as a whole has not dropped, other measures show that the sector has not recovered from that recession, he said.
``Capital equipment spending really is not as strong as one might hope. So really, this manufacturing recovery is hardly under way in some sense,'' Leonard said.
Paper and plastics manufacturers are lagging because of global competitive pressure.
``[It's] due to rising costs here at home, relative to those [foreign] competitors,'' he said. ``Cost pressures have been increasing. It's a fairly tenuous business environment.''
Prices for raw materials and energy, employee fringe benefits, high tax rates, employer health care and pension costs, tort litigation and regulatory compliance are all hurting U.S. manufacturers, he said.
``The sum total of these excess costs in the U.S. saddles us with a 30 percent excess-cost burden relative to our major trading partners,'' he said.
Without those extra costs, U.S. manufacturers are fundamentally competitive with their foreign counterparts, Leonard said.
``So the top line looks pretty good, but the things that get in the way when you get to that bottom line are causing profits to be squeezed,'' Leonard said. ``At the same time, the wage component of compensation is typically flat to declining. Companies are cost-cutting and they're getting more value out of the workers they have and productivity is increasing. The trouble is that productivity growth we're seeing has been insufficient to offset this cost pressure. So, essentially, on an industry basis, we're running in place.''
Leonard said some of the United States' trading partners are lowering their corporate tax rates, including Mexico, Canada, China, Germany, the United Kingdom, South Korea, Taiwan and France. The U.S. rate is now higher than all its major trading partners except Japan.
``Countries are lowering their corporate tax rates to try to attract businesses,'' he said.
With regard to China, he said, U.S. manufacturers have advantages like quality and proximity to market that may offset lower labor costs, he said.
``This isn't just a U.S.-China problem. This is actually a problem with the United States relative to other industrial countries. That wasn't something I was necessarily expecting when I did the research, but that's the way it is. The numbers don't lie.
``Most of the costs are due to government policies,'' he said. ``So one of the reasons we produced this report is to get governments thinking about cost pressures. Essentially, we don't need a helping hand. We just need relief from a heavy hand.''