The view from CFO Ed Rapp's seventh-floor office at Caterpillar headquarters in Peoria, Illinois, looks pretty sweet these days. The iconic manufacturer of dozers, graders, and other earth-moving equipment is on track to post record profits and revenues this year — sales should hit somewhere around $58 billion — and it expects another 10% to 20% revenue jump in 2012.

A couple of hours northeast, the outlook isn't quite so rosy for Peerless Industries, a privately held maker of audio-video mounting systems. The company, which generates about $100 million a year in sales, suspects its revenues may be flat in 2012, or perhaps tick up 3% to 5% if consumers start buying more flat-screen TVs. Nonetheless, it recently spent about $20 million to open a new, 308,000-square-foot manufacturing facility and headquarters in Aurora, Illinois.

The move not only allowed it to consolidate manufacturing operations previously spread out over multiple locations in Illinois and China, but also gave it room to grow. Peerless, says its vice president of finance, John Logerquist, is "poised and ready for any major upturn in business."

In that sense, Peerless and many other companies are like runners at the starting line: they've responded to "Ready!" and "Set!" but are beginning to cramp up as they wait for the sound of the starter's pistol. The continuing talk of a double-dip recession, fueled by the European debt crisis, persistent high unemployment, weak consumer confidence, and intense debate about debt in the United States, certainly isn't helping.

Yet the economy did pick up steam through the first nine months of this year, expanding at a 2.5% annual rate in the third quarter — about the pace the National Association of Manufacturers (NAM) expects for 2012. And Rapp sees a positive sign in one of his company's internal indicators: Caterpillar sales to end-users typically trend down six to nine months before GDP growth starts to fall, but they aren't slowing right now. Other good news: global interest rates are at historic lows, inflation in most countries remains under control, and emerging-market economies continue to expand vigorously.

If the economy can do its part, manufacturers should gain some lift in 2012, especially in the durable-goods sector, says NAM chief economist Chad Moutray. Dave Rodgers, CFO of $2.1 billion outdoor power products manufacturer Briggs & Stratton, notes that manufacturers generally have plenty of capacity to respond to new demand, aided by healthy balance sheets that were beefed up in the wake of the 2008 credit crisis.

A Reshoring Boom?
Although the bailout of the U.S. auto industry was unprecedented, manufacturing is not as closely linked to the Great Recession as the two sectors (banking and housing) profiled elsewhere in this report. Its problems go back much further, and yet its future may be — at least according to some experts — surprisingly bright.

The United States has lost nearly 8 million manufacturing jobs since 1980, but the sector still accounts for about 12% of GDP, employing nearly 12 million people, or about 9% of the workforce. And thanks to productivity improvements, the U.S. also remains the world's largest value-add manufacturer, at 24%, versus 15.1% for second-place China and 14.8% for third-place Japan.

In a recent and widely disseminated report, Boston Consulting Group argues that with Chinese wage rates continuing to rise, the U.S. will start to see a significant amount of manufacturing activity shifting back to these shores by 2015, as the U.S.-China labor-cost differential narrows. The shift will be especially pronounced, the consulting firm predicts, in seven manufacturing sectors: transportation, electrical equipment and appliances, furniture, plastics and rubber products, machinery, fabricated metal products, and computers/electronics. As companies in those sectors "reshore" manufacturing operations, BCG says, they could create 2 million to 3 million jobs in the U.S.

To be sure, many manufacturers will continue to produce goods globally, too, whether to comply with local-content laws, to enable speedy access to global markets, or, where labor costs remain a big component of total costs, to continue to take advantage of low-wage environments.

"It depends on what goods they're making and what markets they're serving," says BCG senior partner Harold Sirkin. "We don't expect plants to be closing in China, in part because of rising demand in China for local production. But when companies make a new-plant decision, they may put it in the U.S. and repurpose the plant in China to produce goods for the Chinese market."

Two years ago, NCR, a $4.8 billion maker of ATMs, point-of-sale terminals, and airport ticketing kiosks, opened a 350,000-square-foot manufacturing facility in Columbus, Georgia, to produce ATMs for the North American market. In choosing that location, says Peter Dorsman, NCR's executive vice president for the industry solutions group and global operations, the company considered the "total landed cost" to produce its ATMs, including wages, materials, taxes, and transportation. It also factored in where those ATMs were going to be sold, and the ease of access to suppliers, skilled workers, engineers, and other resources, such as universities that could help with training employees.

• 1
• 2
• 3
• next »