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From the Desk of Jack Healy

Strong Dollar, Weak Manufacturing

By Jack Healy, Director, Manufacturing Advancement Center, jackh@massmep.org

Approximately 1000 CEOs were recently asked, "How has the dollar decline effected your business?" The startling response was, "no effect." All we can figure is that there must not have been many manufacturers in that survey!

Even at the geight of the strong dollar, manufacturing in New England still had 15% of its business in exports as indicated in the following table:

State 2001 Manufactured
Product Exported
Connecticut
16%
Maine
13%
Massachusetts
18%
New Hampshire
15%
Rhode Island
12%
Vermont
34%
 
 
New England
17%

Since 2002, all of these states have shown continued growth in their export markets. Even more to the point, each state's Gross State Manufactured Product (GSMP) grew primarily through these exports.

For example, in 2001 Massachusetts had $14 billion in manufactured exports; this increased to $21 billion in 2004. The 50% increase means that Massachusetts is probably now exporting more than 35% of its current GSMP. That's an important statistic to remember when people start raising the issue of protectionism, which will surely come up with the next wave of manufacturing job losses.

Laying the Blame for Job Losses
McKinsey and Co. recently completed a trade and industry study covering the years 2000-2003. The conclusion was that the primary reason 2.7 million manufacturing jobs were lost during that period was falling exports. Fall exports were a direct result of weak domestic demand and rapid productivity growth. McKinsey went on to state, "We estimate that if the dollar had not increased in value after 2000, exports would have risen by $29.3 billion dollars over the next three years, rather than falling $50.7 billion dollars." An overvalued dollar that resulted from inflows of overseas investors was far more detrimental to manufacturing than most people had originally thought.

The problem of the overvalued dollar is now being visited on the Canadian manufacturing community, whose currency is at it's highest level in more than a decade; as a result, they are now in the process of shedding manufacturing jobs.

Speaking for the Many
Most manufacturers supply parts to the OEM manufacturing community who do indeed export; but such OEM suppliers have little export volumes of their own. This absence of direct involvement in exports leaves only a few manufacturing firms with substantial export business to speak for the needs and problems of the many in the international trade arena.

The National Association of Manufacturer's ( NAM) has consistently spoken out on trade issues. The latest is related to ending "illegal subsidies" and "the aggressive trade agenda" of China. This includes the issue of moving to a market-determined currency, tough action on product and trademark counterfeiting, and efforts to better promote US exports to China's vast markets. NAM is now being joined by the Associated industries of Massachusetts (AIM), and hopefully other business organizations throughout New England, in speaking out about these serious hindrances to manufacturing growth in our area and by ensuring that we are competing on a level playing field.

But such growth will also require continued productivity improvement, as pointed out by Peter Drucker. "The relative purchasing power of manufactured goods has fallen by three-quarters in the past 40 years. Manufacturing prices, adjusted for inflation, are down by 40% for the same period." This same increase in productivity, which has preserved our current standard of living, must continue if we are to see our export markets grow.

Maintaining Productivity
Can such productivity be maintained? We believe the answer is "yes," as we have seen what has been achieved by companies who have embraced the concepts of Toyota's Lean Manufacturing.

A survey by an independent, third-party research company demonstrates the economic impact that has been obtained by hundreds of New England manufacturers who have been working on lean manufacturing methodologies with the Manufacturing Extension Partnership (MEP). The manufacturers were surveyed one year after the completion of their projects and the results are indicated below. They reflect both the direct and indirect economic impacts that were produced as a result of this work.

2004 Economic Survey

  MaineMEP MassMEP NHMEP
Jobs created or retained 843 2,224 388
Increased economic output $ 88.8 mm $365.1 mm $50.7mm
Contribution to GSMP $ 39.8mm $180.2 mm $23.4mm

Over a half billion dollars of increased economic output was generated in one year from a relatively small population of manufacturers. This indicates we have all of the potential we need for continuing growth. How is that for productivity?

To begin your own lean manufacturing program, contact Mike Prior at MassMEP, michaelp@massmep.org. or call (508) 831-7020. For more information on international trade, contact AIM and NAM.

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