Study shows high costs still undermining key manufacturing sectors

Manufacturing profits in five key sectors were 67 percent lower than they would have been from 2000 to 2003 because of adverse structural costs — and still have not returned to their historic norm — according to a joint study released Oct. 11 by the Manufacturing Institute and the Manufacturers Alliance/MAPI. The report focuses on five major industries — fabricated metal products, machinery, electrical equipment and appliances, motor vehicles and chemicals — which together represent over half of all manufacturing production.

"Profit rates for durable goods and chemical manufacturing continue to be dramatically lower than their historic norm, primarily because of escalating domestic costs and intense international competition," said Jerry Jasinowski, president of the Manufacturing Institute. "These structural costs are having a far greater negative impact on manufacturing profits than the recent recession."

"The main drivers of the profit squeeze are soaring health and pension costs, high energy and material costs, and misaligned exchange rates that affect global competition," said author and economist Jeremy Leonard. "These factors have contributed to a secular decline in manufacturing profits, adversely affecting investment in equipment and R&D, job growth and training." As the study points out, "Concern about manufacturing profitability should thus stretch from the boardroom to the factory floor."

The complete report can be read here.