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U.S. Manufacturing, Once Recovery's Leader, Edges Back To Decline

First Posted: 09/07/2011 7:09 pm Updated: 11/08/2011 4:12 am

Last month, after watching his manufacturing shop struggle through 10 years of decline, Frank Shannon finally decided it was time to close the doors. As recently as early spring, businesses like Shannon's were thought by many economists to be the driving heart of the country's economic recovery.

In 1990, Shannon purchased Finishes LTD, based in Colorado Springs, Co., and for the first 10 years growth was strong. But in 2001, profits started to decline, and Shannon was forced to begin cutting his staff of 21 workers. For the last five years, he had held on despite steady year-over-year losses.

Like many others in the manufacturing industry, Shannon experienced a brief moment of optimism last winter as orders rose and business picked up. But that wasn't enough to offset the losses that had become too much to bear, he said. When an expensive and critical piece of equipment failed, Shannon took stock of his situation. Rather than invest more than $25,000 to fix the machinery in his cash-poor business, he liquidated it.

"My wife and I thought, well, maybe someone is trying to tell us something here. We just gave up," Shannon said. "It was a hard decision. We didn't want to turn our employees out on the street because it's a tough time out there for people. But, at the end of the day, no customers, no revenue, no revenue, no work."

In January, manufacturing was praised by economists as the "shining star" in the economy's slow creep out of the Great Recession. In 2010, for the first year in more than a decade, U.S. manufacturing created more jobs than it eliminated, with the auto industry leading the way. Manufacturing -- and the good jobs it provided -- was coming back, and the revival, experts forecast, would lead the way toward robust economic revival.

But the last several months have seen that promise begin to drain away. In August, the manufacturing sector shed 3,000 jobs, according to the Bureau of Labor Statistics' monthly employment snapshot -- the first net loss in almost a year. Additionally, new orders -- generally the best predictor of future growth -- shrank in July and August, according to the Institute for Supply Management's "Report On Business."

"I don't see any reasons to be optimistic that we're going to be creating manufacturing jobs as fast as we saw the first four months of this year and last year," said Scott Paul, executive director of the Alliance for American Manufacturing, a pro-labor research and advocacy organization. "This is very unfortunate because manufacturing in many ways was playing an outsized role in the recovery, and I don't think that's the case anymore."

Economists say the manufacturing sector often gives the initial spark to recovery during hard times. Unlike jobs in the retail sector, which has also been growing, manufacturing jobs offer higher wages and benefits, which provide additional stimulus to the economy.

Although manufacturing has been on a long-term decline, experts say the causes of the recent slowdown are more acute: declining consumer spending, a slowing gross domestic product and growing fears among business owners that the United States may slip back into another recession.

"What we're looking at now is not the long-term story of manufacturing jobs. What we're looking at is the economic crisis and what the financial crisis has done to us," said Suzanne Berger, an MIT professor who chaired a recent panel on the future of American manufacturing. "The decline in confidence about the economy has really been significant, and that is the story of the last six months."

Businesses hire when they see demand going up. And the current economic climate -- both nationally and globally -- does not suggest that demand will be increasing any time soon.

"We look at our orders, and when our orders start falling then we have to take action, and that can mean laying workers off," said Brian O'Shaughnessy, the former CEO of Revere Copper Products and current chairman of the company's board of directors.

Revere, which produces copper products for other manufacturing companies and is one of the oldest manufacturers in America, is not currently anticipating any cuts to its staff of 350 -- shrunk from the 550 employed a decade ago. But O'Shaughnessy doesn't know how long that will last. The company, he says, is gaining market share as other factories shut down, but not seeing real growth.

O'Shaughnessy didn't put much stock in the claims that last year's manufacturing rebound was going to lead the U.S. recovery: The underlying problems of decline were too deep and the growth still too slow.

"I never believed any of that frankly. People were forecasting something that they wanted to see happen, but it didn't," said O'Shaughnessy. "We're lost at sea. I'm anticipating a continuing erosion."

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