No relief seen on the horizon for manufacturing

Star Tribune (Minneapolis) (MCT) - The sudden global economic slowdown is trimming sales, earnings, jobs and plants across the U.S. manufacturing landscape _ and economists say more cuts are on the way next year.

DuPont, Dow Chemical, Ford Motor Co., General Motors Corp. and Anheuser Busch, among others, are shutting factories and slashing jobs around the globe; those firms whacked 26,000 jobs and announced 30 plant closings this month. Nationally, manufacturers have scrubbed 600,000 jobs this year _ including 85,000 last month.

A recession "always hits manufacturing first and hardest," said Hank Cox, a spokesman for the 10,000-member National Association of Manufacturers.

"We are going into a valley, and it looks like we are going to be in for a long, deep valley."

Dan Meckstroth, spokesman for the trade group Manufacturers Alliance/MAPI, said this recession will likely accelerate the decline in the U.S. manufacturing jobs base. On average, U.S. manufacturing jobs have fallen 0.5 percent each year since 1979.

This recession "is probably not going to be like June 2000 to 2003, when manufacturing lost 3 million jobs and never really got them back," Meckstroth said. "But we are going to lose a lot of manufacturing jobs in this cycle."

Low-skilled manufacturing jobs went away to China and Asia in the 1990s and the early part of this decade mainly because of the wage and the labor cost differential, Cox said.

But while jobs went overseas, so did U.S. products, boosting exports, profit and revenue. For two years, a weak U.S. dollar and rapid growth in markets such as China and India propelled the U.S. economy.

But as the economies of China and India have slowed and Europe, Mexico and Japan have slipped into recession, U.S. exports have stalled.

"Now the worry is that that (export) pillar has been kicked out from beneath the manufacturing sector," Meckstroth said. "I don't think there's any question that is occurring. Exports were growing at double-digit rates ... and it looks like it's going to be negative or flat in 2009."

Until recently, people were thinking that Asia could be the growth engine to help us get out of this global recession.

"But ... how long can an export-oriented region, which Asia is, continue to grow, when its prime customers are in a recession?" Meckstroth said.

Jim Paulsen, chief investment strategist at Wells Capital Management, said, "I agree it's going to be pretty miserable for the next year or so" for U.S. manufacturers. But long term, there is a bright spot, he said.

The rapid growth of once-underdeveloped overseas markets has produced a massive consumer base that will benefit U.S. manufacturers for decades to come, Paulsen said. That will make the United States a stronger trading partner that can have more influence in having China, India and others clean up polluted water, improve worker conditions and properly value their currencies.

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"I just think that paints a pretty good long-term picture for our manufacturing sector," Paulsen said. But first we must slog through this patch, he added.

For now, restructuring is the buzz word of the fourth quarter. The country's producers are busily slashing worker salaries and benefits, idling production lines and curtailing supplier contracts in attempts to maximize cash flow, preserve or restore profit and boost shareholder value.

"Cash is now king," 3M CFO Patrick Campbell told Wall Street analysts after the conglomerate on Dec. 8 announced 500 more job cuts on top of the 1,800 layoffs the week before. Those 2,300 are in addition to 1,200 cuts announced earlier this year.

Depressed housing markets, the credit crisis and job uncertainties have cowed U.S. consumers and sent Detroit automakers to Congress seeking a financial lifeline, which lawmakers have yet to offer. The auto industry's troubles are, in turn, taking a toll on auto dealerships.

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Residential product makers face equally grim times.

Just weeks ago, Andersen Corp., the window-and-door-making giant in Bayport, Minn., said it's shutting its North Carolina building materials plant this month and laying off 450 workers there. That's on top of 492 job cuts in Menomonie, Wis., and Bayport since last year.

Home- and auto-related firms aside, the global financial crisis drew other industries into the circle of pain. Mining, commercial construction and technology firms have taken hits.

Imation, which owns Memorex and makes data storage tapes and DVDs, is the victim of bank failures. Customers such as the subprime mortgage mavericks Lehman Brothers, AIG, Wachovia, Merrill Lynch and Washington Mutual have canceled product orders, prompting Imation's $40 million charge, 200 layoffs and an $8.7 million loss for the third quarter.

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The global slowdown also has crimped the appetite for raw materials such as steel.

Last month, Cleveland-Cliffs Inc., which owns United Taconite and NorthShore Mining in Minnesota, idled production lines on the state's Iron Range and backed out of its $2.7 billion merger with coal mining giant Alpha Natural Resources.

Now Iron Rangers are holding their breath. India-based Essar Global just started construction on a $1.6 billion project in Nashwauk, Minn., that is slated to create the first taconite-to-steel mill in North America. Residents fear the squelched economy could flatten that deal.

Meanwhile, others are looking to Washington and the incoming administration of Barack Obama for help.

"We have to hunker down and ... make some good decisions ... to preserve our manufacturing base," said Cox of the National Association of Manufacturers. "And we are advocating some things that we think will help (such as) increased investment in infrastructure."

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