Production Surges; More Gains Expected

The manufacturing production index finally broke out of an over-two-year "hold" in the 111-112 range (1997=100), with a jump to 114 in November. It is anticipated that this pickup will be sustained with month-to-month gains averaging about 0.4 points through 2004. These gains are expected to bring production activity back to the May 2000 peak level very late in 2004. Manufacturing will continue to expand for several more years, adding about 10% more to the index. This is an unusually weak manufacturing recovery; in the past, recoveries have pushed activity to as much as 20% above the peak of the previous cycle.

The expected sustained gains in U.S. manufacturing in 2004-2006 are masking a long-term loss of world manufacturing market share. Outsourcing to cheaper-labor countries will continue, although the recent 30% depreciation of the dollar will slow the trend in the next few years.

The loss of U.S. manufacturing world market share has become more painful for printers for two reasons. First, the loss has accelerated. Second, that lost market share now largely is going to locally owned Asian companies instead of to subsidiaries in Canada, Mexico, and Europe. Supply management is shifting to Asia, which favors Asian suppliers with U.S.-based managers less commonly than buying printing in the U.S. for foreign subsidiaries.