ManufacturingaEUR(TM)s upswing to be felt in the service sector
September 20, 2013

ItaEUR(TM)s no secret that American manufacturing is on the upswing. Because of the natural gas bonanza, chemical manufacturing is coming back to Pennsylvania and Texas. In addition, because of technological advances, companies like BMW and Volkswagen are expanding production in the United States, while American companies like GE are manufacturing more products at home. So the obvious question is: Where will the new jobs come from? The answer is surprising.

The truth is, American manufacturing never really went away. Its growth may have stalled but it did not leave entirely. Statistics show that the United States and China are tied for the title of worldaEUR(TM)s largest manufacturing country, with the U.S. now pulling ahead. ChinaaEUR(TM)s manufacturing sector grew on the basis of cheap labor, while AmericaaEUR(TM)s has rebounded on the basis of cheap capital. Low interest rates meant American companies could invest in automating their manufacturing processes. Human hands in Asia are competing against robotic hands in the United States aEUR" and the robotic hands are winning.

As a recent attached article in The New York Times shows, automated textile production in the U.S. can once again compete with work done in Asia, because automation greatly increased our productivity. But itaEUR(TM)s not just textiles. Automation means the United States is a great place to make almost anything.

But hereaEUR(TM)s the catch. As you might expect, automated factories employ far fewer workers than traditional manufacturing plants. Even so, thereaEUR(TM)s a lot of good news.

As automated factories expand, the plants will need to be insured, the products produced will have to be designed, the factory walls will have to be painted, and the machines will need to be kept in good repair. Goods made in automated factories still have to be packed, shipped and delivered. And, they need to be sold.

Though the factories themselves might not be hiring in record numbers, the services that support them will. As a result, the best place to look for the impact of the upswing in manufacturing will be in the growth of the services sector.

The author is a Milken Institute senior fellow and author of the soon-to-be-published book, aEURoeUnleashing the Second American Century.aEUR?