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MADE IN THE SOUTHMade in the South

The Next Great Industrial Migration?

By Mike Randle

There was an interesting statistic published in the spring 2009 edition of Southern Business & Development, one that could have been easily overlooked by readers considering it was a minute part of the myriad of statistics that make up the annual SB&D 100. But there it was, buried on page 41 in a chart that compared significant manufacturing and non-manufacturing projects announced in the South each year since 1993.

Included in the manufacturing vs. non-manufacturing chart (see Chart No. 1) were total projects announced from the year-long recession year of 2008. The statistic we are referring to is this: In calendar year 2008, there were 291 manufacturing projects announced in the South with 200 or more jobs and/or $30 million or more in invested capital. On the other hand, there were only 138 non-manufacturing projects announced in the South meeting or exceeding the same thresholds.

Not only did the manufacturing sector in the South turn more than twice the number of big deals than did the non-manufacturing sector last year, the total of 291 topped the 10-year average of 228 in the South by 63 large manufacturing projects. Considering how dismal the economy was in 2008, what figure of any measure of the economy topped any 10-year average? We can only find one.

So, what's the big deal about that? Well, with GM, Chrysler and other manufacturing giants filing for bankruptcy over the last year, it's easy to believe that manufacturing in this country has gone the way of the dinosaur. Part of that you can believe, as it is clear to us that manufacturing in many parts of the U.S. is in a severe state of decline. However, our figures show that the manufacturing sector is getting stronger in the South, while getting weaker at the same time in the West, Midwest and Northeast.

Chart No. 1

Total Deals - Manufacturing vs. Non-Manufacturing - SB&D 100 1994-2009

2009 291 138 429
2008 301 209 510
2007 257 225 482
2006 219 370 589
2005 292 297 585
2004 189 277 466
2003 164 245 409
2002 165 282 447
2001 209 312 521
2000 194 346 540
1999 228 344 572
1998 229 407 636
1997 212 361 573
1996 310 243 553
1995 281 189 470
1994 303 182 485

(*Total Announced Deals 1994-2008 with 200 Jobs or more and/or $30 Million in Investment. Project totals came from the previous calendar year. Source: SB&D)

Global and U.S. Manufacturing Statistics

In 2008, the total of all countries' gross domestic product was estimated by the International Monetary Fund to be $60.1 trillion. Of that, 17.7 percent came from manufacturing or approximately $10.6 trillion worldwide. The value of manufacturing varies for each continent, with North America's manufacturing share of GDP right at 14.4 percent. Europe's manufacturing share of GDP is 17.2 percent and Asia's is 23.7 percent.

While there is no question worldwide manufacturing has slowed dramatically in this recession, which is at least 20 months old now, it remains a vital part of almost every developed and developing economy. In the U.S. the manufacturing sector supported well over 15 million jobs in 2007. About 5.4 million of those were in the South, which is far and away the largest manufacturing region of the U.S.

Prior to the recession, it was estimated that manufacturing was responsible for 10.1 percent of total employment in the U.S. and 12.2 percent of total U.S. GDP ($1.83 trillion). Manufacturing also accounted for 64% of all U.S. goods and services exported in 2007 and the U.S. share of global manufacturing is just over 22 percent, or the same as it was in 1995. Of course, many of the figures associated with this recession are simply not available yet, so it is impossible to gauge accurately changes in manufacturing output to date. But, there are some data just now being published and we will present that information later in this article.

The China Effect

Some, such as the economics consultancy firm Global Insight, have predicted many times in the last few years that China would surpass the U.S. by now in the total value of manufacturing output. The U.S. has been the No. 1 world manufacturer for over 100 years. Those predictions, which have certainly created a perception of American manufacturing in severe decline, are different from reality.

The fact is China's manufacturing sector produced about 60 percent ($1.03 trillion) of what U.S. manufacturers produced ($1.72 trillion) in 2008 from what we have been able to gather from somewhat preliminary data. Furthermore, the United States' share of the manufacturing output of countries that produced over $200 billion was 27 percent in 2007. That is down from 33 percent in 2000, but only one percentage point below the 28 percent share the U.S. held in 1990.

One way that perception doesn't equal reality regarding China vs. the U.S. in the manufacturing sector can be sourced from these figures: China's share of manufacturing output was only 4 percent of countries that produced at least $200 billion back in 1990. Currently, it is at 16 percent, which means China's manufacturing sector has grown dramatically in the last two decades, yet it still trails U.S. manufacturing output by a large margin.

China's situation is similar to Korea's (271 percent increase since 1990) in that it is easy to create the perception that astounding manufacturing sector growth numbers mean global dominance in manufacturing in general. In other words, it's much easier to post eye-opening manufacturing output figures when you start from nothing, which was the global position China and Korea were in compared to the U.S., Germany, Italy and Japan in 1990. It will be interesting to track countries like Vietnam (only $15 billion in manufactured goods produced in 2007) and Thailand ($85 billion) over the next decade as they will likely produce chart-busting manufacturing growth figures, primarily because their current totals are so low, not unlike China's and Korea's 20 years ago.

Chart No. 2

Top 10 Manufacturing Countries in 2007

1. USA
2. China
3. Japan
4. Germany
5. Russian Federation
6. Italy
7. United Kingdom
8. France
9. Korea
10. Canada

(*In billions of 2007 U.S. dollars. Source: UN Data)

The State of Manufacturing in the U.S.

Currently, there are conflicting U.S. numbers that may or may not shape the future of manufacturing in the South. According to the Bureau of Labor Statistics, total manufacturing employment in the U.S. dropped from 18.9 million in 2000 to 15.8 million in 2007.

On August 7, 2009, a press release published by the Bureau of Labor Statistics showed the U.S. had lost approximately two million manufacturing jobs since the recession officially began in December of 2007. That being the case, we estimate there are now 13.88 million people working in manufacturing today in the U.S., or a loss of more than five million manufacturing jobs this decade.

To give you a historical perspective, according to the Bureau of Labor Statistics, manufacturing employment has been falling for at least 50 years in the U.S. In 1950, the share of manufacturing employment was about 35 percent of total employment in the U.S. Today, that figure, counting the lost jobs so far in this recession, has dropped to about 9.7 percent.

Chart No. 3

Manufacturing Jobs per U.S. Region 2008

% of Total Employment

(Source: Bureau of Labor Statistics)

Manufacturing employment throughout the world is in decline as well. You might recall a statistic that was widely published in 2006 that put to rest the perception that lost U.S. manufacturing jobs were simply a result of major manufacturers relocating plants from the U.S. to China. From 2000 to 2004, the U.S. again lost two million manufacturing jobs. During that same time frame, China lost over 15 million manufacturing jobs.

The real threat to manufacturing employment worldwide is improved technology. Today's manufacturer is all about automation, which eliminates more manual tasks on the factory floor each and every year. But, automating the manufacturing process doesn't mean that manufacturing is in decline in general. Since 1990, the total value of manufactured goods in the U.S. has increased from about $1 trillion to $1.54 trillion in 2000, dropping slightly to $1.49 trillion in 2005, then peaking at $1.83 trillion in 2007.

Manufacturing productivity is rising as well. According to the Bureau of Labor Statistics, manufacturing productivity (output per hour) rose in the U.S. at an average of 2.8 percent annually between 1950 and 1973, 2.6 percent between 1973 and 1995, 4.0 percent between 1995 and 2000, 4.8 percent between 2000 and 2003 and an astounding 6.8 percent between 2003 and 2007.

This increased productivity is evident in total manufacturing output in the U.S. over the last 30 years. According to the Industrial Production Index (IP) published by the Federal Reserve System, which includes manufacturing, mining and utilities, real manufacturing output more than doubled between 1978 and 2007, rising 124 percent. The figure was about in line with the U.S. Gross Domestic Product, or the total value of all goods and services produced in the U.S. Between 1978 and 2007, GDP increased by 130 percent.

Even more notable is the surge in the value of durable goods in the U.S., such as aircraft, vehicles and machinery. Between 1978 and 2007, the value of durable goods tripled, rising 206 percent. Not surprisingly, the value of computers and other electronic products produced in the U.S. increased 5,700 percent from 1978 to 2007. Over the same period, output of non-durables, such as paper, food and chemicals, rose just 50 percent.

The State of Manufacturing in the South

While there is little argument that manufacturing jobs are in decline, even though there was a slight increase seen in the South from 2004-2005, investment in new manufacturing plant construction increased by 25 percent in the U.S. in 2005, according to the U.S. Department of Commerce and by 36 percent in the South. That compared to a decline of 6.5 percent in 2003 and an increase of 9.7 percent in 2004 nationwide.

Our own statistics from the 2009 SB&D 100, show that capital investments made by the 100-largest new, expanded and relocated manufacturing projects announced in the South in 2008 grew to a record $53.7 billion, or an average of $537 million per project. The rise in value per project has occurred in the South every year since 2004. The last time the total value of manufacturing projects and per project investment average dropped from one year to the next was during the recession of 2001 and 2002. However, unlike the last recession, the value of manufacturing projects in this recession has risen to highs never before seen in the South's history and each year it continues to increase (see Chart No. 4).

Chart No. 4

Total Investment Created by the SB&D 100 1994-2009

Year *Total Investment
2009 $53.7 Billion 
2008 $45.1 Billion 
2007 $44.2 Billion 
2006 $26.7 Billion  
2005 $22.2 Billion  
2004 $22.1 Billion
2003 $18.3 Billion 
2002 $25.0 Billion 
2001 $25.8 Billion 
200 $24.6 Billion
1999 $22.6 Billion
1998 $19.8 Billion
1997 $23.8 Billion
1996 $22.6 Billion
1995 $18.8 Billion
1994 $17.4 Billion

(*Totals derived from the previous calendar year. Source: SB&D)  

Yet, like everywhere else, manufacturing employment continues to drop in the South (see Chart No. 5), even though at 4.64 million (latest figures available), the South is home to approximately 800,000 more manufacturing jobs than the Midwest, its nearest rival. 

While we've established that manufacturing jobs throughout the world, the U.S. and the South have decreased, we have also established that capital investment made in manufacturing facilities and equipment in the U.S. and the South has increased, as has output value and productivity.

Chart No. 5

Manufacturing Jobs in the South

Year Total Jobs
2008 4.64 million
2007 5.11 million
2006 5.20 million
2002 5.54 million

(Source: Bureau of Labor Statistics)

The two primary reasons why the South's total manufacturing capital investments have set records never before seen, even during this severe recession, can be sourced to the energy sector and overall foreign investment. Since 2006, there have been 28 different energy-related projects announced in the South of $1 billion in capital investment or more. That is a record that no industry sector has come close to competing with in the South's history. In 2008, the 14-largest projects in terms of capital investment were all energy-related deals.

Foreign-based manufacturing projects announced in the South have established record highs as well. Since 2006, Samsung, Kia, Daimler, ThyssenKrupp, Toyota, Shintech, Rolls Royce, Mitsubishi, BMW, Volkswagen, Hitachi, Canon, Formosa Plastics and Severstal have all invested more than $1 billion each in facilities in the American South.

The New Sustainable?

Again, the perception that manufacturing is in a free-fall decline in the U.S. and that it will never stabilize has many political and economic development leaders in the country searching for sustainable job generating projects. Next generation, clean energy projects are at the top of many states' lists as sustainable job and tax dollar generating projects. Yet, during this recession, there hasn't been much that anyone can identify as sustainable job generating industry sectors, as downsizings and closures have affected virtually every sector across the board.

Nevertheless, there is a trend occurring in the South and that trend can be found on the chart that we first published in the Spring 2009 issue and republished in the introduction of this article. The chart shows that between 1997 and 2006, the services sector dominated the manufacturing sector in significant projects announced in the South. That's an entire decade of the South's economy dependent on the services sector for the majority of its job creation.

However, in the 2007 SB&D 100 (2006 numbers), the manufacturing sector in the South wrestled the crown away after 10 years from the services sector in deals announced of 200 or more jobs and/or $30 million or more in capital invested. A fluke, maybe? Not so fast. Manufacturing has led services in large projects announced in each of the last three years, so the numbers from 2006 certainly can't be regarded as serendipitous. A trend is emerging, and, considering that large manufacturing projects are undeniably not increasing anywhere else in the U.S., specifically in places like California, Ohio, Michigan, Indiana, Illinois, Pennsylvania, New Jersey and other states in the U.S. that have a history of manufacturing success, well, this positive manufacturing trend just may be a "Southern thing."

That brings us back to the question of "What's sustainable in this economy?" Well, in the South it is readily apparent that services are not sustainable, particularly in a recession of this magnitude. By looking at Chart No. 1 we have previously referenced, the services sector could muster only 138 significant projects in the South last year (200 jobs or more). That is down from 370 major services projects in 2006, which, when figuring it all up, means a loss of 232 big job generating service sector projects in just three years, each of which average 494 new jobs.

In fact, here's is a statistic from the 2008 calendar year that typifies more than anything how much the services sector is struggling in the South. The average number of financial services projects announced in the South since 1993 with 200 jobs or more is 45. In 2008, the total was eight.

So, using the aforementioned figures over the last three years, it looks as if the new sustainable industry in the South -- not the U.S. in general -- is the manufacturing sector.

A Manufacturing Beachhead Being Built

With the last three years of statistics showing that major manufacturing projects are increasing in the South, but nowhere else in the U.S., it would be pragmatic to surmise that a beachhead of sorts is being constructed in the region for those who manufacture products for U.S. consumers and for buyers offshore. That's probably old news now. After all, manufacturing migration from the Midwest, Northeast and the West to the South in recent years and over the last 40 years is indeed old news. Yet, the migration tends to have a much larger sense of urgency when economic environments get tight, or in the case of the last two years, on life support.

Major manufacturers are much different than most businesses. They typically have the capital to relocate huge operations from one region to another and less vital operations from one country to another, all in an effort to reduce costs. But they are no different than any other business that is making money hand-over-fist in the good economic times. In the good times, there's no sense of urgency to make changes, specifically as they relate to operating costs. But, when things get tight and margins are reduced dramatically, greener pastures are sought out. Many times those greener pastures are sought by companies in the U.S. looking for less costly and more stable labor environments.

With its purchase of the Vought plant in North Charleston, S.C., for the first time, Boeing now has the capability to produce large sections of aircraft in the South. Pictured is Boeing’s Everett, Wash. facility. Caterpillar, the global manufacturer of farm and earth-moving equipment, has done just that as of late. Caterpillar is headquartered in Peoria, Ill. and continues to operate four major plants in the Peoria area. From the fall of 1991 through the late winter of 1998, one of the largest labor disputes ever witnessed in the U.S. occurred in Illinois between the United Automobile Workers and Caterpillar. During this period, workers at Caterpillar went on strike twice, including a UAW-driven work stoppage that lasted for 17 months, ending in November of 1995. During the disputes, Caterpillar executives expressed their frustrations with the labor environment in Illinois numerous times.

Caterpillar operates 50 manufacturing facilities in the U.S. But since the labor strife that Caterpillar faced in Illinois in the 1990s, the South has become the location of choice for the large, Midwest-based company's newest U.S. facilities. In fact, just last year Caterpillar announced major manufacturing facilities in Seguin, Tex. and North Little Rock, Ark., both of which will open in non-union environments.

The Boeing Co. is in a similar fix today in Washington State that Caterpillar found itself in a decade ago in Illinois. The International Association of Machinists has recommended strikes four times since 1989 and has shut down Boeing commercial aircraft assembly plants in Washington State three times with walkouts in the past 14 years.

The latest strike occurred last fall, while Boeing was racing to meet a revised schedule for test flights of the 787 Dreamliner. The Machinists union represents about 25,000 electricians, mechanics, painters and other hourly workers in and around Seattle. The union ended its strike after two months and the 787 Dreamliner continues to be grounded.

In a similar refrain to Caterpillar executives' frustration in the 1990s in Illinois, former Boeing Commercial Airplanes CEO Scott Carson said during the strike last year that he did not like the labor environment in Washington State. That has folks worried up in the Puget Sound that Boeing will build a second 787 production line in the South in an effort to find a more labor-friendly environment.

Washington State officials are even more worried now that Boeing purchased the North Charleston, S.C. plant of 787 supplier Vought Aircraft Industries for $1 billion this summer. The purchase represents the first time in Boeing's history that it has substantial aircraft assembly capacity in the American South. It also raises the question of whether Boeing will move a second 787 production line or its next aircraft model to Charleston for assembly instead of to Everett or Renton, Wash.

Learning from GM and Chrysler

FUJIFilm USA operates its primary U.S. manufacturing plant in rural Greenwood, S.C.There is no question in most experts' minds that U.S. automakers undermined their world dominance in the last 30 years by agreeing to labor demands for pay and benefits that were unsustainable by the companies themselves. The legacy costs tied to those labor agreements eventually helped bring down GM and Chrysler. Similar large manufacturers like Caterpillar and Boeing seem to be making moves to prevent what has occurred to GM and Chrysler from happening to them. Considering recent developments, it is hard to argue that a strategy to move manufacturing production to less costly and less volatile labor markets in the South is not underway. It is.

During the last recession (2001-2002), which was the last time the domestic automotive industry found itself in a crisis; we predicted that GM, Chrysler and Ford would close high-cost, older plants in the Midwest and in Canada and keep open lower-cost North American facilities in the Southern Automotive Corridor ( and in Mexico. That didn't occur as the spate of domestic automotive industry plant closures earlier this decade were spread equally among Canada, the Midwest, the South and Mexico. The question that must be raised now is would GM and Chrysler have had to declare bankruptcy if they had made those moves we wrongly predicted they would make almost ten years ago? We will never know the answer. But, there's no question that domestic automakers didn't go belly-up because of their inability to compete globally. The reason they went bankrupt was their inability to compete in their home country, which means their business model here in the U.S. was flawed.

The Next Great Southern Industrial Migration?

While manufacturing projects have increased in the South in the last three years but likely decreased everywhere else in the U.S., it will be interesting to see what occurs once the recession ends and recovery begins. This recession has been so deep and so wide, it is sure to have initiated consideration of relocation and movement of facilities to less costly locations, but at the same time prevented many from doing so because of lack of cash flow and lending options. The new mantra of the last 20 months, if not longer, has been "to survive is to prosper." That being the case, hunkering down, even if it means operating in a place that is no longer conducive to survival, is the norm, not the exception.

Texas Gov. Rick Perry welcoming Illinois-based Caterpillar to Seguin, Tex. last year. If you believe the majority of experts, though, an economic recovery of some degree is right around the corner. If the economy is stronger than what has been predicted, it will be interesting to see how proactive manufacturers that don't have to operate in places like California, Michigan, Ohio and other states that will likely not see a recovery any time soon, will be in their overall business plans. With cash flow and credit prospects improving, will there be a mass exodus to places like Idaho and Utah in the West or even to the South for California companies? After all, there are few if any places in the U.S. where operating costs are higher than in California and that isn't going to change -- if ever -- any time soon.

If, during the recovery, California experiences an out-migration of companies like that seen in previous recovery years, expect Texas to benefit as always. Texas has a long history of locating relocating companies from California over the last quarter century. But this time, you can probably throw in Oklahoma, Kansas and other states in the South in the mix such as Florida and even Arkansas.

There is only one place in North America where the Pringles food brand is made. Proctor and Gamble makes Pringles at a plant in Jackson, Tenn. For many companies in the Midwest, specifically the states of Michigan, Indiana and Ohio, the desire to get out of that part of the country is something we know firsthand. SB&D has received many calls and emails from companies located in Michigan, Ohio and Indiana during this recession for assistance in helping them find new locations in the South in which to operate. In fact, in almost 20 years, we have never seen such a desire from such a large number of companies to simply pick up and leave a region like we are seeing right now in the Midwest. 

On the other hand, there is something different about this recession based on the inquiries we have received. Fewer inquiries have come from the Northeast in this downturn, specifically from Northeastern-based manufacturers, than during any other recession or downturn that we have been a part of (1991-1992, 2001-2002, 2007-?). While some may claim there aren't any manufacturers left in the Northeast, that assertion is wrong. The Northeast has the second-largest percentage of manufacturing employment of any region in the U.S., second only to the Midwest (see Chart No. 3). So, based on the subjective and objective information SB&D has at its disposal since this recession began, there is absolutely no question that manufacturers in the Northeast have fared much better than those in the Midwest. That claim probably has more to do with the collapse of the automotive industry in the Heartland.

The Incentives Factor

Regardless of whether the South will benefit from another massive industrial migration like it saw virtually every decade at one time or another since the 1970s, one thing is for sure: Incentives for relocating, locating and expanding companies to the South from other U.S. regions will not be as readily available from governments in the region as in years past.

Like everywhere else in the U.S., most state and local budgets in the South today are obstacles to the mustering-up of large incentive packages, regardless of how attractive the job-generating or capital investment project may be. That doesn't mean incentives won't be available to companies with sound projects that want to land them in the South. It just means that locating industry to the South better get used to more negotiation in the incentive process.


Time will tell if the South is on the verge of the next great corporate and industrial migration, possibly lending more credence to the "Made in the South" label. If history is an indicator, the migration may have already started, evidenced by the rise in the number of manufacturing projects over the last three years in the South. Even Florida officials have noticed, a Southern state not known for its manufacturing prowess. "We are seeing an increase in manufacturing activity in Florida," said Robert J. (Bob) Rohrlack, Jr., President and CEO of the Greater Tampa Chamber of Commerce. "This is great to see since Florida's history has been strength in services industries. Now that is being complimented with manufacturing growth."

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