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US manufacturing seen expanding: economist

Keywords: Tags  U.S. economy, manufacturing, employment, Daniel C. North, Euler Hermes, Metals Service Center Institute, Catherine Ngai

PHOENIX — The U.S. economy is facing a number of headwinds in 2014, including tax burdens, structural unemployment and overregulation, although a strong manufacturing sector coupled with certain strong end markets is underscoring modest growth, according to one economist.

Calling 2014 a year of "cautious optimism," Daniel C. North, chief economist at Baltimore-based Euler Hermes, told participants at the Metals Service Center Institute’s Carbon Conference in Phoenix that global growth is predicted to be around 3.1 percent this year vs. 2.3 percent in 2013.

"Most of that is from emerging markets like China and India," he said. "The eurozone has just come out of a recession and we’re expecting growth of around 1 percent there. In the U.S. (market), we expect to see more anemic and modest growth in 2014, which will be better than 2013."

North, who predicted that the U.S. market will grow at around 3 percent in 2104, up from 1.8 percent in 2013, said that the debt crisis and unemployment are two top issues plaguing the economy, while uncertainty in the regulatory environment—including costs that may be incurred by the Affordable Care Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act—may hurt industry.

"The employment situation ... is still worrisome," he said. "We’ve lost a lot of jobs since the recession, but gained some since. Six years later, we’re still 1 million jobs short. As far as recovery goes for employment, it’s still pretty dramatic." In addition, in many industries there is a "skills mismatch" in education and training.

But not everything in the economy is bad news. North said that one bright spot is manufacturing thanks to competitive labor and energy costs.

"When manufacturing jobs left these shores, the jobs that held have been very productive while wage growth has been zero," he said. "Highly productive American workers combined with zero wage growth means that we have among the lowest labor costs in the industrial world."

The wage differential between a Chinese worker and a U.S. worker was around $17 per hour in 2006 but is expected to be around $7 per hour next year, North said. "We’re three times more productive than Chinese workers. And (the wage gap) is not going to be enough anymore to keep people going to China. Companies won’t see it as enough to forgo the good things you get when staying home, like quality, lower transportation costs, lower inventory costs, time to market and keeping technology. This is a very good story."

Affordable energy costs provided by natural gas also is helping U.S. industrial companies, he said.

And with those advantages, the U.S. market is looking up, North said. "Confidence is rising, even though it’s rising very slowly, and manufacturing growth looks good."

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