Economists praise manufacturing for the "multiplier effect," which holds that manufacturing creates economic output in other industries by using intermediate goods and services in the production process. According to the National Association of Manufacturers (NAM), every $1 generated by a manufacturing product has created an additional $1.37 in intermediate economic output. Unfortunately, the opposite is true: when manufacturing slows down, so do the complementary industries associated with it. Several manufacturing-related sectors of the U.S. economy have experienced this kind of slowdown in recent years, largely because of rising material costs, notably of oil and steel. The industry didn't suffer as long as consumers were willing to carry the higher costs, but the U.S. housing market collapsed in summer 2007, wiping out a great deal of consumer confidence in the process. The housing crisis was also disastrous for a few manufacturing segments, particularly wood and forest products, which provides house-building materials.

Still, the U.S. manufacturing industry is the largest in the world, with U.S. firms accounting for nearly 25 percent of the sector?s worldwide sales and leading in areas such as aerospace, telecommunications and consumer goods. Taken alone, U.S. manufacturing surpasses the GDP of all but six of the world's countries. In addition, it's the No. 2 country in terms of exporting manufactured products, and in total manufacturing output in dollars (close to $1.5 trillion in 2006). The manufacturing and exporting of goods is critical to maintaining a strong currency and economy, so it's no wonder economists pay close attention to manufacturing stats and figures. The manufacturing industry covers a wide array of businesses, from mineral products, metals, chemicals, plastics, machinery, computers and electronics to motor vehicles, furniture, paper, textiles and clothing. Several of the more important sectors are discussed below; Vault's guide to the consumer products industry addresses food and consumer goods manufacturing and marketing.

Auto manufacturing for the people
Arguably, the first half of the 20th century was the Golden Age of U.S. manufacturing, when Detroit hummed with auto production and Henry Ford ushered in the next phase of the Industrial Revolution with his assembly line production method. Beginning in the 1970s, though, American auto production began a gradual decline in terms of production standards and sales. In 2007, Detroit automaker General Motors managed to hold off Toyota for the title of No. 1 automaker worldwide, but just barely?GM sold 9.37 million vehicles, while Toyota sold 9.36 million. In the late 1990s, American carmakers were riding high because of consumers' appetite for big trucks and sports utility vehicles (SUVs), as opposed to the typical subcompact made by an Asian company. The new millennium was a different era, though, as rising gas prices and increased environmental awareness exposed many American-made vehicles as gas-guzzling, energy-inefficient dinosaurs. Consumers began preferring the sporty hybrids in which Asian firms specialize (e.g., the Toyota Prius) and U.S. automakers? profit margins were hammered by the high wages and cushy benefits of North American assembly line workers. (Rising steel prices didn?t help, as the price per ton more than doubled from $260 in mid-year 2003 to $580 in 2006, and surged by another 40 percent in the first four months of 2007.) All of these factors led to some whopping losses: GM reported a $38.7 billion deficit in 2007, the worst in company and automotive industry history. Not to be outdone, Ford lost $12.7 billion in 2006, the worst annual result in that company?s history. Chrysler reported its own $1.5 billion loss in 2007, a figure so bad that parent company Daimler sold it to private equity firm Cerberus Capital Management for $7.4 billion?the first U.S. auto privatization in half a century. Meanwhile, Toyota streaked across the finish line with almost $14 billion in 2007 earnings.

American and international auto firms have similarly opposite fortunes in terms of employment?Chrysler, Ford and GM are cutting back drastically on North American manufacturing. By the end of 2007, membership in Detroit's major union, United Auto Workers, fell below 500,000 for the first time since World War II. Membership peaked at 1.5 million in 1979 and has been in steady decline ever since. The number is sure to grow smaller in future years, as the big three are currently offering buyouts to the majority of North American plant employees. In 2006 alone, over 67,000 workers took buyout offers from Ford and GM, and Chrysler has the stated goal of cutting 21,000 North American jobs by 2009.

While U.S. companies are shrinking North American operations, foreign firms are expanding in the same region. And these companies' new manufacturing facilities are usually not located in Michigan?BMW, Honda, Hyundai and Toyota have all recently built plants in the Southeastern U.S., and in late 2007 Volkswagen said it was ditching Auburn Hills, Michigan, as its U.S. headquarters, in favor of Northern Virginia. Ironically, as these firms increasingly move production to the U.S., some are experiencing similar struggles to the Detroit firms. For instance, as demand weakened in the U.S. during the economic downturn of 2007 and 2008, Hyundai drastically reduced North American production by about 20 percent at its plant in Mobile, Alabama. And in early 2008, Toyota had almost one assembly plant's worth of idle capacity, making cars that wouldn't immediately sell. As sales continue to slump in the U.S. and the dollar continues to weaken, North American auto-manufacturing is coming to resemble that of Asia: a cheap manufacturing base, from which companies can turn a profit by exporting cars worldwide. And unexpectedly, Detroit's big three are some of the best-positioned automakers to thrive in an export economy, having restructured much of the workforce through 2007?s landmark buyouts. The buyout initiatives are still underway, though, and if no employees decide to leave Ford, GM and Chrysler, then forced layoffs will become inevitable in order to increase these firms' bottom line.