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Analysis: U.S. factory jobs rebound seen destined to fizzle

By Jason Lange

(Reuters) - U.S. manufacturers are hiring at the fastest pace in more than a decade to keep up with new orders but sweeping technological advances could cost thousands of factory workers their jobs in years to come.

At a new factory in upstate New York, which is due to churn out its first computer chips this year, technicians are calibrating robots to ferry material from machine to machine using miles of overhead track.

"This factory is designed to be fully automated, meaning theoretically it requires no human intervention at all," said Eric Choh, general manager at the facility run by semiconductor maker GlobalFoundries.

The company is hiring engineers and programmers who are still needed to mind the machines. But "compared to 20 years ago, today we don't need a lot of labor," said Choh.

Last year, factories added 237,000 jobs - the most since 1997 - and that burst in hiring is seen stretching into this year as the economy recovers from the 2007-09 recession.

But a renaissance for industrial employment is unlikely. Over the long term, factory job creation looks destined to stagnate as technology advances, and manufacturers' role in the labor market will likely continue a decades-long decline.

A Labor Department report published on February 1 projected factory employment will drop to 11.5 million workers by 2020 - down from 11.9 million in January - despite expectations production will increase in coming years.

The projected decline in employment suggests it will be hard for President Barack Obama and Republican presidential candidates like Rick Santorum to protect factory jobs as ardently as they have promised on the campaign trail.

Factories have a special place in American hearts because they have been the gateway to the middle class for millions of workers.

Even though the United States remains a pre-eminent manufacturing power, accounting for about a fifth of global factory output, only 9 percent of its workforce is engaged in factory activity, and that percentage is falling.

Manufacturers' share of the labor market will likely drop to 7 percent by the end of the decade, according to the government projections, down from nearly a third in the 1950s when unskilled workers played a bigger role.

"You just don't need as many people as in the days when you were essentially running a Ford assembly line," said James Franklin, a Labor Department economist who helped draw up the long-term employment projections.

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Graphic on U.S. manufacturing: http://link.reuters.com/cur76s

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TEMPORARY REBOUND

The outlook is more positive in the near-term. At GlobalFoundries' sprawling new plant in Saratoga County, for example, Choh plans to hire about 500 more people by year's end.

And across the country, factory payrolls will likely swell by 173,000 this year, says the Manufacturers Alliance for Productivity and Innovation, an industry research group.

Last month, Daimler Trucks announced it would hire 1,200 new workers at a North Carolina plant that makes long-haul trucks that sell well in Australia and South Africa.

But analysts say much of the recent hiring spurt is just a temporary rebound from the recession, when manufacturing output fell about 20 percent and factories laid off 2 million people.

"They probably got rid of more capacity and more employees than was necessary in retrospect," said MAPI economist Cliff Waldman, who expects factory hiring to slow sharply next year.

Still, there are factors supporting the sector.

The U.S. dollar has lost about a third of its value since 2001, helping exporters, and U.S. producers have become more competitive.

After a decade of heightened competition with China, which devastated American industries like clothing makers, the U.S. factories that remain are more high-tech and less likely to be undercut on labor costs.

Moreover, wages in China are rising much faster than in the United States, reducing the incentive to offshore production, while the recession itself raised pressure on U.S. companies to embrace more cost-saving measures, like automation.

S & S Hinge Company, for example, has retooled its plant in Bloomingdale, Illinois, since the recession. A pair of computers runs its newest production line, which makes hinges 50 percent faster than older lines. That is helping the firm meet rising orders for parts that go into pickup truck toolboxes while reducing the need for more staff.

"We've upgraded our factory. We actually put in a new operating system. So it has cut the need for more bodies," said Richard Sade, the company's chief operating officer.

FROM FACTORIES TO SERVICES

As grim as that sounds for many workers, a future with fewer factory jobs isn't necessarily bad for the economy.

Part of the drive to be more efficient has led factories to outsource more work, contracting services from accounting firms, consultancies and other companies.

Even though the number of workers in U.S. factories today is roughly the same as 70 years ago, jobs in business services, a sector that includes many people working indirectly for manufacturers, have grown eight-fold. The Labor Department expects business services will be one of the top job-creating industries in coming years.

That makes plans by Obama to give manufacturers special treatment - or to penalize them for offshoring jobs - wrongheaded, says Jagdish Bhagwati, an economist at Columbia University.

Obama last week proposed new tax breaks for manufacturers, but many economists view the decline in factory employment as a normal part of the economy's development.

"New jobs in services constantly emerge from manufacturing," Bhagwati said.

(Reporting by Jason Lange from Washington; Editing by Diane Craft)

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