Report shows U.S. manufacturers continue to lag

American manufacturing is still falling behind its foreign competitors.

The nation's overall trade deficit widened by 16 percent in November as foreign imports of consumer goods outpaced domestic sales. And U.S. industry is losing ground at home to overseas businesses in advanced manufacturing, the making of high-value goods that has been touted as key to the future of the American economy, according to a report from the U.S. Business and Industry Council.

"Contrary to widespread optimism about an American industrial renaissance, domestic manufacturing's highest-value sectors keep falling behind foreign-based rivals," the report's author, Alan Tonelson, wrote.

Amid hopes that American manufacturers are bringing jobs back to U.S. soil as the economy recovers from the recession, Tonelson's report is a cold shot of realism.

He analyzed 106 high-tech and capital-intensive manufacturing sectors from the Census Bureau's Annual Survey of Manufacturers and found that imports accounted for 37.5 percent of the $2 trillion in high-value manufactured goods sold in the United States in 2011, a larger share than 2010.

Early indicators show foreign imports likely took a larger share of the market in 2012, the report said. U.S.-based manufacturers have gained market share against foreign competition in only eight of the more than 100 categories since 1997.

It's not that manufacturers aren't thriving. Companies that survived the recession snapped back quickly, with total U.S. manufacturing output rising 19 percent between 2009 and 2011, to $1.8 trillion. Minnesota manufacturing output rose 25 percent over the same period.

But overseas industry continues to win a larger share of the U.S. market, one reason manufacturing has failed to put together sustained job gains. In Minnesota, manufacturer hiring grew steadily in the first half of 2012 and then stalled, declining more than 2 percent between July and November, according to state job data.

"I think there is some level of [reshoring], but I don't think it's as big as the hype says it is," said Paul Skehan, director of operations for BTW Inc., a Coon Rapids firm that makes various electronics parts for other manufacturers.

BTW has grown 15 to 20 percent each of the past three years. But 90 percent of the firm's customers have no plans to bring jobs back to the United States, Skehan said. Those companies who do move production to the United States are building goods that are time-sensitive or don't fit efficiently into a shipping container.

When it comes to high-volume products that account for a huge share of the manufactured goods sold in the United States, including consumer goods, the economics of offshoring are tough to resist.

"When they're over $100 million, companies are being forced more and more to send stuff overseas," Skehan said.

In November, the U.S. trade deficit grew 16 percent from $42.1 billion to $48.7 billion, the Commerce Department said Friday.

Nationally, goods for which imports account for more than half of U.S. sales are construction equipment, electricity measuring and test equipment, turbines and turbine generator sets, metal-cutting machine tools, mining machinery and equipment, industrial process controls, and broadcast and wireless communications equipment.

Minnesota's strongest manufacturing is in computer and related electronics products, machinery and fabricated metal products. These are sectors where imports have taken a larger share of the U.S. market in recent years, Tonelson said.

Mark Thomas, CEO of Victoria-based HEI Inc., said some reshoring has occurred as Asian companies facing an improved economy dump smaller contracts.

Companies that want long-term relationships with suppliers, low inventory, design flexibility and attention to quality will pay for goods made in the United States. But those business relationships are rare and confined largely to specialty goods that command top dollar. For instance, HEI makes complex microelectronics for hearing aids, medical devices and military radios, among other things, at locations in Minnesota, Colorado and Arizona.

Even in those special cases, Thomas said, the return of manufacturing jobs to the U.S. is more exception than rule.

"We have not seen a significant amount of reshoring," Thomas said. "I think there's an element of wishful thinking."

Adam Belz • 612-673-4405 Twitter: @adambelz