Resilience in the U.S. Metals and Machinery Sector as Manufacturing Gradually Moves East

Metal and machinery is the single largest component within manufacturing. Globally, this sub-sector accounts for 46% of manufacturing, but boasts a much larger and a steadily increasing share in the United States. A closer scrutiny of the industry components within this sub-sector helps identify industries that are significant contributors and have strong growth prospects. The most promising are communication equipment, aircraft and spacecraft, and special industrial machinery, experiencing close to 10% annual growth during the last five years. Motor vehicles and parts, the largest of the industries, contracted modestly over the same period.

The metals and machinery subsector consists of a wide range of products including fabricated metals, tools and tooling machinery, non-electrical and electrical machinery and equipment, specialized industrial machinery, all forms of transportation equipment, and high-tech components including telecommunication, office and computing equipment, and precision instruments.

In the United States, the share of metals and machinery within total manufacturing sales has surged from just 45% in 2001 to over 55% by 2007. Globally, the subsector's share grew much more modestly, from 40% in 2001 to 45% in 2007. The growth was even more modest in Asia. Even though the subsector's share initially expanded rather rapidly in Asia, having reached a peak at a much lower 45%, its growth has remained muted during the latter half of the decade.

The strong growth of the subsector vis-à-vis other U.S. manufacturing subsectors suggests that the United States continues to retain some comparative advantage in some of the important components within metals and manufacturing. Early identification of industries with the most comparative advantage will be vital to strategically restructure the future landscape of the manufacturing sector, focusing on the most promising industries while shedding the ones likely to eventually be competed out.

Among the top-ranked industries by size and growth, based on industry sales revenue, are communications equipment and aircraft. Communications equipment accounts for 13% of the metals and machinery sub-sector, and its growth is owed to the rapid adoption of the fast-paced high-tech innovations that have become day-to-day necessities of the present lifestyle, both personal and business. Even though high-tech prices have stumbled as a result of technological innovations, the volume growth has more than offset the price effect, helping communications equipment industry revenues grow at a fiery 10% (compounded annual growth rate) during the past five years. Similarly, the high-priced U.S. aircraft industry, which accounts for 8% of the subsector's revenue, also grew at 10%, helped by both domestic and foreign demand in recognition of U.S. standards.

The largest industry segment within the metals and machinery subsector is motor vehicles and parts, accounting for a 30% share. This industry contracted marginally in the United States, as several of the larger and traditional giants scaled down operations and capital investments in the face of cheaper and improving-quality products from Asia.

Special industrial and construction machinery fall within the category of fast-growing, medium-sized sectors. The recent sharp spike in mining sector capital investments globally, resulting from the oil price surge, may be short-lived. However, overall trend in construction and infrastructure development in Asia, Middle East, Eastern Europe and perhaps even parts of Latin America and Africa suggests strong prospects for the U.S. special industrial machinery sector.