With private businesses still fighting the aftereffects of a recession and governments at all levels cutting projects, things haven’t looked good in the manufacturing sector lately. However, not all is gloom and doom. What will the United States manufacturing industry face in 2012? As someone who has worked with manufacturing companies for more than 40 years, I see the industry struggling with much of the same: jobless growth, offshoring and too many unnecessary regulations; but there is hope around the corner.

The Current Overall Situation

Let’s take a look at the current manufacturing situation. In this article, I will concentrate primarily on a review of U.S. manufacturing, although references and comparisons to other regions cannot be avoided.

True, the current state of Western economies remains dismal. I just spent part of a week in the United Kingdom, and it was remarkable that the news stories were basically the same as in the U.S.: debates over the debt, reducing government spending and the high cost of public pensions. And yes, there is an unintended effect in the U.S.due to the rising economic crisis in Europe (or could it be the other way around)? The crisis in Portugal, Italy, Greece and Spain (and possibly also Ireland and Great Britain) along with the distrust of governmental leadership in both the administration and the legislative branches of the government (please do not read any party affiliation into this) has caused a hesitation to grow in the private sector. All we have to do is observe the impact on theU.S.stock market by events inEurope, and you will realize how intertwined we are. In the U.S., job growth among all sectors is anemic, and it is generally viewed that U.S.manufacturing has lost its competiveness; but let’s take a closer look.

Only a Few New Jobs, Yet

Companies were quick to institute layoffs during this downturn in order to save their businesses, but they’re not likely to be nearly as fast about hiring people back, especially since manufacturing productivity is so high right now. The Labor Department reported that manufacturing-sector productivity grew five percent in the third quarter of 2011, as output rose 4.6 percent and hours decreased 0.4 percent. As companies need to ramp up capacity in the future, and as the economy slowly recovers, they’re more likely to add hours to current workers’ schedules rather than add significant new jobs.

Makers of highly engineered industrial equipment have fared better because of demand from developing countries. But now, even those economies are beginning to slow down a bit. Even if the economy continues to stall, I don’t think we’re going to see the massive layoffs, because companies are more fit now. Don’t misinterpret this comment; there will be additional layoffs, but anticipate those coming from companies in specific verticals. Over the past several years, companies have resisted hiring significant new employees and opted instead for added overtime hours. Manufacturers are being very cautious in their hiring, partly to avoid the risk of having to lay off people later on. They opted for this strategy primarily due to the unknowns of the costs of healthcare programs and increased government regulations.

So, bottom line, there’s beginning to be a reason for optimism for U.S. manufacturers. Yes, it is true the overall U.S. economy is in the pits and unemployment is hovering around 8.6 percent, but a slow recovery for manufacturing is forming. However, the road to recovery may be a long and arduous one.

More potentially good news for U.S. manufacturing companies with this increase in productivity is that improved earnings should translate into a willingness to invest in the manufacturing infrastructure for the future growth and improved profitability of their businesses. However, there will continue to be an aversion to risk and the high cost of many large investment projects. There simply has to be a significant and definable business value and high return on investment (ROI) resulting from these investments to cut loose of the stockpile of cash. U.S. manufacturing companies will continue to make necessary investments in plants and equipment, Enterprise Resource Planning (ERP) and other manufacturing systems used within the four walls of the manufacturing facility. Manufacturers have concentrated on the cost side for most of the past several decades and have wrung out almost everything possible without being brutal in their expectations of their material vendors. They will still do that, but at this time, the more significant leverage for them is in efficient sales systems to grow their top-line revenues. Without market growth in most areas, the only way to grow revenue is to take market share away from competitors by more effective knowledge-based selling systems.

Re-shoring Versus Offshoring

There have been a lot of recent discussions about re-shoring. It is widely reported that the U.S.trade deficit is a major cause of the decline of U.S. manufacturing over the past several decades, the high unemployment rate and the debilitation of the U.S. national debt that is currently almost $15.1 trillion. The annual gross domestic product as of June 2011 was $15.003 trillion, which results in a total public debt outstanding ratio of over 100% of gross national product. Remember this is the same story in many European countries with a lower total, but significantly higher magnitude from a percentage basis. Domestic suppliers have watched as large manufacturers have offshored work and well-paying jobs.

Offshoring ultimately contributes to waste and instability. Company after company has learned that keeping elements of the supply chain closer together leads to a significantly stronger overall value chain. We need to bring good, well-paying jobs back to the U.S. Re-shoring is actually easier than exporting more products, and it is potentially the fastest and most efficient way to strengthen the U.S. economy.

Less Regulation Means Higher Employment

For the U.S. manufacturing sector to remain competitive in the global marketplace, we must make it easier for manufacturers to create jobs here in the U.S. rather than allowing the federal government to pick winners and losers in the economy.

For too long, the American people have been asking, “Where are the jobs?” Unfortunately, to the 13.3 million unemployed, this is a stark reality. Manufacturing employment changed little over the month of November and has remained essentially unchanged since July. Americans have been ignored by current leaders in Washington. I resist being repetitive here, but higher taxes, record spending and bigger government have failed to create jobs or boost economic growth. Put simply, this economy is growing too slowly to replace the millions of jobs that have been lost. Instead of expanding the size of government, we must be committed to a pro-growth economic agenda that will put Americans back to work.

There remains frequent claims that “nothing is made inAmerica anymore,” because all of the manufacturing jobs and production have been outsourced to lower-cost places like China, Mexico and Korea. Such claims about U.S. manufacturing have been circulating so persistently and for so long, that most people now blindly accept these myths, even though the empirical evidence provides a completely different story. If the U.S. manufacturing sector is not thriving and growing, at least there has been stabilization.

A recent article in The Wall Street Journal referred to manufacturing as the “shining star of this recovery.” James Hagerty reports encouraging news from the U.S. manufacturing sector, which is adding more jobs than it’s losing for the first time in more than a decade. “As the economy recovered and big companies began upgrading old factories or building new ones, the number of manufacturing jobs in the U.S. last year grew 1.2 percent, or 136,000—the first increase since 1997, government data show. That total will grow again this year, according to economists at IHS Global Insight and Moody’s Analytics.”

Sales Systems “Hottest” Investment

Because of the focus during the past several decades on efficiencies within their four walls, U.S. manufacturers have become lean and fit. As I walk through most manufacturing factories, I am truly impressed by how much is being produced with so few people. However, most of these same companies are trying to sell the same way they have for decades. Improved sales systems to grow top-line revenue for producers of complex products (both manufacturing and non-manufacturing) are critical to job growth. They are designed to improve quotation and proposal speed and accuracy, as well as help with guided selling and product configuration. Analyst studies report that as much as 80 percent of new business will go to the company that is “easiest to do business with.” Of course, price and features matter, but if you can’t provide the right product and get the product right at the right time, customers will not be satisfied and future new orders will potentially go to your competition.

All companies have a greater urgency than ever before to move the knowledge closer to the customer and give their sales channels the necessary insights to sell with confidence, and become trusted helpers for both their channel partners and customers. There’s a lot of questioning going on as to whether the approaches that worked in the past will scale into the future. There’s also much more recognition that making themselves easier to do business with and easier to trust is more important than ever before to grow business and create the foundation for job growth.

My Conclusion

The decline, demise and death of America’s manufacturing sector have been greatly exaggerated. America (and other Western countries) still makes a ton of stuff, and we make more of it now than ever before in history; but we’re able to do it with a fraction of the workers that would have been required in the past. U.S. manufacturers that survived the brutal 2008-2009 recession are now very competitive with much lower labor costs and debt burdens, so they can afford to expand. We’re still the world’s leading manufacturing economy by far, thanks to the world-class productivity of American manufacturing workers—the most productive in the world. Instead of bashing China, Korea and Mexico for competing against our manufacturing sector and exaggerating its decline, Americans should take more pride and celebrate our status as the world’s leading manufacturer. All of this doesn’t herald a miracle recovery for manufacturing, which accounted for 11 percent of U.S. economic output in 2009, down from 27 percent in 1950. Projections for this year that call for a gain of about 2.5 percent, or 330,000 manufacturing jobs won’t make up for the nearly six million lost since 1997. But manufacturing should be at least a modest contributor to the total U.S. employment in the next couple of years.