by Glenn Hamer/  Dec. 6, 2011

Upon the formation of the Arizona Commerce   Authority earlier this year, Gov. Jan Brewer and ACA CEO Don Cardon made   clear that the new entity would draw upon our state’s strengths in this new   effort to boost the state’s economic development efforts.

One of the sectors included in the ACA’s   four pillars of growth is aerospace and defense. This economic sector is responsible for over 35,000   direct jobs in Arizona that bring with them an average annual total   compensation of $109,000, which is more than twice the statewide average for   all employed individuals. The industry’s jobs impact becomes more pronounced   when you consider its multiplier effect, which raises its total impact to   over 90,000 jobs in the state.

Arizona is one of the leading states in defense contract recipients and   aerospace and defense has been integral to Arizona’s economic prosperity;   it’s a sector that will be critical to the state’s success in our second   century.

But as war fighting changes, Arizona has to   be ready to adapt in order to win the jobs that will spring from the new   technologies that are being developed to equip our men and women in the armed   forces.

Many of the recent eliminations of   high-value targets have been achieved with the use of unmanned aircraft   systems, and UAS will continue to be a vital tool in the war on terror. But   UAS can be used in additional roles, such as search and rescue operations or   local police agency law enforcement functions. UAS can perform the jobs that   are dull, dangerous and dirty.

As UAS continues to grow, so will jobs   connected to the technology. According to estimates by the Association for   Unmanned Vehicle Systems International, UAS will be responsible for 230,000   jobs in the next 15 years. According to the AUVSI report “An Assessment of the Impact of Job   Creation in the U.S. Aerospace Industry,” those new employment opportunities   could translate into more than $1.6 billion in wages or over $106.6 million   annually.

Arizona is already a recognized leader in UAS. We’re home to the world’s largest UAS training center at Ft. Huachuca,   where nearly 9,000 members of the military have been trained in UAS over the   past decade. And more than 30,000 UAS flight hours have been flown in Arizona   airspace since July 2006, with an additional 60,000 UAS hours having been   flown in military “theaters” outside of Arizona and throughout the world.

But in order to maintain Arizona’s position   at the forefront of UAS research, development and training, airspace in our   state should be designated a national UAS test range location by the Federal   Aviation Administration.

Legislation currently pending in Congress would outline the criteria for the designation of four to six UAS test range   locations. This is where our entire congressional delegation can get   involved. If Arizona wins FAA test range designation, it will go far in   retaining the state’s niche dominance in aerospace and defense. By   encouraging more research in UAS training, testing and development, more   industry investment, economic development and employment opportunities will result.

Arizona has the experience in UAS training,   we have the close proximity to the potential users at our military installations throughout the state, and we have industry stakeholders with   major operations here. Arizona is uniquely positioned to play a significant   role nationally in the development of UAS technology, but we can’t rest on   our laurels. Arizona congressional Republicans and Democrats should be   focused on ensuring our state maintains its leadership position in UAS   training, research and development. If Arizona does not respond in this   critical juncture, defense and aerospace businesses are likely to follow UAS   out of state.

An all-volunteer UAS Arizona advisory   committee comprised of leaders from industry, academia and government has been working tirelessly to elevate the state’s standing as the right place   for UAS to thrive, but they can’t do it alone.

Arizona has lost over 300,000 jobs since   the nationwide economic downturn. In order to get back on firmer economic footing,   we have to put ourselves in a position to attract the jobs of the future.   Unmanned aircraft systems are the future of the aerospace and defense   industry. In order to grow and attract these desirable jobs, we need our   representatives and senators in Washington to work together for Arizona and   promote our state as the ideal UAS test range location.

Glenn Hamer is the president and CEO   of the Arizona Chamber of Commerce and Industry

The Arizona Chamber of Commerce and   Industry is committed to advancing Arizona’s competitive position in the   global economy by advocating free-market policies that stimulate economic   growth and prosperity for all Arizonans. http://www.azchamber.com/.
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Really – Made in China??

As we enter the New Year, we are optimistic about the economic climate and look forward to improving business conditions for our country. With that being said, we would like to start the year with some encouraging information by sharing with you the results of a study conducted by the Federal Reserve Bank of San Francisco that looked at The U.S. Content of “Made in China“. Keep reading – it really is surprisingly good news!

The study set out to examine what fraction of U.S. consumer spending goes for Chinese goods and what part of that fraction reflects the actual cost of imports from China. Keys points from the study include:

  • Although globalization is widely recognized these days, the U.S. economy actually      remains relatively closed. The vast majority of goods and services sold in the United States are produced here. In 2010, imports were about 16% of U.S. GDP; imports from China amounted to 2.5% of GDP.
  • A total of 88.5% of U.S. consumer spending is on items made in the United States. This is largely because services, which make up about two-thirds of spending, are mainly produced locally.
  • 36% of the price U.S. consumers pay for imported goods actually goes to U.S. companies and workers, covering U.S. transportation, wholesale, and retail activities, including marketing the products.
  • The U.S. content of Chinese goods is much higher than for imports as a whole –  55% – mainly due to higher retail and wholesale margins on consumer electronics and clothing.
  • The figure below shows the share of U.S. personal consumption expenditures (PCE) based on where goods were produced and the domestic and foreign content of imports. Of the 2.7% of U.S. consumer purchases going to goods labeled “Made In China”, only 1.2% actually represents China-produced content.

Geography of U.S. PCE, 2010

gr

Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Census Bureau, Federal Reserve Bank of San Francisco.
The import content of U.S. PCE attributable to imports from China is useful in understanding where revenue generated by sales to U.S. households flows. It is also important because it affects to what extent price increases for Chinese goods are likely to pass through to U.S. consumer prices.

We have discussed in the past the increasing wage structure taking place in China. Base on this study, the good news is, that since the share of PCE attributable to imports from China is less than 2%, it is unlikely that recent increases in labor costs and inflation in China will generate broad-based inflationary pressures in the United States.

For the complete report, visit here.

This article re-posted from The Agurban and Jack Schultz.  The Agurban is a free newsletter distributed each week to community and economic development professionals throughout the United States.

Made in the USA, Again.

The Boston Consulting Group (BCG) recently released part of an ongoing study they are undertaking on the future of global manufacturing. Their research is very positive for the future of manufacturing in the United States. Their report, in part, follows:

Within the next five years, the United States is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain U.S. states become some of the cheapest locations for manufacturing in the developed world.

With Chinese wages rising at about 17 percent per year and the value of the yuan continuing to increase, the gap between U.S. and Chinese wages is narrowing rapidly. Meanwhile, flexible work rules and a host of government incentives are making many states-including Mississippi, South Carolina, and Alabama-increasingly competitive as low-cost bases for supplying the U.S. market.

“All over China, wages are climbing at 15 to 20 percent a year because of the supply-and-demand imbalance for skilled labor,” said Harold L. Sirkin, a BCG senior partner. “We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years.”

Products that require less labor and are churned out in modest volumes, such as household appliances and construction equipment, are most likely to shift to U.S. production. Goods that are labor-intensive and produced in high volumes, such as textiles, apparel, and TVs, will likely continue to be made overseas.

Indeed, a number of companies, especially U.S.-based ones, are already rethinking their production locations and supply chains for goods destined to be sold in the U.S. For some, the economics have already reached a tipping point.

Caterpillar Inc., for example, announced last year the expansion of its U.S. operations with the construction of a new 600,000-square-foot hydraulic excavator manufacturing facility in Victoria, Texas. Once fully operational, the plant is expected to employ more than 500 people and will triple the company’s U.S.-based excavator capacity. “Victoria’s proximity to our supply base, access to ports and other transportation, as well as the positive business climate in Texas made this the ideal site for this project,” said Gary Stampanato, a Caterpillar vice president.

Even as companies reduce their investment in China to make goods for sale in the U.S., it is clear that China will remain a large and important manufacturing location. First, investments to supply the huge domestic market in that nation will continue. Second, in the absence of trade barriers that prevent offshoring, Western Europe will continue to rely on China’s relatively lower labor rates since the region lacks the flexibility in wages and benefits that the U.S. enjoys.

Third, even though other low-cost countries-such as Vietnam, Thailand, and Indonesia-will benefit from companies seeking wage rates that are lower than China’s, only a portion of the demand for manufacturing will shift from China. Smaller low-cost countries simply lack the supply chain, infrastructure, and labor skills to absorb all of it, Hohner noted.

www.bcg.com

Register Today!
 July Environmental Issues Breakfast

 Wednesday, July 13, 2011
Sheraton Phoenix Airport Hotel
(1600 S. 52nd Street, Tempe 85281)

7:00 a.m. – Registration & Breakfast
7:30 a.m. – Program

 $30 member
 $45 non-member

Full Breakfast Included

 Topic:  The Nuclear Crisis in Japan and its Implications for the Palo Verde Nuclear Generating Station

Speaker:  Mark Fallon, APS 

On March 11th a massive earthquake and tsunami hit northern Japan causing severe damage to a number of nuclear power plants in the area and releasing radioactive contamination into the surrounding environment.  In the wake of this tragedy,  many countries have begun to reconsider their nuclear power programs.  Arizona Public Service operates the Palo Verde Nuclear Generating Station west of Phoenix which has provided safe and reliable power to the state for many years.  Mark Fallon from APS will discuss the  tragedy in Japan  and how it has affected operations and health and safety compliance programs at the Palo Verde Generating Station.

 Questions? Please contact Katie Whitchurch at 602-248-9172 x126 or kwhitchurch@azchamber.com

 

Outlook For US Manufacturing Sector Remains Positive

In its lead story last night, ABC World News (6/29, lead story, 2:20, Stephanopoulos) reported, “It is the engine that could rev up our economy, manufacturing, making things right here in America. And today, a name we all grew up with, Mars Candy, announced plans to hire hundreds of workers and build a new quarter billion dollar factory, its first on American soil in decades. It’s part of a bigger picture, too; 173,000 manufacturing jobs created in the past 12 months. Manufacturing was growing much faster than the overall economy. … And here’s more good news. One study has shown that by 2015, production costs in the US and China, incredibly, will be about the same for many products, which means more companies will be bringing more of these jobs home.”

More Companies Deciding To Reshore Manufacturing Operations. Fortune (6/30, Tseng) reports that “US manufacturing appears to be on the cusp of an awakening — if not a full rebirth,” and explores some of the reasons behind this trend. Among those noted in the article is the increased expense of manufacturing overseas, both in terms of wages and shipping costs, as well as the costliness of dealing with “weak links” in a global supply chain. At the same time, experts say, there are limits the trend’s benefits. For example, while the benefits of manufacturing in China for export purposes have decreased, the Chinese consumer base for many companies has also increased, and if the company is producing goods in China for the Chinese market “then they’re likely going to stay,” experts said. Additionally, with ever-increasing use of automation, “there are sizeable limits over how many more jobs re-shoring would create.”

Companies Explain Motivations Behind Reshoring Decisions. A similar article in CNNMoney (6/30, Prasso) reports on the prevalence of “a trend called reshoring, in which primarily small businesses decide that China is a hassle and that they want to bring their operations closer to home, where the recession has lowered costs, created workers eager for jobs, and made it easier to justify US manufacturing.” Increasingly, businesses both large and small are looking to “take advantage of local incentives and move back at least some of their manufacturing operations for products sold in the US market.” Companies who have made the decision say that, in addition to the other benefits, reshoring simplifies their operations, and decreases the amount of travel and quality control they need to do.

Support the organization that supports manufacturing.
Join Northern Arizona Manufacturing Association (SLIM)
Contact Norela Harrington: norelah@bent-river.com
Phone: 928-634-7568

In the aftermath of the bubble economy, America needs to shift resources from the debt-inflated finance and housing sectors to the productive economy. As part of this long-term strategy, how do we revitalize manufacturing?

Join the editor and several contributors to a new study discussed in this video, Manufacturing a Better Future for America, published by the Alliance for American Manufacturing, to discuss ways to rebuild the foundation of the American economy by means of innovation, industrial policies and trade reform.

By Betty Beard – Aug. 2, 2009 – The Arizona Republic

The state doesn’t have anything like a Detroit or Silicon Valley that is famous for making products. Arizona is better known for construction workers who make buildings.

Manufacturing workers don’t dominate here. For every Arizona employee who makes a product, from computer chips to potato chips, there are 12 workers in retail, health-care services, insurance, banking, real estate and other services.

Yet manufacturing brings two things that no other sector does: the highest number of high-paying jobs and the most money from out of state. Manufacturing is the protein that feeds the economy.

“Everything else is just chasing that money, and if you don’t have that money coming from outside the area, you end up being a ghost town,” said Scottsdale economist Elliott Pollack.

“It (manufacturing) brings in more money from the outside to bounce around. Tourism is a great base industry, but it doesn’t have a lot of high-wage jobs, so the ripple effects aren’t as great. The ripple effects are very high in industries that pay well, and they are not nearly as high in industries that don’t pay well.”

Manufacturing, though, appears to be at a turning point in Arizona. Manufacturing jobs have fallen, the main sectors have matured and economic experts aren’t sure there are any industries out there that can provide as much job growth as Arizona enjoyed in the past.

Though U.S. manufacturing has declined in recent decades, Arizona had been gaining jobs fairly well because of its strong high-tech industries. The total number of Arizona manufacturing jobs peaked at 212,000 in November 2000, fell, and then grew to 187,600 in April 2006, according to the U.S. Department of Labor.

But since then, Arizona manufacturing jobs have fallen to 162,700 in June, the lowest number in at least two decades, largely because of the recession and cutbacks in purchases of computers, electronics, planes and many other products.

Since the recession began in December 2007, the U.S. has lost more jobs in manufacturing – 1.9 million – than in any other sector, even more than construction, which fell by 1.3 million jobs, says the U.S. Bureau of Labor Statistics. About one-third of those jobs were in motor vehicles and parts manufacturing.

But Arizona manufacturing jobs may be starting to grow again, said Mark Dobbins, chairman of the Arizona Manufacturers Council and a vice president for Sumco USA, a producer of silicon wafers with a plant in northeast Phoenix.

“I have been in manufacturing for 42 years,” he said. “This is the most far-reaching global recession in general that I’ve lived through, but particularly with manufacturing.”

University of Arizona economist Marshall Vest points out that major manufacturing industries in Arizona have been around for a long time and probably won’t grow considerably after the recession ends.

“We have semiconductor and electronic products,” he said. “Those industries provided a good deal of growth for us in the 1970s and 1980s. But those are mature industries now, so we can’t expect a whole lot of growth out of those industries.”

The state also had a surge in aerospace manufacturing during the 1990s, he said.

Arizona’s key sectors are vulnerable. Semiconductor and electronic production is subject to competition from abroad and to slowdowns in purchases. Defense jobs are subject to the rise and fall of wars.

Barry Broome, president of the Greater Phoenix Economic Council, believes they will survive, though, by shifting to other products.

From golf clubs to missiles
The state’s 5,500 manufacturers are diverse. There are large semiconductor, aerospace and defense companies such as Intel Corp. in Chandler, Raytheon Co. in Tucson and Boeing Co. in Mesa. Also, there is Karsten Manufacturing Corp., which makes Ping golf clubs; W.L. Gore & Associates in Flagstaff and Medtronic in Tempe, medical devices; Cavco Industries Inc. in Phoenix, manufactured homes; Inventure Group Inc., also of Phoenix, Poore Brothers potato chips, and Frito-Lay, which makes snacks in Casa Grande.

The largest employers are Raytheon, with 11,539 workers; Honeywell International Inc.’s aerospace division in Phoenix, 10,725; and semiconductor maker Intel, 9,700.

The average salary for Arizona manufacturing workers in 2007 was $57,627, compared with $40,000 for all workers, said the National Association of Manufacturers. For computer and electronic manufacturing employees, the salary was $87,300 a year ago, said the Arizona Department of Commerce.

And 89 percent of Arizona exports are manufactured goods, making it the most important base industry. Base industries bring in outside money, such as tourism, military bases and universities that draw research grants and foreign students.

Every manufacturing job brings in about 2.5 other jobs, such as retail, insurance, real estate and other services, said the Milken Institute of Santa Monica, Calif.. A high-salaried high-tech job can produce as many as 15 other jobs.

Arizona has been successful in attracting those higher-paying jobs. The state ranks 18th for high-tech manufacturing employment among the 50 states, according to the Cyberstates 2009 report by Washington, D.C.-based TechAmerica. In some areas, it ranked higher: fourth for semiconductor manufacturing and sixth for defense-electronics manufacturing.

But most of the state’s manufacturers are small companies, such as China Mist Tea Co. in Scottsdale, a global company started in 1982 that has just 23 employees, including those who operate machines that measure and bag hot and cold tea.

Still, even small companies can bring in outside money. About 70 percent of China Mist’s sales are outside Arizona, including Mexico and Guam. The company just opened a distributorship in Dubai in the United Emirates to introduce that tea-drinking desert city to fresh-brewed China Mist products.

“Their climate is a lot like the desert here in Scottsdale,” said marketing manager Kiley Biggins. “So we are bringing them fresh-brewed ice tea for the first time.”

Charity Charms in Phoenix, with just five employees and a number of part-timers, recently managed to land a $13,000 order from an arthritis support group in Dubai after the group found Charity Charms through the Internet. The company gets raw silver and pewter and casts it into charms for charities.

Kay McDonald, founder and CEO of Charity Charms, said about 20 percent of the company’s business is out of state, but the amount is growing quickly.

Where from here?
Economic development officials have been trying for years to bring in more manufacturing but have yet to find another Intel or Raytheon.

Broome said future industries could include the production of food, pharmaceuticals and vitamins, but he doesn’t expect those to be large employers.

That’s why GPEC has been focusing heavily on trying to attract solar and renewable-energy manufacturing. The group lobbied successfully for a new state law that offers tax refunds to encourage such companies to build factories here and help Arizona compete with many other states and countries.

Broome believes the renewable-energy industry is the only one that could become as large as aerospace and semiconductor manufacturing, and that Arizona should have an edge because of its abundant sunshine, proximity to the huge California market and the hundreds of engineers already working here.

The key, Broome says, is to establish synergy, or enough companies making and researching renewables that even more companies will want to come.

“It’s a question about who gets in early, about who builds a concentration,” he said. “And the big difference in solar and renewables is that not every state can produce a demand like we can (because of the abundant sunshine.) We have a bigger opportunity to build a bigger domestic market than other states.”

Because every area is seeking the next big employer, there is a lot of competition.

Nationwide, manufacturing jobs shrank 31 percent through the end of 2008 because of jobs that were moved outside the U.S. and because of increased automation, says the U.S. Bureau of Labor Statistics. The number of U.S. manufacturing jobs peaked in 1979.

Some experts are holding out hope those jobs will come back. Broome said that if fuel prices rise substantially, it could become so expensive to ship finished goods from abroad or across the country that manufacturers could move plants back to the U.S. or spread out to the Southwest.

Cliff Waldman, economist for the Manufacturers Alliance/MAPI, a public policy and economic research group in Arlington, Va., said American manufacturers who moved their operations abroad have learned there are hidden costs, such as environmental concerns in China, and may begin reconsidering the low-wage southern United States or northern Mexico for factories.

“With a 16-hour plane ride between Beijing and Canton, Ohio, that creates a difficulty in shipping times and creates its own cost to manufacturers,” Waldman said.

“People are saying that maybe the next low-cost country will be the U.S., and only half-jokingly . . . meaning we may be seen as more cost-efficient.”