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State can’t manufacture the kinds of jobs it loses

2005 industry report: manufacturing

State can’t manufacture the kinds of jobs it loses

Production lines

TREND: The state is losing manufacturing jobs, many to foreign competition, despite the improving state and national economy.

OUTLOOK: Job losses will continue during 2005 in the largest manufacturing industries — furniture and textiles — but high-tech, drug, automotive and boat manufacturing should expand.

Here’s the good news for the state’s manufacturing sector: During the first nine months of 2004, it lost about 6,800 jobs, according to the U.S. Bureau of Labor Statistics. That’s compared with the 30,000 that disappeared during the same period in 2003.

The bad news: Trade quotas that expired Jan. 1 have opened the door for even more imports from low-wage countries, especially China. That could mean more job losses as domestic producers try to compete. Furniture and textiles likely will take the brunt.

Three once-powerful textile giants are no longer independent companies. Two Greensboro-based textile makers, Cone Mills and Burlington Industries, were bought out of bankruptcy by New York-based WL Ross & Co. and folded into Greensboro-based International Textile Group. In April, GMI Merger, an affiliate of New York-based Cerberus Capital Management, bought Greensboro-based Guilford Mills, which emerged from bankruptcy in 2002, for $107 million.

Not all textile and apparel companies are hurting. Since 2002, Greensboro-based VF has been ditching weak lines, shuttering North Carolina plants, moving manufacturing jobs overseas and buying hot brands such as Nautica Enterprises and Vans. It reported net income of $349 million, up 20%, for the first nine months of 2004.

Despite job losses, furniture makers had a better year than in 2003 because of an improving economy and booming new home sales. Jerry Epperson, furniture analyst with Mann Armistead & Epperson in Richmond, Va., says domestic wood-furniture shipments were up 5% in the first half of 2004, while imports rose 15%. Domestic upholstered-furniture shipments rose 8.4% for the period, and imports were up 19.4%. Manufacturers who control production costs can look forward to a decent 2005, Epperson says, because of continued demand from home buyers as well as the extra cash that homeowners have from mortgage refinancing and rebounding stock markets.

Industries that are less dependent on cheap labor have fared better in North Carolina. “We should see a job gain in nontraditional areas like transportation equipment, technology and pharmaceuticals,” says Michael Walden, an economics professor at N.C. State University.

They’ll be lured here by factors such as wages that are low by domestic standards, a dearth of labor unions and the state’s strong worker-training programs. The state also has stepped up its use of financial incentives. The biggest package so far has gone to Round Rock, Texas-based computer maker Dell. After winning $243 million in state grants and tax credits, it decided in December to build an assembly plant in Winston-Salem that will employ up to 1,500.

Merck & Co. of Whitehouse Station, N.J., will get up to $28 million to build a $300 million vaccine factory in Durham County and create about 200 jobs. Durham-based Cree, which makes light-emitting diodes used in cell phones and other products, got a $5.1 million state grant to help pay for a $300 million expansion and create up to 300 jobs.

China provided an unexpected boost to steel makers in 2004. Charlotte-based Nucor was complaining in 2003 about unfair foreign competition. But in 2004, China began using so much steel that it created a worldwide shortage, pushing up prices and boosting sales of U.S. steel makers. Nucor reported record sales and earnings for the first nine months of 2004. Net earnings hit $780.1 million, compared with $42.2 million in 2003.

Textile executives have pushed the Bush administration for trade sanctions against Chinese manufacturers, who domestic competitors say benefit from Chinese government policies that keep costs artificially low. Walden says efforts to slap tariffs on some Chinese imports won’t change long-term trends. “I think they may win a battle here and there, but they will lose the war. An industry may be able to get relief here and there, but ultimately we will have more open trade.”

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