Delivering the US manufacturing renaissance (2024)

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US manufacturing may be poised for an overhaul and a rebound, with a potentially significant impact on the nation’s overall economy. In the United States, manufacturing accounts for $2.3 trillion in GDP, employs 12 million people, and supports hundreds of local economies. Although that represents just 11 percent of US GDP and 8 percent of direct employment, the sector makes a disproportionate economic contribution, including 20 percent of the nation’s capital investment, 35 percent of productivity growth, 60 percent of exports, and 70percent of business R&D spending (Exhibit 1). 1

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About the authors

This article is a collaborative effort by Tyler Carr, Eric Chewning, Mike Doheny, Anu Madgavkar, Asutosh Padhi, and Andrew Tingley, representing views from McKinsey’s Operations Practice and the McKinsey Global Institute.

In recent decades, the United States has seemed in danger of losing its position as a world-leading manufacturing economy. While absolute output has grown during the 21st century, the US shares of global manufacturing GDP and gross sales have fallen. In real value-added terms, growth in the sector has slowed dramatically over the past three business cycles, from 4.9 percent in the 1990s to 1.4 percent in each of the past two decades. And much of that recent growth has been driven by design, services, and software activities, rather than by physical production. 2 The number of manufacturing firms and manufacturing plants in the United States has fallen by roughly 25 percent since 1997, reflecting an increase in closures and a slowdown in start-ups.

Some recent trends point to the potential for a resurgence of growth, especially if manufacturers take a few key measures to strengthen their position in the market.

Delivering the US manufacturing renaissance (1)

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Ready for lift-off?

Today, US manufacturing has reached an inflection point. The decade leading up to the COVID-19 crisis saw the sector recover some of its earlier declines: 1.3 million manufacturing jobs were added to the economy between 2010 and 2019, following the loss of 5.8 million jobs over the previous ten years. The country’s share of global manufacturing GDP, output, and exports also stabilized.

Accelerating that upturn could have transformative economic and social effects while improving the resilience of the wider economy. Analysis by the McKinsey Global Institutesuggests that restoring growth and competitiveness in key manufacturing industries could boost US GDP by more than 15 percent over the rest of the current decade (Exhibit2).

Delivering the US manufacturing renaissance (2)

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A strong manufacturing economy unlocks important employment and advancement opportunities—a factor set to grow in significance if current job market pressures ease. Manufacturing is the main economic engine and primary employer in around 500 US counties today, and in those communities, the industry employs a broader-than-average swath of the overall population and does so more inclusively. In most cases, employees don’t need four-year degrees, and they can earn twice as much as those holding equivalent service-sector jobs, as employers invest in upskilling and reskilling their current workersby offering expanded learning opportunities. Our analysis suggests that reviving manufacturing could add up to 1.5 million jobs, particularly among middle-skill workers, which would help recalibrate the US labor market and bolster the middle class.

Strengthening the sector could also address the supply chain issues that have been wreaking economic havoc over recent years, easing disruptions caused by the pandemic while improving global competitiveness in the mid to long term. Between 2010 and 2019, the US trade deficit in manufactured goods more than doubled, reaching $883 billion. The country currently meets 71 percent of its final demand with regional goods, trailing Germany (with 83 percent), Japan (86 percent), and China (89 percent). Increased import dependence has left some key US manufacturing supply chains exposed to greater global risks. 3 The supply chain shocks of the past three years have pushed those risks to the top of the corporate agenda: in surveys, more than 90 percent of senior executives tell us that increasing the level of resilience in their supply chains is a priority.

Many government officials are also acutely aware that the decline of the US manufacturing industry has contributed to rising inequality and hurt the country’s global competitiveness. They see the revitalization of manufacturing as imperative for sustainable and inclusive growth and are set to commit significant public capital to that end. The Bipartisan Infrastructure Law, 4 for example, directs the investment of billions of dollars into US manufacturing capacity.

Manufacturing is changing

Any reinvigoration of US manufacturing will also require reinvention. Around the world, companies are taking a fresh look at the paradigms that have dominated the industry’s evolution for decades, with the aim of making manufacturing more sustainable, more digital, more skilled, and more resilient.

More sustainable

Manufacturing has relied on fossil-fuel energy since the First Industrial Revolution. Now governments, customers, and investors are demanding that the sector embrace a more sustainable approach while also remaining cost-competitive. Switching to low-carbon sources will be technically and economically challenging, especially for energy-intensive heavy-industrial sectors. But the energy transition also offers significant opportunities for US manufacturers. Demand for new renewable-energy generation equipment is set to skyrocket, for example, with capacity expected to increase fourfold by 2050. And the Bipartisan Infrastructure Law is expected to trigger $5 billion in investment in new charging infrastructure for electric vehicles.

More digital

Leading manufacturers are now applying digital technologies at scale in their operations. The 103 Industry 4.0 pioneers that make up the Global Lighthouse Network (GLN), a World Economic Forum initiative in collaboration with McKinsey, are reporting significant results from these digital investments. GLN sites are achieving meaningful KPI improvements along multiple fronts at once: in sustainability, such as greenhouse-gas emissions; productivity, such as factory output; agility, such as shorter order-to-delivery lead times; speed to market; and customization (Exhibit 3). 5

Delivering the US manufacturing renaissance (3)

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Around the world, manufacturers are ramping up their investment in key technology areas, seeking to overcome existing pain points in their operations, improve their product and service offerings, or simply keep up with competitors that are more digitally savvy. The installed base for the roughly $50 billion advanced robotics industry, for example, is expected to grow 6 percent per year for the next three years at least, as companies take advantage of smarter, more flexible, and more cost-effective equipment to automate more of their activities. And by 2030, Industry 4.0 applications are expected to account for almost half the total sales of 5G-connected Internet of Things (IoT) devices.

Over the coming years, US manufacturers stand to benefit from further waves of digital innovation as capital markets continue to make big investments in next-generation technologies. Annual investment in artificial intelligence (AI) has reached roughly $150 billion, and investors are pouring $250 billion into IoT technologies and $300 billion into cloud computing every year.

Artificial intelligence, machine learning, and advanced technologies are also seen as key elements in the move toward new systems that can make sense of disconnected data and bring a new level of harmony to global supply chains. A recent McKinsey survey of supply chain leaders found that as part of their efforts to tackle repeated supply chain disruptions over the past year, 49 percent have invested in advanced analytics for supply and planning. Furthermore,27 percent have accelerated these plans in order to mitigate the impact of geopolitical uncertainty on their supply chains.

More skilled

For these efforts to be effective, manufacturers will need a sharp focus on their employees’ skills. Digitization and automation often create new roles faster than workforce training has historically been able to keep up. Solutions from the past aren’t likely to work, because the skills manufacturers need in developing, managing, and maintaining automated equipment and digital processes have changed profoundly. McKinsey researchprojects that by 2030, the share of physical and manual tasks in the overall economy will have fallen by about 27 percent since 2016, replaced by greatly increased demand for technological and cognitive skills.

Companies can address skill gaps by using several different approaches. They can look outside the organization, hiring new staff with the right skills. They can build skills internally, retraining their existing workforces to prepare people for new roles. Or they can take a hybrid approach, including use of a skilled contract workforce to fulfill short-term needs while developing the necessary skills internally. Stakeholders increasingly expect that companies will do more to retain and retrain their current workers where possible.

Manufacturing offers high-skill, high-wage jobs for American workers and could do so even more as the industry becomes more digitized and automated. Against the backdrop of an existing worker shortage and rapidly evolving skill requirements, employers can become skill builders and develop the workforce needed to remain competitive while helping people access meaningful and lasting employment.

More resilient

Automation, digitization, and the drive for greater sustainability are changing the way manufacturers produce their products. These factors are also encouraging CEOs to take a fresh look at where manufacturing is done. For some companies that supply US markets, the evolution of factor costs has significantly eroded the comparative advantage of global production locations and supplier networks. When organizations expand their definition of value to take account of sustainability issues and supply chain risks, the gap can narrow even further.

Automation, digitization, and the drive for greater sustainability are changing the way manufacturers produce their products and encouraging CEOs to take a fresh look at where manufacturing is done.

That shift could unlock a wave of regionalization in the world’s manufacturing networks as companies develop shorter, more resilient, and more adaptable supply chains that better serve the needs of different markets. Across key manufacturing sectors, our analysis suggests that up to $4.6 trillion in global trade could shift across regions in the next five years (Exhibit 4). Evidence suggests that regionalization is already under way. The interregional share of total goods trade increased by 3.7 percentage points between the end of the global financial crisis and the beginning of the COVID-19 pandemic, for example. And the widespread supply chain disruptions of the past three years have injected further momentum into the trend. In our survey of supply chain leaders conducted early in 2022, 44 percent of respondents said they had increased their regional sourcing during the past year, and 51 percent said they expected the relevance of the approach to continue in the coming year and beyond. 6

Delivering the US manufacturing renaissance (4)

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Making it happen

US manufacturing companies that successfully restructure their supply chains to boost local production will have to make simultaneous changes on many fronts. Doing nothing may not be an option. Our analysis of the supply chain of a hypothetical midsize US consumer electronics company with a highly globalized production network suggests that rising factor costs over the next seven years are likely to erode the company’s margins by six percentage points. Accounting for the costs of carbon emissions and likely supply chain risks would depress margins by a further five points (Exhibit 5). Even aggressive levels of automation would still leave the manufacturer with a seven-point margin reduction.

Delivering the US manufacturing renaissance (5)

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Although many US manufacturers recognize both the opportunity and the imperative to act, agreeing on the best way forward can be a significant challenge. In one 2020 McKinsey survey, 45percent of respondents said the biggest barrier to the successful launch of supply chain digitization programs was a lack of internal alignment.

To succeed, therefore, companies will need a solid financial and operational plan that is aligned at all levels of the organization and spells out detailed actions and clear responsibilities for all stakeholders. Companies will need to be bold and farsighted, too. Large-scale changes to manufacturing processes and footprints may take ten or 20 years, and breaking away from the status quo will require creativity, commitment, and significant innovation. The remit for any such plan can only fall to the CEO.

As their companies start to draw up those plans, every senior US manufacturing leader should take the time to answer four key questions:

  1. What manufacturing trends will matter most for our industry?
  2. If we do nothing, how will these trends affect our performance?
  3. How much can we improve our current manufacturing and supply chain performance to compensate?
  4. What are the right big moves for our company over the long term?

The best approaches are often those which see relocation and reshoring as part of a project to transform and modernize the company—a chance to update processes, technology, people, and culture for the next phase of the digital age and stay in lockstep with ever-evolving demands, investors, regulators, and customers.

Delivering the US manufacturing renaissance (2024)

FAQs

When did manufacturing begin in the US? ›

In 1790, Samuel Slater built the first factory in America, based on the secrets of textile manufacturing he brought from England. He built a cotton-spinning mill in Pawtucket, Rhode Island, soon run by water-power.

What has happened regarding manufacturing in the US since 1960? ›

It has declined since the 1960s as manufacturing jobs fell and services expanded. The red line (right axis) is the number of manufacturing jobs (000s), which had fallen by nearly one-third since the late 1990s.

When was U.S. manufacturing at its peak? ›

Despite being a leading driver of employment growth for decades, manufacturing has shed employment over the past 40 years as the U.S. economy has shifted to service-providing industries. In June 1979, manufacturing employment reached an all-time peak of 19.6 million.

When did U.S. manufacturing start to decline? ›

Between 2000 and 2010, US manufacturing experienced a nightmare. The number of manufacturing jobs in the United States, which had been relatively stable at 17 million since 1965, declined by one third in that decade, falling by 5.8 million to below 12 million in 2010 (returning to just 12.3 million in 2016).

Why was the American system of manufacturing successful? ›

The American system of manufacturing was a set of manufacturing methods that evolved in the 19th century. The two notable features were the extensive use of interchangeable parts and mechanization for production, which resulted in more efficient use of labor compared to hand methods.

Who brought manufacturing to the US? ›

Samuel Slater, sometimes called the “father of the American factory system,” built the first factory in America in the late 1800s and kick-started the cotton and textile industry.

What event in US history led to an increase in American manufacturing? ›

The Industrial Revolution took place over more than a century, as production of goods moved from home businesses, where products were generally crafted by hand, to machine-aided production in factories.

When did the US start outsourcing manufacturing? ›

Actually, the term dates to the 1970s, when manufacturing companies seeking efficiency began hiring outside firms to manage less-than-essential processes. Outsourcing worked. Today many manufacturers outsource 70% to 80% of the content of their finished products.

What happened to the U.S. manufacturing industry? ›

Over the past 50 years, manufacturing's share of gross domestic product in the US has shrunk from 27% to 12%, and the starting point of this decline began well before this time period. US manufacturing entered the Second World War far ahead of the competition, and by its end it was running laps around them.

Why did the US become so rapidly industrialized? ›

Industrialization and urbanization began long before the late 19th and early 20th centuries, but it accelerated greatly during this period because of technological innovations, social changes, and a political system increasingly apt to favor economic growth beyond any other concern.

What was the effect of U.S. manufacturing increasing in 1812? ›

The War of 1812 provided tremendous stimulus to American manufacturing. It encouraged American manufacturers to produce goods previously imported from overseas. By 1816, 100,000 factory workers, two-thirds of them women and children, produced more than $40 million worth of manufactured goods a year.

What did U.S. manufacturing accomplished by 1900? ›

By 1900 the United States had one half the world's manufacturing capacity. At the end of the century, it had overtaken Great Britain both in iron and steel production and in coal production.

Why did America lose manufacturing? ›

Starting in the late 70s and 80s, more and more people began to pursue higher education, leading them to seek more desirable jobs. People pursuing higher education combined with automation taking over the industry both were cause for the manufacturing job market to decline steadily since its peak in 1979.

What has caused the loss of U.S. manufacturing jobs? ›

The change in skills required to perform new tasks in manufacturing, along with import competition and a decline in mobility, have contributed to the decline of employment rate for manufacturing since 2000.

When did US economy shift from manufacturing to service? ›

Prior to 1967, the employment shift to the services sector was primarily the result of the relative decline in agriculture. Since 1967, the relative decline of employment in the goods sector has contributed the most to the shift.

What did the American system of manufacturing involve? ›

The American System involved semi-skilled labor using machine tools and jigs to make standardized, identical, interchangeable parts, manufactured to a tolerance, which could be assembled with a minimum of time and skill, requiring little to no fitting.

Why did the US move manufacturing to China? ›

Lower Costs

China makes its raw materials and because of high demand, they cost less.

How did the factory system improve life for Americans? ›

The Industrial Revolution shifted from an agrarian economy to a manufacturing economy where products were no longer made solely by hand but by machines. This led to increased production and efficiency, lower prices, more goods, improved wages, and migration from rural areas to urban areas.

Why did the US outsource manufacturing? ›

The advantages were primarily the lower labor costs, however cost savings due to U.S. tax environment and lax rules regarding employee work hours, benefits, and wages also attracted many American enterprises. This fundamentally changed the way American businesses are run today.

Why did industry in America develop so quickly during the 1800s? ›

The United States had a number of natural resources, such as timber, water, coal, iron, copper, silver and gold. Industries took advantage of these natural resources to manufacture a number of goods to put on the market.

How did the age of industry help the United States? ›

Railroads expanded significantly, bringing even remote parts of the country into a national market economy. Industrial growth transformed American society. It produced a new class of wealthy industrialists and a prosperous middle class. It also produced a vastly expanded blue collar working class.

How and why did American manufacturing change during the first half of the nineteenth century? ›

As manufacturing work sites were gradually relocated from the home and small workshop to the factory, the makeup of the labor force changed. The number of artisans and craftsmen declined, and reliance on semiskilled or unskilled workers, including women, to operate machines increased.

What event sparked the growth of industry in the United States? ›

The beginning of industrialization in the United States is usually pegged to the opening of a textile mill in Pawtucket, Rhode Island, in 1793 by the recent English immigrant Samuel Slater.

What were two significant factors in the growth of US industry? ›

What were two significant factors in the growth of U.S. industry? Human Resources and Natural Resources. Which invention do you think has had the most lasting influence? Electricity.

When did the US start outsourcing to other countries? ›

American companies began to take greater advantage of international outsourcing in the 1970s. Many kinds of factory work began to shift overseas—clothing, steel, toys, television sets, and computer hardware and chips.

Where does the US outsource manufacturing? ›

The key reason U.S. manufacturers outsource to Mexico is exactly what the Deloitte survey showed — cost reduction. As a developing market economy, Mexico has a lower cost of living than the U.S. and, consequently, lower wages. Energy, materials and transportation are also much more affordable in Mexico than in the U.S.

When did the US start offshoring? ›

When did offshoring become so prevalent? The trend began in earnest in the late 1970s at large manufacturers such as General Electric. GE's then CEO, Jack Welch, who was widely respected by other corporate chieftains, argued that public corporations owe their primary allegiance to stockholders, not employees.

How did the War affect American manufacturing? ›

During the war, there was increased demand from businesses to manufacture supplies for the war effort. Factories filled up, and production skyrocketed. Between 1939 and 1944, the nation's gross domestic product increased by roughly 8% each year.

Did manufacturing in the US increase or decrease as a result of the War of 1812? ›

How did the War of 1812 lead to a boom in manufacturing in the United States? The war stopped the import or export of foreign goods so Americans were forced to buy American products, which in turn increased manufacturing.

What are the greatest challenges in manufacturing in the US? ›

Read on to learn about the greatest challenges facing manufacturers and insights into potential solutions, including the role that the construction industry will play.
  • Supply Chain Disruption. ...
  • Labor Shortage. ...
  • Worker Safety. ...
  • Emerging Technologies & Cybersecurity. ...
  • Capacity Constraints.
Aug 25, 2021

What were the three 3 reasons why the USA could industrialize so quickly? ›

Many factors promoted industry, including cheap labor, new inventions and technology, and plentiful raw materials.

What was one major advantage that helped the United States industrialize? ›

The availability of capital, development by the free market of navigable rivers and coastal waterways, as well as the abundance of natural resources facilitated the cheap extraction of energy all contributed to America's rapid industrialization.

What are 3 reasons we had a growth of industrialization in the US? ›

Industrialization began in 1877 and ended in 1900 the United States (U.S.). To have Industrialization, you must have these four things: natural resources, transportation, urbanization, and technology.

What did the rise of the American factory system lead to? ›

The movement toward industrialization often led to crowded substandard housing and poor sanitary conditions for the workers. Moreover, many of the new unskilled jobs could be performed equally well by women, men, or children, thus tending to drive down factory wages to subsistence levels.

How did the War of 1812 affect American manufacturing quizlet? ›

The War of 1812 pushed the U.S to build factories due to blockade of Britain causing foreign goods from reaching the U.S, which caused the U.S to manufacture their own goods, and investors investing into new American industries.

What was the period in America where there was a change in the manufacturing process due to the many inventions developed in the late 1700s to the early 1800s? ›

The Industrial Revolution was the transition from creating goods by hand to using machines. Its start and end are widely debated by scholars, but the period generally spanned from about 1760 to 1840.

When did manufacturing boom in the US? ›

Overview In the decades following the Civil War, the United States emerged as an industrial giant.

When was the peak of US manufacturing? ›

U.S. manufacturing jobs hit a peak in June 1979, accounting for nearly one out of every five American workers. But despite a few upticks since then, manufacturing jobs as a percentage of the U.S. workforce have fallen consistently and now make up less than 10 percent of the total.

How much manufacturing has the US lost? ›

The U.S. has lost more than 5 million manufacturing jobs within the past 25 years, hindering the financial mobility of workers without a college degree and taking a particularly heavy toll on workers of color, according to a new report from the left-leaning Economic Policy Institute.

What event caused the most growth of US industry and manufacturing? ›

Following the Civil War, industrialization in the United States increased at a breakneck pace. This period, encompassing most of the second half of the nineteenth century, has been called the Second Industrial Revolution or the American Industrial Revolution.

How did manufacturing impact the United States after the War of 1812? ›

The War of 1812 provided tremendous stimulus to American manufacturing. It encouraged American manufacturers to produce goods previously imported from overseas. By 1816, 100,000 factory workers, two-thirds of them women and children, produced more than $40 million worth of manufactured goods a year.

Is the US a service or manufacturing economy? ›

State of play: Manufacturing represents just about 11% of the U.S. economy, while the services sector has become the dominant means of employment and earnings for the vast majority of Americans.

When did the manufacturing industry begin? ›

The history of manufacturing can be traced back to the Industrial Revolution during the 19th century, where raw materials were converted into finished goods. The period marked the transition from human labor technology into machinery and chemical manufacturing processes, turning artisans into wage laborers.

When did U.S. manufacturing start moving to China? ›

China's economy “opened up” in December 1978 and the timing couldn't have been better. At the time, U.S., Japanese, and European companies were looking for new locations to manufacture their goods cheaply after wages rose in East Asian countries like Hong Kong, South Korea, and Taiwan.

When did the US switch from manufacturing to service economy? ›

Since the 1970s the American economy has moved away from producing goods to providing services, and the service-producing sector has accounted for an increasing proportion of workers.

What year did manufacturing start? ›

The birth of modern manufacturing can be traced to the early 1780s, when American inventor Oliver Evans began experimenting with the first automated flour mill. He developed the concept of continuous process milling, which relied on five so-called bulk material handling devices.

What event encouraged the growth of manufacturing? ›

The Industrial Revolution shifted from an agrarian economy to a manufacturing economy where products were no longer made solely by hand but by machines. This led to increased production and efficiency, lower prices, more goods, improved wages, and migration from rural areas to urban areas.

What is the importance of manufacturing historically? ›

Throughout history, manufacturing has improved quality of life, enabled the growth of human populations and societies, and drives innovation through the efficient mass production of materials.

When did we start outsourcing manufacturing? ›

Actually, the term dates to the 1970s, when manufacturing companies seeking efficiency began hiring outside firms to manage less-than-essential processes. Outsourcing worked. Today many manufacturers outsource 70% to 80% of the content of their finished products.

Why did American companies move to China? ›

American companies benefit from outsourcing manufacturing to China. The most common reason for outsource manufacturing is the reduction of cost. American companies outsource manufacturing to China to have their goods assembled, or completely built overseas, at incredibly low costs.

Why did USA transfer its industries to other countries? ›

Easy access to cheap raw materials, which would have otherwise to be imported from the foreign country for manufacture in the United States. Shorter hauls of manufactured products, giving lower transportation costs and reductions in losses through breakage. Lower wages of labor in foreign countries.

How did the factory system develop in the United States? ›

The factory system began widespread when cotton spinning was mechanized. Raw cotton would be brought to the factory and spun, bleached, dyed, and woven into finished cloth.

What is the impact of manufacturing in the economy? ›

Manufacturing: A key part of the solution

Today, the manufacturing sector represents just 10 percent of US GDP and jobs but drives 20 percent of the nation's capital investment, 35 percent of productivity growth, 60 percent of exports, and 70 percent of business R&D expenditure.

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