San Diego's Technology Workers Build Innovative Development

Technology workers are an important part of the American economy and represent one of the fastest growing occupations in the country. Technology workers feed the business and economic engines within San Diego but  face some wider challenges. Three technology executives with a a combined 4 billion dollars in revenue and 9,000 employees  highlighted the state of local talent in San Diego on Connect (1). There are a few additional ideas that can further the conversation.

A great portion of society relies on technology and the easy transference of information and resources.  Knowledge intensive industries need this easy flow of information that moves within and between companies. Technology workers help to foster that transference and use information to its maximum extent ensuring information develops other sectors.

Technology workers are important for modern companies and help push industries to develop at a faster rate. For example, investment in IT contributes to worker manufacturing productivity (Chaodong, et. al., 2011). Workers that are able to update their skills and use technology effectively  will speed up the rate of production.

Developing home grown talent was not always on the priority list. Because supply was not always sufficient companies outsourced many of their technology worker needs to cheaper economies (Shao & David, 2007).  Having a sufficient local supply skilled technology workers helps keep jobs local.

It should also be remember that having the right kind of local talent in growing industries makes San Diego more ripe for business investment. The type of highly skilled and information intensive businesses in the area need a solid funnel of people to manage the transference of that information. Companies invest in places where the components to growth can be found.

Despite these apparent advantages there are other problems beyond the technology sector itself. With recruiting and developing technology workers that are willing to stay in San Diego. People may love the beaches but hate the cost of living near those beaches. The executives mentioned high state taxes, poor infrastructure, high cost of housing, small airport, and the slow pace of government responsiveness to issues.  The problems cited are more on a level that impacts multiple businesses versus a specific industry but nevertheless should be calculated into corporate strategies.

Chaodon, H. et. al. (2011). Information technology investment and manufacturing worker productivity. Journal of Computer Information Systems, 52 (2). 

Shao, B. & David, J. (2007). The impact of offshore outsourcing on IT workers in developed countries. Communications of the ACM, 50 (2).

 

Manufacturing Rises to Highest Point in 3.5 Years

Manufacturing is heating up and cranking out new products at a rapid pace. According to the Institute of Supply Chain Management, the August PMI rose to 59% (1.9% increase) when compared to the previous month’s numbers of 57.1%. The improvement is the highest experienced in 3 ½ years helping support the smooth running of America’s economic engine. Basic materials have a fundamental impact on the growth of manufacturing within their associated sectors as the products make their way throughout the national supply chain.

As the country seeks to capitalize on its new found growth it is important to ensure that a positive business environment employs and develops matching competencies in the manufacturing labor pool.  Economic expansion will have a difficult time continuing unless highly skilled and motivated employees are available to fill future employment opportunities.  Companies should bolster education and training to secure a ready labor supply and raise income based on performance.

Of the total of 18 industries measured 17 achieved a level of growth. They are “Plastics & Rubber Products; Furniture & Related Products; Fabricated Metal Products; Apparel, Leather & Allied Products; Wood Products; Printing & Related Support Activities; Miscellaneous Manufacturing; Paper Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Chemical Products; Primary Metals; Transportation Equipment; Computer & Electronic Products; Machinery; and Electrical Equipment, Appliances & Components (1).” In competition with cheaper foreign imports, the Textile Mills is the only industry that predictably lost ground.

The type of industries experiencing growth is fundamental to improving manufacturing in other economic sectors. The basic supplies of manufacturers become resources for other arenas that further refine the materials into a final exportable product. As the fundamental industries grow it is also possible to envision secondary manufacturers picking up pace in the near term.

Backlogs of orders increased 3% showing demand is high in the near term and pushing opportunities for growth into the next quarter. Exports of manufacturing rose 2% and imports rose 4% enhancing an already voracious supply based appetite. Companies are starting to invest in the economy again and attempting to expand their capacities. Orders are matching expectations and some companies will need to wait to obtain supplies for expansion. Company strategic planning will become essential to capitalize on the improved market.

If you read the business news on a regular basis you may also notice that consumer confidence and spending are also rising in a way that supports sustainable growth.  A caveat is the increasing imports over exports. As American companies become stronger, nimble, and reach cost parity with low cost foreign suppliers it is hoped the numbers will slowly shift in the other direction. At present, if these basic materials are manufactured into higher quality exports the economy may raise its financial profile. 

http://www.ism.ws/ismreport/mfgrob.cfm

Does the Improving Economy Offer Opportunities to Raise Social Mobility?

The word “economy” is on everyone’s lips.  Things are looking bright for those who have a stake in the economic system. Markers in the service and manufacturing sectors are progressive and provide opportunities to put people to work while lowering the nation’s growing income disparity. The new economy offers the possibility to resize an unbalanced ship so that it finds benefits in hydroplaning to new levels. 

The Institute for Supply Management’s non-manufacturing index increased to 58.7% while sixteen U.S. non-manufacturing industries led by construction and education also experienced growth (1).  To complement this growth the service sector also realized expansion adding further strength to the recovery and providing higher levels of employment.

According to the Commerce Department manufacturing also received positive growth numbers (2).  The U.S. is moving into a stronger competitive position that furthers its ability to maintain momentum. Manufacturing increases employment opportunities and heightens income opportunities for families that need a solid wage and opportunities.  

A particular problem rears its head when the cost of education is increasing thereby creating a class of people who do not have the skill to go to college or the financial resources to finish a degree program. The inability to obtain a meaningful education leaves them out of many highly skilled manufacturing jobs and thereby locking them out of Middle Class lifestyles. 

Despite the positive economy there are some serious risks if the income is not spread properly among varying social classes and peoples. According to a new report by Standard and Poor income inequality is reaching extreme levels that may hamper future national growth (3).  The problem has become so pronounced that it retards future forecasts by 2.5% creating a drag on the economy.

The benefits of improving on middle class wages and raising people out of poverty outweigh many other expensive programs. Those with financial resources and high incomes are becoming wealthier leaving behind the masses causing instability. Changing public policies and avoiding poor economic decisions is important for encouraging higher overall human development to meet national needs.

The S&P report also mentions that raising minimum wages is not the answer as even though income rises the opportunities may decrease leaving less total jobs. It could also push inflation rates where the dollar is worth less tomorrow than it is today. Part of income disparity is based in actual earning power beyond the amount of dollar bills obtained.

Education is a major component for social mobility. Traditional sports arena oriented college models have become unsustainable with its expensive tuition, declining state budgets, large buildings and the re-shifting of financial responsibility onto families. Reforming higher education will help in bringing more people forward with the necessary skills to work in this century helping them reach Middle Class status and creating greater social mobility that helps raise opportunities for the future of everyone.

Are Positive Indicators Tipping In Favor of the U.S. Economy?

The economy appears to be moving forward into a post-Recession period. Multiple markers are turning positive as jobless claims decline, confidence rises, manufacturing expands, employment numbers improve and inflation increases. The general predictors are positive and optimism is returning to the market showing higher levels of economic activity.

Of particular interest is manufacturing which has a significant impact as a root source of income and job growth. As manufacturing moves upward future investment is likely to spur further economic growth in supporting industries. This is supported by positive improvements in small business optimism and hiring. 

Jobless Claims: According to the Department of Labor’s June 14th figures unemployment figures are at 312,000 (of 2,561,000) which is a 6,000 decrease from the previous week and near pre-recession levels in 2007 (of  2,541,000) (DOL, June 19^th, 2014). 

Consumer Confidence: Bloomberg expectations gauge rose to 48.5% while women and people earning more than $100K are also more confident (1).  The positive sentiment can reflect people’s willingness to make purchases, invest money, and engage in positive economic activity. 

Expanding Manufacturing: The U.S. National Economic Committee recently released numbers showing that manufacturing output since the official end of the recession increased 30% and is increasing 50% faster than the rest of the economy (6). Likewise, the Philadelphia Federal Reserve Bank released a statement that its business activity index jumped to 17.8 based upon improved manufacturing, orders, employment, hours, delivery times, and shipments (2). 

Employment Hiring Improvement: According to U.S. treasury Secretary Jack Lew the economy added 217,000 jobs in May (2). The unemployment rate remained under 6.5% at 6.3% indicating the majority of society can find some level of employment. 

General Predictors Up: The Conference Board stated their index moved from .3 to .5% based upon a number of measurements that include financial and employment numbers (3). Using wide measurements creates battery of numbers that work to test multiple areas of the economic market. 

Federal Reserve Discusses Inflation: Federal Reserve Chairman Janet Yellen released a statement that the economy is continuing to grow and stimulus infusions are on track to be tapered back (4). Inflation is starting to tick upwards signaling economic activity is more robust. 

Small Business Optimism High: The National Federation of Independent Business revealed their Small Business Optimism Index increased 1.4 points to 96.6 last month (5). They are optimistic about sales and hiring which lends further support to the economy.

Changes and Opportunities in the Post-Recession Economy

The economy is adding jobs and that is great news. Unfortunately, the types of jobs have moved more into service sector and administrative positions that do not carry the same high wages as pre-recession employment. According to a report by the National Employment Project (NELP) low-wage industries have grown significantly since the end of the recession but this is leaving many Americans without significant savings. A mixed economic blessing that teeters between recovery and replacement.

Lower-wage industries have accounted for 22% of the recession loss but 44% of the employment growth over the past 4 years. It now employs 1.85 million more workers than it did in the past. Mid-range employment jobs lost were around 37% while recent increases are around 26% for a total of 958,000 lost. High wage losses include 41% and a 30% increase leaving us with a 976,000 fewer jobs.

The recession was longer than anticipated and even though the jobs have returned they have returned at a lower wage rate.  Since January 2008 to the low of 2010 the economy lost 8.8 million jobs while the study indicates that as of March 2014 a total of 8.9 million jobs have been raised. The positive news is that people are again finding various types of work in different sectors.

The study focused primarily on the private sector work recovery. However, government positions declined 627,000 jobs of which 44% were in education. Private sector work recovered in the service industry, the professional service and scientific industries, and private education and health services. The results for construction were mixed.

The changes also indicate an adjustment in the demographics of the country based upon global trends. Moving manufacturing to cheaper locations overseas impacts a major source of middle class income. There are efforts to raise the high tech sectors of manufacturing to create additional jobs and growth within the country. The use of higher skill and scientific work is one method of ensuring that processes and products are not easily copied or displaced.

The Boston Consulting Group released a report that the U.S. will soon reach parity with low cost manufacturers like China. This creates an opportunity to reverse trends in manufacturing losses and bring back a higher percentage of middle class jobs. However, this industry will need to push a larger section of the sector into the high technology manufacturing areas to develop the industry to a greater extent.

Highly developed manufacturing encourages mass manufacturing at a later date. New technologies that are cutting edge eventually make their way into mass distribution in the future. Innovation and development lead to greater opportunities that continually push manufacturing dominance. New products require a higher level of resources, science, strategy, and skilled labor that create first mover advantages that are later followed by lower cost copy cats.

The news is not all bad. The service industry is growing which means more people can find additional employment opportunities. A 2013 study confirms that employees can find greater pay increases within the service industry when compared with other low-earning lines of work. They may not start out high but they have opportunities to grow within this developing industry. The nature of the work is different than the past but the industry is budding and may someday come to full bloom.

Having employment opportunities across various sectors of society is important for people who desire to either move up within their careers, cross breed into other industries, search out various types of education, or attend training to raise their earnings potential. Diversity within the sectors also helps the U.S. maintain a competitive advantage in multiple arenas as well as maintain the potential as new opportunities rise. Ensuring and developing economic and human capital advantages in potential high growth areas keeps jobs at home.

The Report

Will The U.S. Soon Be a Hot Manufacturing Nation?

Will American make its way back into leading manufacturing status? A report by the Boston Consulting Group indicates that the U.S. will see increases in manufacturing over the next couple of years as parity is achieved due to lower natural gas prices, stagnated wages in the U.S. and higher costs overseas. With a decline of energy costs from oil shale dropping to 50% and increases in the cost of manufacturing in countries like China there is much to cheer in the U.S. The good times can roar again.

American workers are becoming more productive, Chinese workers are more expensive, and the associated costs of manufacturing overseas have risen. A report by the Congressional Research Service found that the U.S. share of global manufacturing declined 30% in 2002 and that number dwindled  to 17.4% in 2012 (1). The new report by the Boston Consulting Group indicates that the costs of manufacturing in the U.S. versus many other places like China will be about the same giving the U.S. advantages. 

At present the advantage of producing products in low cost countries such as China and Asia is less than 5% (2). The U.S. and Mexico are starting to look like great places to manufacture items again. Mexico has had some increases in wages but their productivity has risen much more making them a local cheap labor supplier (3).  The U.S. as a producer of high technology and advanced manufacturing with a regional partner in Mexico is covering both the high and low demographic markets of production. 

Each region of the world has some high and low cost manufacturers. Large multi-national firms can move into areas that seek them the best advantages. These advantages can come from a whole range of factors that may include production costs, labor costs, labor skill, infrastructure, tax rate, telecommunications, science development, shipping costs, etc…  They have also not considered economically suppressed areas within the U.S. that could benefit from increased investment while being supported by stronger tertiary areas.

Many companies are likely to move back to economically stable nations. The U.S. with its increasing competitive costs and relatively stable political structure can be attractive to large multi-national firms. If a windfall of re-investment in the nation comes forth it will likely adjust the shipping and distribution channels across the world to ensure that more products move in and out of the country before heading to their final destinations. Asia will also likely become a larger consumer base where products are sold and a slightly slower manufacturing base where products are built.

Boston Consulting Group (2014). Made in America, Again. Why Manufacturing Will Return to the U.S. Retrieved April 25^th, 2014 from https://www.bcgperspectives.com/content/articles/manufacturing_supply_chain_management_made_in_america_again/