At every industry trade show and association annual meeting, private conversations and formal presentations often focus on the economy. It was no different at the Industrial Heating Equipment Association's recent annual meeting in Miami, where David Huether of the National Association of Manufacturers talked about the economy and the role manufacturing plays.

Huether began his presentation, titled "The Recent History and Short Term Outlook of U.S. Manufacturing," by saying, "Through recent focus groups around the country and the comments of elected officials, we know that too few people understand the important role manufacturing plays in our economy, or the challenges facing manufacturing, which, if not addressed now, will cloud the future of our industry."

To illustrate manufacturing's current difficulties, Huether noted that from 1996 through 1999, the manufacturing sector grew 50% faster than the gross domestic product. During that period, the manufacturing sector grew by 6.7% annually; the overall GDP, 4.5% annually. Then the 2001 recession struck, hitting manufacturing particularly hard. During the 2002-2003 recovery, manufacturing grew at half the annual rate as the GDP, 1.9% and 3.6%, respectively.

There were both domestic and international causes of the recession, Huether said. Domestic causes included very high interest rates, the burst of the dot-com and stock-market bubbles, excess inventories and high natural gas prices.

Internationally, the value of the dollar reached highs not seen since the mid-1980s. As a result, the United States' share of world manufacturing exports fell from 14% in 1997 to 11% by 2001.

Also, foreign GDP growth slowed from an annual average pace of 3.7% from 1996 to 2000 to just 0.3% in 2001. Since manufactured products account for two-thirds of all U.S. exports, this drop in demand abroad hurt U.S. manufacturers much more than other sectors of the economy.

When the recovery began in the fourth quarter of 2001, Huether noted, it was "struck by multiple shocks that increased uncertainty and depressed business' willingness to invest in new plants and equipment." There were the 9/11 terrorist attacks, the accounting scandals of 2002 and the buildup to the 2003 war in Iraq. By January of 2003, consumer confidence had fallen to about half of what it was three years earlier, dipping further as each of the above events unfolded.

The current recovery is not too far off historical norms in terms of GDP growth. However, much of it has been fueled by government spending, which has helped swell ballooning budget deficits, as well as consumption and the housing market. Also, compared to the last seven recoveries, exports and business investment have not increased as much. Overall, it has been the slowest recovery on record.

In six previous recessions, manufacturing output typically grew by 14% during the first 18 months of recovery. From the end of the 2001 recession through the first half of last year, manufacturing output edged up just 1%. So while the rest of the economy has added one million jobs since June of 2000, the manufacturing sector has shed three million jobs.

But there is good news, Huether noted. Consumer confidence has risen 60% since April of 2003. The ISM's index of overall business activity is now at its highest level in seven years. And after three sluggish years, overall business profits increased at an average rate in excess of 45% in both the second and third quarters of 2003.

Likewise, business equipment investment grew by 14% in the second half of 2003, and exports grew by about 14% during the same period.

International conditions are also improving. Since February 2002, the dollar has depreciated by 14% and now stands near its 30-year average, Huether said.

Huether predicts that manufacturing will grow faster than the overall economy in 2004-6.1% vs. 4.1%-for the first time since 1999. But there are still structural barriers at home with which to contend, such as spiraling health care costs, and trade barriers abroad that need to be understood and dealt with for U.S. manufacturing to thrive in the long term.