Some encouraging news for L.A.’s economy is coming from an unexpected place the manufacturing sector.
In the face of an onslaught of cheap foreign goods and higher business costs, local manufacturers are churning out more products with fewer workers, according to the Census Bureau’s Economic Census, which surveyed selected companies over a five-year period.
The report found that output per worker in the manufacturing sector a key barometer of productivity shot up 19 percent from 1997 to 2002, the period covered in the Census Bureau survey.
By cutting back jobs, retooling factories, going after niche and higher-end markets or creating new ones altogether, L.A.’s manufacturing sector has shown surprising strength. And though employment numbers have fallen sharply, there are a few areas, including food, furniture and textiles, that have been adding jobs.
L.A. County-based manufacturers produced more total goods in 2002 ($108.1 billion) than in 1997 ($106.7 billion). The figures are not adjusted for inflation, but they help cement L.A’s standing as the nation’s top manufacturing center, just ahead of Chicago.
Unlike other surveys, Census Bureau data tracks the number of manufacturing establishments and the total sales generated in each industry segment, making it possible to gauge productivity. Other more recent reports also suggest a relatively healthy local manufacturing sector.
Chapman University’s quarterly index of California manufacturing activity, which measures changes in production, employment, new orders, inventories and prices, has remained above 60 for four consecutive quarters; anything over 50 indicates expansion.
On a national scale, the U.S. manufacturing sector has registered 26 consecutive months of expansion, according to the Institute for Supply Management.
“The biggest factor has been productivity. Manufacturing is the one sector that can implement new cost- and labor-saving technology more than other sectors,” said Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman.
Poised for growth
The most obvious way to become more productive is to slash payrolls. The Census Bureau data found that total employment in the manufacturing sector fell by 15 percent, to 531,125 in 2002. That’s roughly the same percentage decline seen in the previous five-year period.
Such jobs cuts have continued. As of June, there were 479,000 manufacturing jobs in L.A. County, representing another 10 percent drop from 2002 levels, according to the state Employment Development Department.
Los Angeles-based apparel business Todd Rutkin Inc. is an example. Jan Rutkin, president of the family-run business, said the company has cut 40 percent of its jobs in the past three years, primarily because its once-solid base of apparel customers moved production facilities to China and Mexico.
“We’ve pretty much done everything we could do to increase productivity,” Rutkin said, including investing in new equipment that automates cutting, grading and marking fabrics. “Because we are efficient, we’ve been able to survive,” Rutkin said.
Other manufacturers have adapted by going after higher-end or niche markets. “The larger companies that make products on a bigger scale are getting hit by increased competition and having to shed workers,” said Ros DeVol, director of regional economics at the Milken Institute in Santa Monica. “It’s the smaller manufacturing companies that are thriving here, going after design and high-end niches.”
The local furniture industry has been hit hard by cheaper, mass-produced furniture coming in from China and other Asian countries. So instead of competing in this mass-produced market, the focus is on high-end markets.
Los Angeles-based Lazar Industries concentrates on special orders for upholstered furniture, allowing customers to pick and choose from an extensive line of fabrics.
“Because of globalization and offshore competition, we couldn’t possibly compete on generic, mass-produced products. So this approach is what’s saving our rear ends right now,” said company president Barry Lazar.
Lazar Industries has managed to keep its L.A. workforce steady over the last decade at about 130 employees and has even begun hiring in recent weeks.
Companies like Lazar are one reason why the furniture industry emerged as one of the brighter spots in the local manufacturing picture. Between 1997 and 2002, that sector was one of the few to add facilities, jobs and increase total output, according to the Census report.
Another industry faring comparatively well is textile mills, many of which specialize in finishing prepared apparel items. “We’ve become the international center for denim finishing, taking a pair of jeans and making them faded, shredded, ripped or dyed,” said Ilse Metchek, executive director of the California Fashion Association.
Another way manufacturers are coping is in finding new export markets. Ethnic food makers have been especially successful in this area one reason why food manufacturers have added payroll jobs and increased sales.
Downey-based Reynaldo’s Mexican Food Company Inc. started out in 1984 as a domestic food manufacturer, and then began exporting to Mexico.
“In the last couple of years, Latin food has become a really hot sector around the world,” said Joe Garcia, Raynaldo’s chief operating officer. “We added a Korean distributor who exports our products out of the Port of Los Angeles and now we’re reaching out to Canada.”
As a result of the push into new markets, employment has held steady at around 260 workers.
Adibi said that seeking out export markets is one way manufacturers especially companies founded by recent immigrants with ties to their home countries can beat overseas competitors at their own game.
Overall, the trend toward increased productivity is expected to continue.
“As the competition from China and other lower cost areas intensifies, companies that haven’t slimmed down their work force or gone high-end will face tough times,” DeVol said. “Anywhere you try to compete on a mass-commodity basis, you will lose out.”
*Staff reporter Kate Berry contributed to this story.