The Least Profitable Manufacturing Industries

If you're investing in American manufacturing, there are many success stories, but just as many sectors you definitely want to stay away from.

Manufacturing has become one of the least profitable industries in America for one primary reason -- pricing. It is expensive to manufacture in the states. As developing countries have increased their infrastructure and begun their own industrial revolution, manufacturing has begun its move overseas to take advantage of the cheaper labor and less stringent regulations. The cold hard reality of this is that these jobs are unlikely to return as competitive pricing has made it nearly impossible for manufacturing businesses to grow in the United States.

However, industry news is not all doom and gloom. Manufacturing still remains as one of America's top sectors, despite the shipment of jobs overseas. The difference is that America is now focused on specialized, rather than general, manufacturing. So, while American manufactures may no longer make shoes, clothing and or consumer goods, specialized goods like health care products and computer chips are still manufactured in the States. The amount of education and training involved with this specialized manufacturing is what has allowed America to keep a hold on some industry jobs. While Asia is gaining ground in this sector, the increase in wages required by workers in specialized industries hurts foreign competitive advantage, making staying in America more profitable than completely uprooting and heading overseas.

With that in mind, you should try to avoid the following manufacturing sectors. Of course, there are always exceptions that find a niche in the industry, but a much safer investment would be in a specialized sector requiring training and infrastructure not available in overseas markets.

Textiles and Consumer Clothing

America historically got its start as a textile nation, weaving cloth in factories powered by running water. But the size of the American economy coupled with the expectations of the working class meant that textiles could simply no longer be made at a price point that would allow any sort of competition with overseas industries. Luxury brands, like American Apparel, have found some success but still remain small fish in a large ocean. Luxury clothing is a niche group with a lot of businesses failing to succeed in that particular industry, and the barriers to entry remain very high. The same goes for other consumer clothing items; shoes, headwear, and other accessories are all far too expensive to produce in America unless you can find a particular market willing to pay the price necessary for making in-country manufacturing profitable. Any business looking to start out that does not have a major designer working for them, or anything special to offer the consumer, will not succeed if they set up their manufacturing sector in America.

Consumer Goods

Consumer goods have long suffered due to cheap, foreign competition, but until the recession there were consumers who were willing to pay for visible quality. As the economy tanked and the middle class had to tighten their belts, consumer buying has completely dropped off. If anything is going to be bought, it will probably be the cheapest item on the shelf. The household appliance market, which has often been seen as superfluous but time saving, has especially been hit hard by the drop off in spending. Many people lost their homes and jobs, so there is simply no need for a four hundred dollar mixer when a three-dollar whisk will do the job. Within the next decade, it is predicted that appliance production will see a drop of around one-third of its revenue. When the American economy picks up, consumers may be willing to buy a new blender or microwave. But price is going to be a sticky point for a long time as cautiousness outweighs frivolity in the mind of the consumer.

Furniture manufacturing has also been hit as its success often went hand in hand with the housing market. When houses were no longer being bought, new furniture was no longer needed. Many consumers have taken to buying used furniture and simply re-upholstering it; while artisan furniture makers can still turn a slight profit, manufacturers who have nothing special to offer will not be able to compete with cheaper foreign industries.

Auto Parts

Even with brand recognition, auto-part manufacturers are having a really difficult time selling their products. Domestic and foreign automakers, one of the biggest buyers for this market, have been demanding more and more price-cuts from this sector as their own profit margins are hurting. After market sales aren't faring any better as consumers have become extremely frugal when it comes to spending money on auto parts. Manufacturers can only become so efficient before they have to start taking serious cuts to their own profit margins just to be able to keep the contracts to stay afloat. Again, unless there is a particular niche you know you can reach, competition and competitive pricing has ruined many manufacturers that had previously set up in this industry.

What Should You Invest In?

There are a few sectors that will likely do well in the coming years and, as the economy has forced many manufacturers out of business, fledgling companies may be able to secure good prices for basic infrastructural items. As certain industries mechanize, manufacturing products will be in higher demand. These products increase efficiency, but require training workers in engineering. America does have a well-trained workforce of engineers, which makes this industry particularly promising. Specialty items like computers and electronics, which also require a certain level of expertise and are priced higher than other consumer goods, will likely be profitable in the years to come as well. Before you invest in any industry though, remember to ask yourself where you are selling, who your customers will be, and what the competition looks like. Manufacturers have a history of racing to the bottom in an attempt to out price the competition, which hurts the industry in the long run. There are sectors that are likely to improve, and manufacturing in America is far from dead. However, succeeding in this industry will require patience, research, and a certain level of specialization. If fledgling companies can properly utilize all three alongside post-recession market forces, America's manufacturing sector may be able to evolve and remain strong.

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