ATLANTA, Georgia - On his frequent trips to Shanghai, Timken Co Chief Executive Officer James W. Griffith sees cars on freeways and cranes at construction sites powered partly by the steel bearings his company has made for 111 years.

"Tepid economic growth and unemployment dominate the headlines in the United States, but there are opportunities for our products in developing countries," he said. "In China, even in a bad year, the economy will grow 6 percent to 8 percent."

At a time when factory production at many manufacturers is slowing, Timken, hydraulics supplier Parker Hannifin Corp and machinery component maker Kennametal Inc posted three of the top four profit increases among 32 US industrial companies in the two years ended June 30, Bloomberg Businessweek reports in its Aug 29 issue.

Timken, Kennametal and Parker Hannifin are benefiting from their focus on high-end niche products, which are difficult for competitors to duplicate or to undercut on price. In addition, the companies' industrial components for transportation, energy and construction equipment are in high demand in fast-track economies including China and India.

Profit gains at these midsized, Midwest companies also have exceeded those of larger manufacturers, after aggressively shedding low-margin products and costs during the recession.

The downside of their success is that it hasn't translated into many US jobs. During the recession, Cleveland-based Parker Hannifin cut its US workforce to 24,000 employees from 30,000. Its US payroll has been partially restored to 27,500 employees, while the head count in China, now totaling 3,600, tops the pre-recession level.

The US manufacturing sector shed about 2.3 million jobs from the end of 2007 to December 2009, regaining 289,000 since, said Daniel J. Meckstroth, chief economist of the Manufacturers Alliance/MAPI in Arlington, Virginia. While he said manufacturers are likely to add some US jobs in the coming months, they will invest far more aggressively in people and plants in emerging markets.

"The medium-size companies are big enough to be cost-competitive and develop technology but small enough to be in niche markets and be fast," said Bala Balachandran, dean of the Great Lakes Institute of Management in Chennai, India. "It's the guys who are flexible who'll win the race."

In 2009, Canton, Ohio-based Timken had a loss of $134 million and Kennametal $120 million, while Parker Hannifin's net profit dropped 46 percent to $508 million. In their quarters ended June 30, all posted record earnings, with operating profit gains of 32 percent to 82 percent. They have told investors that orders remain strong despite the slowing economy.

Kennametal Chief Executive Officer Carlos Cardoso maintained a robust budget for the Latrobe, Pennsylvania-based company's nine global research and development centers during the recession, even as he cut the workforce in the US and Europe by 20 percent, to 11,000 employees.

The company employs about 2,200 in Asia. Now, 40 percent of Kennametal's sales are derived from products developed in the last five years.

The company said it has strong orders from automotive and aerospace clients for its new "Beyond Blast" cutting tools, which inject coolants into materials as they're cut and boost users' productivity.

"This wasn't a reaction to the recession; it was how you can compete globally," Cardoso said.

While Parker Hannifin was slashing US employment by 20 percent in 2009, its new hose manufacturing plant in Qingdao, China - one of 14 it now operates on the mainland - boosted sales eightfold in its second year.

Commercial Aircraft Corp of China's contract for fuel systems and hydraulic equipment is contributing to a projected tripling of Parker Hannifin's sales in China, to $1.2 billion by 2014.

Bloomberg News