The U.S. Manufacturing Renaissance

Posted by on Jul 12, 2013 in Financial Focus

In developments that are not being widely covered in the press, the manufacturing industry in the United States is in a rebirthing stage. For decades, factory jobs have been disappearing in the U.S. as companies found it more cost effective to “off-shore.” Japan and China were the main benefactors as many workers lost their jobs to overseas factories.

A 2012 study by The Boston Consulting Group titled, “U.S. Manufacturing Nears the Tipping Point,” summarizes: “The United States has been losing factory jobs for so long that many observers have all but written off manufacturing as a meaningful part of America’s economic future.”

This trend is taking a huge turn for the better. Several factors are at play in this development, including increasingly competitive labor costs in the U.S., low energy costs compared to other parts of the world, and a business environment highly conducive to obtaining startup and ongoing capital investment. Another factor that should not be discounted is our government law. While it is easy to find areas for improvement, our government does have clear laws and clear private property rights. As China has grown to the second largest economy, many believe their unclear property rights have begun and will continue to stunt their progress.

According to the study, U.S. manufacturing is expected to create 2 to 3 million jobs in the next decade. Led by a labor force that is among the most productive in the world, new U.S. factories are popping up in several states in the Midwest. Economists believe the 2 to 3 million manufacturing jobs will decrease the unemployment rate between 1.5 to 2.0%.

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It is important to note that the U.S. currently manufactures 75% of what Americans consume. As the chart above indicates, the major industries that are produced offshore are a minority of our overall consumption. This may come as a surprise to many, who feel the “Made in the U.S.A.” label is a rare artifact. But considering the apparel, footwear, and clothing (that we wear every day) industries have been offshored for decades, it is easy to see why the misconception is there.

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While the textiles, apparel, and footwear industries will very likely remain offshored, there are several industries which The Boston Consulting Group point to as being on the “tipping point” of returning to the U.S. for manufacturing. These include: fabricated metals, furniture, computers, electronics, machinery, appliances, plastics, rubber, and transportation goods.

All of this is great news for our economy and 7.5% unemployment rate. It remains to be seen how the manufacturing renaissance in the U.S. will flow through to corporate earnings, and therefore the stock market. However, this is certainly a reason for continued optimism.

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