Resifting ManufacturingJanuary 30, 2013 in Recent News
It’s no secret that the Great Recession had a devastating effect on the US manufacturing base. Between 2008 and 2009 more than one trillion dollars bled out of US companies that make everything from food to advanced aerospace and defense products. Lately things have begun to look a little better — the value of US manufacturer shipments was about $4.9 trillion in 2010 compared to $4.4 trillion in 2009. A $500 billion improvement is nothing to sneeze at, but another shot-in-the-arm may be on the way.
Recent analysis by the Boston Consulting Group (BCG) suggests a flood of manufacturing activity may return to the US over the next five years or so. The impact of that activity could mean as much as $100 billion in increased output, two to three million new jobs, and a reduction in the non-oil trade deficit of between 20 and 35 percent.
The chief driver of the potential resurgence in US manufacturing is shifting socioeconomic factors inside China. Wages in China have been on the rise in recent years and some estimates peg wage increases in coastal Chinese cities at more than 1,000 percent in just the last year or so. Rising wages and an increase in the ranks of the middle class have eroded China’s powerhouse status as the global center for cheap manufacturing. Increased transportation costs and the complicated nature of geographically far-flung supply chains could lead many US companies to reassess the wisdom of offshore manufacturing in China.
The BCG study contributes to the larger notion of “nearshoring” — the idea that it’s better to make a given item nearer to where it is intended to be consumed. Information technology and automation have dramatically improved the efficiency and productivity of US manufacturing over the last two decades. US productivity in the manufacturing sector, as measured by output-per-hour, increased 105 percent between 1990 and 2010. Concerns about labor costs just aren’t the same as they were when off shoring manufacturing operations emerged as a cheap way to lower the cost of doing business.
So which industries are most likely to benefit from the coming repatriation of US manufacturing output? The BCG study identifies transportation goods (vehicles and parts), electrical equipment (such as household appliances), and furniture as three of the areas that are most likely to experience a return to US shores.
BCG – Bosting Consulting Group