U.S. Manufacturing is Coming Home

May 4th, 2011
in econ_news

manufacturing Econintersect (Updated May 5):  According to a report by the Boston Consulting Group (BCG), manufacturing is on the increase within the the U.S.  The study concludes that the U.S. will surpass China in manufacturing production of goods sold in North America over the next four years.  The U.S. lost the world lead in manufacturing that it had held for most of the twentieth century during the weak recovery from The Great Recession.  According to data from IHS Global Insight, quoted by the Financial Times, China had 19.8% of world manufacturing output with the U.S. second at 19.4% in 2010.

Follow up:

While the resurgence of U.S. maufacturing will be helpful to the U.S. economy, it is not likely that the U.S. will retake the world manufacturing lead from China.  The growth of domestic markets in China as well as in the rest of populous Asia will create a burgeoning demand for Chinese goods.

From the Financial Times:

Hal Sirkin, senior partner at BCG, said the expected “immense demand” for goods by Chinese industry and consumers in the next few decades would be sufficient to keep China in the number one slot for some time, with supply of most of these products coming from locally based factories.

“All the indications are that the US will remain a strong number two [in manufacturing] and well ahead of other countries such as in western Europe, where the economic trends are less favourable,” said Mr Sirkin.

John Makin, a resident scholar at the American Enterprise Institute think-tank, said the projected rise in US industry fitted into trends in which more US companies were re-orienting production to “more sophisticated goods that can be made with novel labour-saving technology”.

Dan DiMicco, chief executive of Nucor, the second-biggest US steel producer, said many American companies had a “great opportunity” in the next decade to increase manufacturing in the country, helped by the weaker dollar.

Last year, China accounted for 19.8 per cent of world manufacturing output, fractionally in advance of the US, with 19.4 per cent, according to data by IHS Global Insight, a consultancy. In 1990, China accounted for only 3 per cent of the total.

The BCG study says that Chinese manufacturing wage costs seem likely to rise 17 per cent a year in the next five years, compared with only 3 per cent a year in the US.

A key factor in the U.S. manufacturing resurgence comes from labor productivity, which is more than 3x that of China.  With the wages in China growing at a much higher rate than in the U.S. the productivity advantage is drawing domestic production back home, especially for the "more sophisticated" producrs mentioned in the FT article.

Among the U.S. corporations mentioned by the FT which have announced plans for major investments in new U.S. manufacturing are Caterpillar, General Electric and Ford.  In the first quarter of 2011 manufacturing production in the U.S. rose by 9.1% (annual rate), making it the fastest growing segment in the U.S. economy.

On May 5, as discussed at GEI Analysis by Steven Hansen, The BLS (Bureau of Labor Statistics) reported an unexpected drop in labor productivity growth.  Productivity is a key component of the projections for manufacturing reported in this news brief.  If the U.S. can not maintain or expand its wide productivity advantage vs. China the the projections quoted are likely to be modified to the detriment of U.S. manufacturing. 

Source:  Financial Times, and GEI Analysis     

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