The consulting firm of A. T. Kearney, Inc., has released a new analysis of the re-shoring trend in which U.S. manufacturers are returning work from overseas contending among other things that re-shoring "is not what it is cracked up to be." The report says from 2009 through 2013, U.S. manufacturing output grew at an annual rate of nearly 6 percent but that U.S. imports of manufactured goods from China and other Asian nations grew even faster at an 8 percent pace. It said also that exports of goods made in America and shipped to China still only amount to about 20 percent of what Chinese manufacturers ship to the U.S.
Left unexplained is what re-shoring is supposedly "cracked up to be." I for one have never contended that all of the manufacturing sent abroad would return, or even that that re-shoring would offset out-shoring anytime soon. Rather, I have simply cited numerous examples of companies such as Whirlpool and General Electric that have been returning manufacturing to this country as indicators of a welcome trend. And in fact the Kearny report also cites these examples of re-shoring as a positive development.
Overall, the Kearney report is more upbeat than the comment on re-shoring would suggest. It acknowledges that the landscape is changing in favor of U.S. based manufacturing: abundant energy at low cost, a productive workforce, cheap capital, interest in shorter supply chains and the growing popularity of the Made in America movement, as opposed to rising labor costs overseas, concerns about protection of intellectual property and costly transportation of finished goods over long distances. Also, the shortening turnaround time for introduction of new products makes it more cost efficient for manufacturers to keep more production nearby.
On the downside, manufacturers seeking to return work to the U.S. face some serious hurdles. The exodus of so much manufacturing has contributed to a shortage of people with the requisite skills to work in modern manufacturing, and much of the infrastructure of suppliers who once provided critical parts to manufacturing has withered. Also, today the soaring U.S. dollar is making U.S. products less competitive in world markets.
But these are problems we can deal with. Interestingly, the Kearney report goes on to discuss whether the U.S. might one day reassert its leadership over China in manufacturing, speculating whether China "is just a giant on clay feet, stuck in a swamp of labor inflation that even strong backing from the Chinese government can't pry loose and the U.S. is indeed gradually becoming the world's manufacturing powerhouse again."
I would not go that far, but I do see a resurgent U.S. manufacturing sector, driven by an astounding burst of innovation that China and other competitors are hard pressed to match. Our manufacturing sector is definitely on a roll. The Federal Reserve recently reported that factory output climbed 1.1 percent in November, while the previous month was upgraded to 0.4 percent, posting its largest increase since February. Capacity utilization jumped to 80.1 percent in November, its highest level since March 2008 and equal to its average over the past 40 years.
We will never bring back all of the manufacturing that has moved overseas, especially the low-end labor intensive work, but we do not really want those menial dead end jobs back anyway. Our goal should be to dominate high end manufacturing that reflects emerging technologies and we are well on our way to doing that. For the most part, the manufacturing coming back to the U.S. is high tech. That is no fable; that is the reality of the shop floor. And that is one holiday present that augurs well for a truly Happy New Year!
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements. December 2014