Three Cheers for Manufacturing
There are a plethora of stories out there this week about the manufacturing renaissance.
These are largely businesses tied to manufacturing, including machinery equipment wholesalers, machine shops, architectural and structural metals manufacturing, and industrial machinery manufacturing, some, no doubt, on the small side. Businesses partnering with or selling to this segment will probably do well.
The Economist also has a story this week about the growing number of American companies moving their manufacturing back to the United States.
But reshoring amounts to much more than public relations. It is being driven by powerful forces and will only get stronger. In a survey of American manufacturing companies by the Boston Consulting Group (BCG) in April 2012, 37% of those with annual sales above $1 billion said they were planning or actively considering shifting production facilities from China to America. Of the very biggest firms, with sales above $10 billion, 48% came out as reshorers.
Several factors are behind the reshoring, The Economist points out, including increasing wages in places like China, Turkey and Brazil. The article also notes that:
High unemployment has brought a willingness to work for lower pay, especially in southern states. These are mostly “right to work” states where individuals are free to decide whether to give financial support to a trade union, so unions are less powerful there.
Digging a bit deeper into the manufacturing reshoring-less unions angle, The Washington Post writes:
U.S. manufacturers have added a half-million new workers since the end of 2009, making the sector one of the few bright spots in an otherwise weak recovery. And yet there were 4 percent fewer union factory workers in 2012 than there were in 2010, according to federal survey data. On balance, all of the job gains in manufacturing have been non-union.
The decline in wages—and the weakness of organized labor—may be part of the reason why manufacturing jobs are coming back to the United States. However, for the U.S. manufacturing sector to continue its remarkable expansion of the last few years, there are a few things that need to be done.
It’s critical that the shortages of skilled workers be addressed. If the United States is going to maintain its leadership in innovation, it also must help re-engage its youth in STEM.
Finally, a strong business environment will have access to abundant and affordable sources of energy. And this is where we have a real advantage.