US factory, service job exodus not over - studies

Tue Mar 20, 2012 2:01pm EDT

* Investment in foreign plants rising, domestic falling

* Manufacturing job recovery minimal

* Fewer service jobs remain to shift offshore

By Scott Malone

March 20 (Reuters) - It's not quite time to pop the champagne corks and celebrate the returns of jobs that U.S. companies had been shifting overseas, two studies released this week warned.

While three straight months of U.S. job growth, bullish chatter from some of corporate America's top leaders and reports of rising wages in China helped paint a rosier picture for American workers, the recovery in employment -- particularly in factories -- could prove a temporary blip as U.S. companies continue to move manufacturing and service jobs out of the country, the studies asserted.

The past few months of job growth in the U.S. manufacturing sector has not begun to make up for the jobs cut during the 2007-2009 recession, a report by the Information Technology and Innovation Foundation found. It noted that the sector lost 16.3 percent of its jobs -- about 2 million workers -- during the downturn, and has since come back by just 1.4 percent.

"What happens today is ... companies don't just temporarily furlough workers; they actually shut down plants or shut down whole parts of a plant and then they don't restart them afterwards," said Robert Atkinson, president of the Washington-based think tank. "That demand gets satisfied by foreign production."

The foundation noted that the U.S.-based manufacturers have shifted their capital equipment spending overseas over the past decade, a development that the group reasoned would drive continued migration. Their spending on foreign plants and equipment rose 53.9 percent from 2000 through 2009, while their correlating domestic investment fell 27.3 percent.

TIDE MAY NOT HAVE TURNED

This comes even as top executives, including the heads of General Electric Co and Boeing Co, admit that they went too far in moving operations out of the United States.

"In the last generation, GE and our industrial peers began a long-term trend to outsource our supply chain to other companies," Immelt said in his annual letter to shareholders, released earlier this month. "This made sense in an era when labor was expensive and material was cheap. Today, our material costs are more important. So we have to control our supply chain to achieve long-term productivity."

Boeing CEO Jim McNerney in February fretted that U.S. manufacturers had gone too far in a "lemming-like" exodus.

"We lost control in some cases over quality and service when we did that; we underestimated in some cases the value of our workers back here," McNerney said.

Those companies are exceptions to the trend, Atkinson said.

"The overall loss-to-gain ratio, losing from offshoring to gaining from onshoring, that's in a better position than it was eight, seven, six years ago," Atkinson said. "I still don't believe that ratio, fundamentally, is positive."

While executives contend that rising wages in China and India are making it less attractive to move operations outside of the United States, a report by the Hackett Group consultancy suggested that another factor could stem the tide in the service sector: Fewer jobs remain to move offshore.

By 2016, it forecast, just 1 million service sector jobs would be left in the United States and Western Europe that could be shifted abroad, down from the current 1.8 million.

"We're running out of jobs to actually move offshore once we get past this next few years here," said Hackett research head Michel Janssen. "Companies are moving fast and furious to take advantage of the labor arbitrage right now."

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Comments (1)
This turning point for wages and outsourcing is leading some reversal in outsourcing trends. The subtleties determining cost efficiency, quality control and the availability and demand of various resources are guiding a natural progression of these trend reversals.

While these improvements are not yet wide-spread, the above demonstrates something crucially important – a self-correcting (self-regulating) free market.

Mar 22, 2012 5:24pm EDT  --  Report as abuse
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