By John Wasik
CHICAGO, March 8 A long-term U.S. manufacturing
rebound is under way, and it will likely endure because the
United States is becoming more competitive with China and other
According to a recent report by the Boston Consulting Group
titled "Made in America, Again," the cost advantage China has
over the United States is shrinking fast. "Within five years,
rising Chinese wages, higher U.S. productivity, a weaker dollar,
and other factors will virtually close the cost gap between the
U.S. and China for many goods consumed in North America," the
That means jobs that were once outsourced to the People's
Republic and elsewhere may be coming back to America. Coleman
Co, for instance, is bringing manufacturing of its plastic
coolers back to Wichita, Kansas, from China. Ford Motor Co
is repatriating some 2,000 jobs. Increased productivity through
automation combined with competitive wages is moving many U.S.
companies to "in-source" production. Here are some other key
factors in this trend:
The largest factor shifting industrial jobs to the United
States is a shrinking disparity of labor costs. According to a
study by global business adviser Ernst & Young, reported last
September, average labor costs in China roughly quadrupled
between 2001 and 2012. The U.S., in contrast, has seen stagnant
or declining real wage growth in that period.
Factoring in all of the costs of production, Boston Group
sees low-cost states such as Alabama, South Carolina and
Tennessee faring well. And that's just on the labor-cost
If you're looking for investing opportunities that would
capture U.S. manufacturing overall, you might consider the
Industrial Select Sector SDPR, which gained 8 percent
year to date through Feb. 27.
FIELDS OF GOLD
Fueling part of the growing U.S. advantage are abundant
resources and the falling price of energy in North America. The
U.S. has 5.3 times more arable land than China and it has 4.6
times the water resources that China has, notes Goldman Sachs
Group Inc in its 2013 outlook. That will support a
rebounding industrial base.
Thanks to huge new discoveries of shale oil and natural gas,
the U.S. is on course to be the world's largest energy producer
by 2020, forecasts the International Energy Agency. That bounty
will lower costs for nearly every manufactured and transported
product, and offset the edge from cheap labor that China has
held for years.
The price of natural gas - about half of what it was five
years ago - will lower costs for energy-intensive industries
like chemicals, plastics and steel. Companies that sought to
relocate to China and other developing countries are ramping up
their investments in U.S. plants. Stocks that should benefit
from this include Dow Chemical Co, United States Steel
Corp and DuPont. And the plastics industry is again
one of the fastest-growing U.S. manufacturing sectors, owing in
part to lower energy costs.
In contrast, the cost of energy is rising substantially in
China and the country generates most of its electricity by
burning coal, which is causing a major environmental problems,
including significant air pollution in big cities.
Another catalyst is technology. As computers become more
integrated with machine tools, manufacturing costs are dropping.
Advances in 3D printing are seeding a revolution in molding
everything from aircraft parts to prosthetics.
The sector is expected to grow to a $6 billion industry by
2019, according to Wohlers Associates, led by companies such as
Rock Hill, South Carolina-based 3D Systems Corp. Other
big players are Stratsys Ltd and ExOne, which
just went public last week. Since 3D printing is a nascent
technology, however, it's too soon to say if it will
revolutionize manufacturing to a large degree, but it holds the
promise of lower production costs.
A global consolidation in manufacturing also favors U.S.
manufacturers over the long term, according to Boston
Consulting. China has a diminishing advantage when long-term
supply chain, transportation and real estate costs are factored
In the short term, though, China should not be counted out.
It will be years before U.S.-based manufacturing overtakes China
as the world's busiest workshop - if it happens at all. Chinese
manufacturers will still have the upper hand in labor-intensive
industries such as textiles, even though they have yet to fully
explore automating their factories. China's manufacturing
growth has slowed recently, but Chinese plants will be humming
again if global economic activity heats up this year.
Yet if the U.S. continues down the road of lower production
costs fueled by cheaper energy prices and smaller labor-cost
differentials, this is a trend worth investing in - provided you
can find the most productive players.