Throughout the majority of the 20th century, American manufacturing formed the ladder upon which our nation climbed to reach its place as a global economic superpower. A surge of new industries and manufacturing jobs made it possible for Americans to increase their economic status, cementing the idea of the attainable American dream.
It’s no secret that in more recent years, American manufacturing has lost its place as the great economic driver it once was, as more companies have found themselves offshoring to countries with lower labor wages in order to remain competitive. However, after decades of decline, the U.S. finds itself poised for a comeback with the reshoring trend spreading throughout the nation.
With Independence Day still in our thoughts, it’s the perfect time to examine this trend that is predicted to continue through the rest of the decade. After decades of losing manufacturing jobs to foreign countries, this year marks the first neutral year of manufacturing jobs losses and gains in the last 20 years, as the reshoring movement balances out offshoring at about 40,000 manufacturing jobs yearly.
As an Indiana-based outsourced manufacturer, our ALTEX team understands how bringing manufacturing back to North America not only saves companies time and money, but also decreases lead times and enhances flexibility and innovation. We are thrilled to play a role in helping bring manufacturing jobs closer to home while boosting the economy through providing customers with cost-effective, efficient and high quality customized manufacturing solutions that help improve profitability.
The following article originally featured on Manfacturing.net, further details the reasons behind the reshoring movement and how it is bringing about the reindustrialization of America.
For many years and even decades, the U.S. manufacturing sector has cued thoughts of economic decline, heavy job cuts, dark “Dickensian” facilities and a hopeless outlook in collective minds. But in recent years, the foundation has been developed for the industrial landscape to improve, and a handful of buoyant factors have accomplished what had been inconceivable for many years: restored faith in manufacturing.
The U.S. has among the lowest labor costs in the industrialized world and is awash in cheap energy, making it attractive for businesses to reshore by bringing their operations back to the U.S. Businesses are expected to invest $500 billion in U.S. manufacturing in 2014, and a recent survey indicated that 54 percent of executives are planning to reshore or are seriously considering it.
While unit labor costs for all industries have risen 2.3 percent since the recession, unit labor costs for manufacturing have actually fallen 6.2 percent. In addition, in 2006 China held a $17.10 unit labor cost (calculated as a proxy, Effective Wage) advantage over the U.S. Since U.S. wages have grown even more slowly than anticipated, expectations are that the Chinese advantage will shrink to $9.20 in 2014 and $6.90 in 2015. This huge competitive advantage arises from the fact that U.S. productivity has grown sharply while real wages have hardly changed at all.
The second leg of the manufacturing reindustrialization is cheap U.S. energy. Natural gas prices have continued their divergence from prices in other industrialized nations, although there have been temporary spikes due to the unusually cold U.S. winter. Looking forward, natural gas prices are likely to experience downward pressure due to continued increases in production, providing a significant boost to the U.S. and an incentive to companies to re-shore their operations.
The last major piece of the manufacturing renaissance is currently falling into place: employment. Total manufacturing employment has grown for the last nine consecutive months, more than erasing job losses suffered from April to July 2013. While the overall U.S. unemployment rate has fallen to 6.3 percent, it has plunged to 5.2 percent within the manufacturing industry, well below the rate of 7.9 percent recorded at the beginning of 2013 and the 2000-2009 average of 6.6 percent.
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