Why US Manufacturing Could Be Made in America…Again!

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One of the great things about markets is how they are always changing. They never cease to surprise. But the market, as sly as it is, sometimes tips its hand.

While killing some time at the JFK airport a couple weeks ago, I grabbed a copy of Bloomberg Markets magazine and perused it over breakfast. There was one story that struck me titled “Time to Head Home for Some Manufacturers.” The basic gist is that US manufacturing is more competitive than most people think.

But US manufacturers themselves are starting to notice. And so some of them are opening up new plants in the US or relocating far-flung plants back home. The math is pretty simple. The big lures that sent them abroad — cheap labor and cheap fuel — are no longer so attractive.

The wage gap has shrunk. Wages in China and other overseas markets have gone up a bunch while US wages have stagnated. Cheap fuel has long since expired as a reality. Oil is the big factor and crude oil averaged north of $100 a barrel last year for the first time ever. But natural gas is another lure to come back to the US. In China, for example, natural gas prices are twice what they are here.

There is more: The US dollar has lost a quarter of its purchasing power since 2002 against a basket of 20 major currencies. That makes US assets and talent cheaper compared with similar assets and talent overseas.

The raw costs are only part of the equation. There is the soft stuff to consider as well, things like intellectual property risks and the fragility of supply chains. The Japanese tsunami and floods in Thailand caused major disruptions for manufacturers. And the US itself is still the world’s largest market. Therefore, the thinking goes, it could be better to make things closer to the customers that buy them.

Researchers at Gartner predict that 20% of the goods made in Asia for the US will shift back to the US by 2014. Surveys of manufacturers show many are considering moving operations back to the US.

As we continue to slog our way through second-quarter earnings, we see more companies announcing investment in the US. This is true from the giants like Caterpillar to the smaller players like Carlisle. Carlisle Companies is a small conglomerate that makes tires and insulation and more. CEO Dave Roberts recently wrote: “We find it as cheap to manufacture in the US as in China.”

If you got caught saying something like that in public, even just a couple of years ago, people would’ve written you off as idiotic, blindly patriotic or fit for the madhouse. Maybe all three.

In Manhattan [last month], I attended the Gabelli’s 22nd annual Pump, Vale & Motor Symposium. There, a dozen industrials trotted out there stories. These were companies with blue collars working in places such as Batavia, N.Y., and Mansfield, Ohio.

It was hard to walk away from there thinking the world was going to end. There are a lot of companies doing some pretty cool things. Their backlogs are healthy. And while nearly everyone was cautious about making any kind of robust forecast, it was clear that business was not bad.

Among the various presenters, Flowserve was one of the most red, white and blue. Its last acquisition in 2011 was for Lawrence Pumps, a company based in Massachusetts. Before that, in 2010, Flowserve picked up Valbart, an Italian manufacturer that is now opening a plant in Houston.

Of course, many people still think we don’t make anything in America anymore. I read a great piece in The Atlantic recently called “Making It in America,” by Adam Davidson. An excerpt:

“We do still make things here, even though many people don’t believe me when I tell them that. Depending on which stats you believe, the United States is either the No. 1 or No. 2 manufacturer in the world (China may have surpassed us in the past year or two). Whatever the country’s current rank, its manufacturing output continues to grow strongly; in the past decade alone, output from American factories, adjusted for inflation, has risen by a third.”

What trips people up is the shedding of US manufacturing jobs. Just in the 10 years ending in 2009, the US shed more manufacturing jobs than it gained in the previous 70 years.

About one in three such jobs disappeared. Davidson continues:

“Is there a crisis in manufacturing in America? Looking just at the dollar value of manufacturing output, the answer seems to be an emphatic no. Domestic manufacturers make and sell more goods than ever before. Their success has been grounded in incredible increases in productivity, which is a positive way of saying that factories produce more with fewer workers.”

Still, there is a human dimension to all of this — those lost jobs and the people involved today whose jobs are hardly secure. I highly recommend Davidson’s piece if you want to get a better understanding of what’s going on.

As an investor, though, clearly, it pays to shed the old ideas that the US is not competitive as a manufacturer and that we don’t make anything anymore. Neither is true. And that insight can make you some money.

Regards,

Chris Mayer

for the Daily Reckoning Australia
Chris Mayer is the editor of US-based newsletters Capital & Crisis and Mayer’s Special Situations.

This article originally appeared in The Daily Reckoning USA.

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Chris Mayer
Chris Mayer is a veteran of the banking industry, specifically in the area of corporate lending. A financial writer since 1998, Mr. Mayer's essays have appeared in a wide variety of publications, from the Mises.org Daily Article series to here in The Daily Reckoning. He is the editor of Mayer's Special Situations and Capital and Crisis - formerly the Fleet Street Letter.
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6 Comments on "Why US Manufacturing Could Be Made in America…Again!"

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Technofreak
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Good news indeed! but hardly surprising :)

Garry
Guest
Chris, I would suggest you are more than ten minutes behind the curve, given that the US has been waving a “made in America” flag for well more than a year now. Bit by bit, a quiet achievement from Obama’s building block policies – A process, rather than an event, which in my view is one of the main reasons why the $US hasn’t fallen through the floor – As some were speculating a year or so ago. Meanwhile to come across a “made in Australia” label these days is a rare find indeed. Crowds of older people gather round,… Read more »
Tom Shillock
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The U.S. dollar has lost about 80 percent of its value since the early 1970s. Incomes and retirements for most Americans (upper 2 percent excepted) have declined since the 1990s. The free flow of capital and financialization of America has made it into a third world country, the world’s biggist banana republic with a legal system and distribution of wealth to match. Chimerica.

Castor
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The cheap and available labor that is drawing manufacturing back to the US would not have anything to do with the decline in manufacturing component now woukd it?

masalai
Guest
From the other side of the globe to the USA, I cannot see a sudden return to manufacturing in USA. From what I have learnt by reading DR from Au and the USA version as well as quite a few other contrarian thinkers, the USA empire has been gutted and the rules have changed such as to strangle any free-wheeling entrepreneurship. The other gorilaphant is debt and derivatives. – What happens when sovereign debt strikes and there is no ‘insurance money’ – and everyone discovers it has all been a big lie hidden midst smoke, mirrors and magic. and things… Read more »
masalai
Guest

The last 5 paragraphs here http://www.zerohedge.com/news/guest-post-chart-decade ably identifies why USA will continue to decline or stagnate rather than recover. Any potential for growth by start-ups in new manufacturing enterprises has been effectively curtailed.

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