Thursday, August 20, 2015

The Mirage of United States Manufacturing Re-Emergence

When we listen to the news, whether television, radio or newspapers, we hear many reporters and columnists state that U. S. manufacturing has turned the corner and is on the rise once again. The days are over when manufacturing jobs were sent overseas and ‘lost’ to foreign competitors.  The argument by these commentators is that due to increasing foreign labor costs, cheap oil and automation jobs are returning to American, making America the manufacturing center of the world.  

The term “manufacturing re-emergence is the new terminology coined for this event.  However, a recent study by the Information Technology and Innovation Foundation paints a completely different picture.  According to this report real manufacturing value added is still at 3.2 percent, far below 2007 levels.  In addition there remain two million fewer jobs and 15,000 fewer manufacturing companies than there were in pre-2008 levels.  A good part of the growth since 2010 is due to a cyclical recovery, specifically in the automobile and durable goods industries.

While it is true some companies have reshored some jobs they are very modest and companies continue to send manufacturing jobs overseas.   While this symmetry between companies coming and going is an improvement it is hardly a re-emergence.

Much of the hoopla concerning this so-called comeback is a misreading about U. S. cost advantages, such as Chinese wage growth, global shipping costs, the U.S. dollar, the shale-gas boom and American productivity growth.  The persistent belief that these factors are the drivers that will return production to the United States without real legislative action is na├»ve.

There are five myths that need to address.  They are the following:

1-      China’s rising labor costs will soon match U.S. wages
2-      Global shipping costs are unusually high so U. S. can produce more for U. S. and European markets.
3-      The Shale Gas boom gives U. S. a great advantage.
4-      Currency fluctuations will fix the trade deficit.
5-      Superior U. S. productivity growth will restore jobs.

Let’s address these one at a time:

1-      Chinese wages are still just 12 percent of the average U. S. wages for 2015.  Chinese push to open the interior to manufacturing will reduce the growth in wages.
2-      Undersupply led to skyrocketing global shipping costs in 2008.  Today shipping costs are more in line by falling 93 percent since 2009.
3-      Reduced costs for shale energy have only benefited the petrochemical and drilling operations.
4-      The United States has had a trade deficit since 1975 and the trade imbalance is just growing and growing.
5-      U. S. productivity is not increasing faster than any other industrial country.  In fact, it is growing slower than China’s or Korea’s.

The examination on U. S. manufacturing should not be conversant upon subjective evidence, promotional consulting reports or reports from think tanks whose agenda is to keep bad news from dampening further global integration support.  From an in depth analysis of available data on U. S. manufacturing workforce, value added productivity, U. S. manufacturing is not in re-emergence but rather a recurring growth mode.