America’s Manufacturing “Come Back “

Maureen and I were in the Garden State Plaza Mall and we overheard a couple of people in the Nike store discussing how “nothing is made in America anymore”. I’m sure all of us have heard someone discussing the same thought or thought the same thing themselves.

The Boeing 747SP

The Boeing 747SP

Well it turns out it’s just not true. The United States actually manufactures more than 70% of everything it consumes which is a higher percentage than most countries, according to data from the U.S. Department of Commerce. There are certainly some industries, such as the apparel industry, that use the low-cost countries of the world to produce these items.

However, even industries such as electronic products  that people believe all of the items that are consumed annually are made oversees, it turns out that over one third of them are actually made here in the United States.  This is also true for a large percentage of manufacturing in machinery, transportation products and furniture sold in the U.S..

This trend will continue. Manufacturing cost competitiveness around the world over the past decade has changed dramatically, so much so that old viewpoints of which countries are low-cost and which ones are high-cost no longer stand.

The Boston Consulting Group (BCG) published a recent paper which discussed the United States manufacturing renaissance. The report discusses how the overall manufacturing cost structures of Mexico and the United States have improved relative to all other leading exporters across the globe. They point to the following key reasons for this improvement:  stable wage growth, sustained productivity gains, steady currency exchange rates and the big energy cost advantage that is largely driven by the 50% fall in natural gas prices since large-scale production of shale prices began in 2005. We discuss this energy revolution in the following post:  THE ENERGY REVOLUTION

The BCG report also states the following which will be shocking for many people.

“Overall manufacturing costs of the United States are 10 to 25% lower than those of the world’s 10 leading goods-exporting nations other than China.

The full report BCG report can be found here:  Striking Shifts in Global Manufacturing Costs over the Past Decade.

These positive changes will continue to help U.S. manufacturing.  One of the factors deals with worker productivity.  For example, an average U.S. worker is significantly more productive than a Chinese worker. In 2010, the U.S. worker was 3.4 times more productive than his Chinese counterpart: Or to put it a different way, a company would need 3.4 times as many Chinese workers to do the work of one American worker.

Another problem for Chinese firms is that their employee wages have grown which resulted in their former competitive advantage decreasing. The current Chinese manufacturing cost advantage over the U.S. has shrunk to less than 5%.

While labor and energy costs aren’t the only factors that influence corporate decisions on where to locate manufacturing, the striking changes represent a significant shift in the economics of global manufacturing,

said Michael Zinser, a BCG partner and co-leader of the firm’s manufacturing practice.  He believes that these changes will drive companies to rethink where they build future capacity and many will opt to manufacture in competitive countries closer to where the goods are actually consumed.

This paper will hopefully give some additional insight to how the US manufacturing industry is doing on a global basis.  This is why it is important to ensure that you continue to own the great companies in the US as well as those overseas as they continue to profit from the blessings found in the United States.

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About Dan Crimmins

Dan Crimmins, co-founder of Crimmins Wealth Management, is a financial coach and fee only financial planner. Have a financial question? ASK DAN

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