Only a few years ago, daily newspapers across the U. S. were splashed with negative headlines about the state and future of manufacturing in our country such as, “U.S. has lost its manufacturing dominance” and “U.S. can’t compete in the global environment.” However, today the pendulum is swinging the other way as the manufacturing industry seems to be experiencing a renaissance, led by production and jobs coming back to the U.S. In fact, a recent poll of some 250 U.S. contract manufacturers showed 40 percent of the respondents benefitted this year from work previously done abroad, and an even higher percentage were optimistic about the future.
Three main forces seem to be driving this renaissance: the rise of foreign wages, the weakening dollar, and energy production.
- Rising foreign wages. The cost benefits that once existed for companies manufacturing products overseas have diminished in the last several years. Today, the gap between the cost to produce products overseas versus in the U.S. is closing at a rapid rate, as those countries that were once developing are now developed, and their work forces are demanding–and getting–higher wages. Some reports estimate that labor costs in China are rising 15 to 20 percent per year, and that net labor costs for China and the U.S. will converge in just three years.
- Weakening U.S. dollar. The weakening of the dollar makes U.S. goods more attractive to foreign buyers. In the past decade, the dollar has fallen nearly a third compared to the euro and the yen, making the U.S. a more viable option for global companies. Also, U.S. manufacturers that were previously reluctant to expand their markets overseas are slowly beginning to explore these new export opportunities.
- Increasing energy production. U.S. energy production is booming and domestic natural gas prices have recently plunged, providing an edge to U.S. manufacturers of fabricated steel, transportation equipment, machinery, and chemicals—all industries that use natural gas extensively.
Many of today’s manufacturers report seeing greater productivity today from their U.S. plants than from those located (or previously located) overseas. This is attributable to several factors, including language and communication barriers, time zone differences, logistical issues, and other control issues inherent in overseas operations. When your manufacturing technology and process are right in front of you, it is much easier to remain creative and to continually improve.
However, this renaissance is not without its issues. There is evidence of a shortage of skilled labor now, particularly in the areas of machining, casting, and textiles, where people eschewed careers as U.S. manufacturing was in its long-term decline. To combat this challenge, many states are placing a renewed focus on vocational training by adding more technical schools with programs in these specific skill areas.
So what does all this mean? U.S. manufacturing, while still nowhere near where it used to be, certainly seems to be heading in the right direction. Recent headlines such as, “China labor costs push jobs back to the U.S.” and “U.S. companies reshoring operations back home” provide positive indicators of the future of manufacturing in our country.
Michael A. Coakley can be reached at Email or 215.441.4600.