By: Jeff Reeves
November 4, 2013
The news was a made-for-TV event, of course, with U.S. Commerce Secretary Penny Pritzker on hand for the announcement. And it’s undeniable that the company that made a name for itself selling super-cheap goods still has its fair share of cheap Chinese-made trinkets lining the shelves.
After a worrying slowdown in the first half of the year, China’s manufacturing Purchasing Managers Index rose to 51.4 in October from 51.1 in September.Why the government’s 7.5% growth target should be within reach this year.
To be clear, the rebirth of U.S. manufacturing does not in any way mean the rebirth of U.S. manufacturing jobs. For instance, Walmart’s big “made in America” news to source some footwear, curtains and glassware here in the U.S. will result in a net gain of just 385 jobs. And it’s unlikely that those positions pay $60,000 a year and have a nice pension.
But while technology and globalization has changed the economics of the manufacturing game, more is undoubtedly more in these troubled times — and continued progress in the manufacturing industry could bode very well for the broader U.S. economy in the long term.
To be clear, this isn’t patriotism or charity driving the U.S. manufacturing push. Rising wages around the world, particularly in China, have lessened the appeal of foreign manufacturing operations.
Consider a year ago when Apple /quotes/zigman/68270/delayed/quotes/nls/aapl AAPL -0.06% supplier FoxConn was embroiled in controversy as workers protested harsh conditions and low wages. These events were likely part of the reason why Google /quotes/zigman/93888/delayed/quotes/nls/goog GOOG -0.20% decided its first major hardware push after the $12.5 billion Motorola buyout would involve an American manufacturing base for its Moto X device.
“We’ve observed that wages in Asia are going up, wages here are relatively steady, consumers care more about where their products are being built, and you have advantages of having design close to your manufacture. Those advantages will well outweigh the costs that we have today and those costs will go down over time.”
It may seem counterintuitive to keep high-tech jobs and high-end jobs on-shore. However the potential for substantial markups to easily cover the increased cost of labor perhaps makes them the most likely manufacturing jobs to be repatriated or kept stateside.
Consider high-end designer jeans, a prime segment of the nearly $14 billion denim market. U.S. designers, and American sourcing for custom rivets and luxury fabric means onshore operations make sense — and ultimately more money for apparel manufacturers.
This is not just the story of a few companies making a few manufacturing moves. The data shows sustained growth in U.S. manufacturing, at least relative to recent lows.
In October, Chicago PMI jumped to 65.9% — the highest since March 2011 and a sign that companies are ordering plenty of goods and materials to fuel production.
According to Bureau of Labor Statistics data, roughly 500,000 manufacturing jobs have been created since February 2010.
You get the idea.
As with many things, there will be fits and starts and surely the manufacturing sector is sure to have its setbacks. Most recently, for instance, the pace of hiring in manufacturing has slowed — but considering the unemployment rate was at 7.8% in September 2012 and measured 7.3% in August, a drop of a mere 50 basis points in a year, that’s hardly a problem unique to manufacturing.
But by many metrics, American manufacturing is looking up in 2013.
It’s impossible to avoid the fact that many U.S. manufacturing jobs will never come back, given the cheap labor supply overseas.
And it’s also impossible to avoid the complicated nature of globalization, with difficult trade-offs like this. After all, cheap production does mean much lower costs for U.S. consumers. And as many economists have written — including the liberal icon Paul Krugman, of all people — the biggest beneficiaries of cheap labor are actually Third World workers.
We can moralize about whether 60 cents an hour in a sweatshop vs. 30 cents an hour scavenging in a garbage heap is really “better.” And we can wax patriotic about the importance of buying American or supporting your local community. But things are there are many moving parts that make manufacturing in the 21st century a complex industry.
However, the bottom line is still the bottom line. The only reason we have seen a (relative) rebound in American manufacturing is the fact that making things here is starting to make fiscal sense once more.
But the interesting question going forward will be whether the U.S. corporations dabbling again in onshore manufacturing will continue to see the value of producing goods in America and continue to build momentum in 2014 and beyond.
There’s a good chance that could be the case. After all, a late 2012 survey revealed that over 80% of Americans are willing to pay a bit more for a product made right here in the States.
If the core values of local pride and good old fashioned capitalism happen to align, it could be a powerful engine of growth for U.S. manufacturing.
Jeff Reeves is the editor of InvestorPlace.com. Follow him on Twitter @JeffReevesIP.