Analysts: US Becoming Cheaper for Manufacturing

After losing over six million jobs between 2000 and 2009, the American manufacturing industry may be experiencing a turnaround. Hailed by many as being the harbinger of an industry renaissance, companies are opening plants in the USA citing reduced manufacturing costs. Some experts, however, think the trend is just a fluke.

For years, American companies have been shipping manufacturing jobs overseas because of the lower worker wages and other reduced manufacturing costs offered by other countries. However, that trend appears to be reversing. Several international and US firms have opened (or have plans to open) manufacturing plants in the states.

The primary reason for this change of heart appears to be the not-so-unexpected rise in overseas manufacturing costs. According to an article on WashingtonPost.com titled "Is US manufacturing making a comeback—or is it just hype?" by Brian Palmer, China—where the bulk of manufacturing jobs have gone—is getting richer, and workers are demanding higher pay. The wage gap between American and Chinese workers has shrunk significantly. In 2006, the gap was $17 per hour. Analysts project the difference will be less than $7 per hour by 2015.

In the past, the lower wages balanced out the increased manufacturing costs in other areas such as storage and shipping. Companies like Lenovo and GE, however, did the math and found reshoring—bringing manufacturing jobs back to America—was better value overall. Plus, manufacturing products in America simply made more sense logistics-wise because those products were sold to North American consumers. Lenovo opened a manufacturing plant in Whitsett, North Carolina, in January this year. Two years ago, GE moved production of a line of water heaters from China to its factory in Louisville, Kentucky.

Despite the resurgence in reshoring, some experts are not convinced the trend signals a resuscitation of the American manufacturing industry, pointing to the relatively modest job growth in the sector as evidence. Out of the 520,000 jobs added since January 2010, only 50,000 were from international companies sending jobs to the States. When compared to the six million jobs lost overall, the evidence for a manufacturing renaissance in America isn't very compelling.

Experts also pointed out that even if reshoring is trending, US workers still have to contend with automation. Despite the high initial investment, automated and robotic systems can replace slews of human workers, leading to significantly reduced manufacturing costs over time. At best, the rise in manufacturing jobs in America may simply be the lull before the real storm.

Still, the influx of manufacturing jobs can have a positive impact on the American economy. Though some companies have negotiated to pay workers less to keep manufacturing costs in line, the jobs are still putting money into the hands of the American people. This, in turn, can give the economy a much-needed boost that may spread to other industries.

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