The Resurgence of American Manufacturing
According to NBC News, the Boston Consulting Group just released a fascinating new study that details why the United States is poised to become a low-cost country for manufacturing again. Indeed BCG predicts that by 2015 leading Western European countries and Japan will have an average of 8 percent to 18 percent higher manufacturing cost than the United States. The factors that BCG cites for this resurgence of manufacturing are low cost of labor (adjusted for productivity), abundance of natural gas and electricity. A Markit Report confirms this and points out that August hit a five month manufacturing activity high.
BCG goes further with some optimistic predictions about what this potential trend means for the future of American manufacturing. Co-Author Harold Sirkin said, “Over the past 40 years, factory jobs of all kinds have migrated from high-cost to low-cost countries…it could be America's turn to be on the receiving end of production shifts." BCG estimates that the United States will “capture between 70 and 150 billion dollars from the global export market.” Two-thirds of those gains captured will come from Western European economies and Japan. BCG also predicts that more manufacturing work will shift from China back to the United States and its impact could be felt as early as 2020 where it is estimated that between 2.5 and 5 million manufacturing jobs will be back in United States.
The chief economist at Markit, Chris Williamson agrees with the overall picture painted by BCG by cautions against overly optimistic timeframes saying, “It's difficult to gauge the extent to which the U.S. economy will benefit and over what time scale." He also emphasized the concept of lead times as a major reason for why the United States is re-gaining manufacturing. He explained that, “A lengthy, six-month transport time…from Asia…could be tolerated given the cost advantage. But, as the cost advantage fades, the trade-off between cost and timeliness works in the latter's favor. With the increasing use of 3-D printing, this trade-off will of course work even more in favor of localized production."
Finally the case of airplane manufacturer Airbus illustrates Williamson’s point perfectly. Spokeswoman Mary Anne Greczyn explained the decision to open a manufacturing plant in Mobile, Alabama rather than Europe by saying, “…for an airline such as JetBlue or American Airlines to have to come to Europe every time they get an aircraft delivered can be time- and resource- consuming…When the new facility in Mobile is up and running, they will need only to travel to Alabama for their A320 Family aircraft."