Best of the Week
Most Popular
1.Stock Market Crash and Recession Indicator Warning: Extreme Danger Ahead - Harry_Dent
2. Is This How World War III Begins, In Almost Complete Silence? - Jeff_Berwick
3.Trump Wins 2nd Presidential Debate, Betfair Betting Markets Odds Bounce - Nadeem_Walayat
4.Why Krugman, Roubini, Rogoff And Buffett Dislike Gold - GoldCore
5.End of SPX Stock Market Correction Nears - Tony_Caldaro
6.Get Ready for the Future - Exponential Machine Intelligence Mega-trend towards Singularity - Nadeem_Walayat
7.US Housing Market Bubble II – It’s Happening Again! - Andy_Sutton
8.FTSE BrExit Stock Market Panic Crash Resolves towards New All Time Highs - Nadeem_Walayat
9.Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - Nadeem_Walayat
10.Gold’s, Miners’ Stops Run - Zeal_LLC
Last 7 days
Stock Market Investment Success Through the “Investment Rule of 72” - 21st Oct 16
The Final Bottom in Gold - WHEN - 21st Oct 16
Gold Green Lights Upleg - 21st Oct 16
Demand for US Mints Silver Eagles has ‘Returned with a Vengeance’ - 21st Oct 16
Central Bankers Can't Stop The Death Blow Of The Post US Election Recession - 21st Oct 16
The Fortune at the Bottom of the Pyramid: Golden Opportunity for Frontier Asia - 21st Oct 16
Have You Taken These 4 Simple Steps to Improve Your Trading? - 21st Oct 16
The Stock Market is an Accident Waiting to Happen - 20th Oct 16
It's Rally Time for Gold and Silver Equities - 20th Oct 16
Cashless Society – Risks Posed By The War On Cash - 20th Oct 16
China's Insanely Leveraged Housing Market Will Enter Its Secular Bull Market In 2017 - 20th Oct 16
Donald Trump Bounces Going into 3rd and Final US Presidential Election Debate - 20th Oct 16
Attention Please: Phase Two of the Gold and Silver Train Now leaving the Station. All Aboard? - 19th Oct 16
How to Successfully Trade a Stock Market Crash - Black Monday October 19th 1987 - 19th Oct 16
Tesla, Apple and Uber Push Lithium Prices Even Higher - 18th Oct 16
Silver, Debt, and Deficits – From an Election Year Perspective - 18th Oct 16
UK Property Market: Slow Growth Does Not Equate To Decline - 18th Oct 16
Trump Election Victory is in Your Power - 18th Oct 16
Stock Market More to Come! - 18th Oct 16
This Past Week in Gold and Silver - 17th Oct 16
A Falling Stock Market Cannot Be Allowed - Financial Repression Is Now “In-Play”! - 17th Oct 16
Commodities, Forex and Stock Market Trend Forecasts - 17th Oct 16
Stock Market Crash..or No Crash? - 17th Oct 16
A perspective on risk rally – Risks abound but Stock Market is Confident - 17th Oct 16
Bank of England Blames Brexit for Sterling Drop Inflation, Masks QE Money Printing Cause - 17th Oct 16
From Piety to Pride to Pity, America's Racial Divide - 17th Oct 16
Is Obama Juicing US Government Spending To Get Hillary Clinton Elected? - 16th Oct 16
Seek Your Independence: Anything Else Will Destroy You - 16th Oct 16
SNL - US Presidential Debates, 1st, 2nd, VP - Like You've Never Seen them Before! - 16th Oct 16
End of Economic Growth Sparks Wide Discontent - 16th Oct 16
Donald Trump on Life Support, May Abandon Election Campaign and War on Republican Party - 15th Oct 16
The Gold Manipulators Not Only Will Be Punished, They Have Been Punished - 15th Oct 16
Black Votes Matter - Is the US on the Verge of Mass Race Riots? - 15th Oct 16
Gold Stocks Screaming Buy - 14th Oct 16
Brace Yourself for the Quadrillion-Dollar Reckoning - 14th Oct 16
The Next Recession Will Blow Out the Budget - 14th Oct 16
John Mauldin: My Infrastructure Plan to Save the US Economy - 14th Oct 16
World War III On The Brink: War Will Continue Until It Triggers Economic Collapse - 14th Oct 16
US T-Bill Rejection At Ports In Progress - 14th Oct 16
These 2 Debt Instruments Pose Peril to Millions of Investors - 14th Oct 16
China’s Rocketing Housing Market Real Estate Bubble - 14th Oct 16
DIY Winter Home Maintenance Money Saving 22 Point Checklist to Get Ready for Winter/Fall - 14th Oct 16
US Stock Market, Big Picture View - 13th Oct 16
Stock Buybacks Main Force Driving Bull Market; Rewards Investors and Starves Innovation - 13th Oct 16
SPX Gapping Down... - 13th Oct 16
Syria - Obama Stepped Back From Brink, Will Hillary? - 13th Oct 16
The Structure and Future of Gold in the Investment and Monetary World - 13th Oct 16
Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - 12th Oct 16
Gold and Crude Oil - General Stock Market Links - 12th Oct 16
Samsung's Galaxy Battery Just The Tip Of The Iceberg - 12th Oct 16
Hillary: Deceit, Debt, Delusions (Part Two) - 12th Oct 16
Gold and Silver Metals Show Strength Relative to the USD Index - 12th Oct 16
Announcing Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 12th Oct 16
Confirmed Stock Market Sell Signals - 11th Oct 16
Hillary Deceit, Debt, Delusions - 11th Oct 16
Trump Support Crashes to New Low of 6.4 on Betfair Odds Betting Market - 11th Oct 16
The World Is Turning Dangerously Insular - 11th Oct 16
An American Tragedy: Trump Won Big - 11th Oct 16

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

LEARN to Trade

The Great American Economic Rebound Has Just Begun

Economics / Economic Recovery Feb 13, 2013 - 02:23 PM GMT

By: Money_Morning


Martin Hutchinson writes: The U.S. manufacturing renaissance is not just a fantasy - it is actually happening. Jobs that had been outsourced to China and elsewhere really are returning to the United States.

Believe it or not, this "reshoring" already has reversed the long, steady decline of manufacturing jobs in the U.S.

In fact, since 2010 America has added roughly 500,000 manufacturing jobs, an increase of 4.3%.

The economic and investment implications of this reversal are considerable to say the least.

With the disadvantages to manufacturing overseas growing each year, it's no wonder reshoring is beginning to become a major trend.

One of the drivers is cost-especially as it relates to "cheap Chinese labor." As it turns out it's not that cheap anymore.

Three Keys to a Manufacturing Resurgence
According to an HSBC study quoted in the Financial Times, real wages in China's coastal areas have risen 350% in the last 11 years. Demographics are only accelerating the trend toward higher wages.

Last year, China's working age population fell for the first time, by 3.5 million to 937.5 million.

That means the endless supply of young workers from farms in China's rural areas is drying up, pushing China's wages up even further. Already, the country's balance of payments surplus has disappeared, and China's manufacturing costs, adjusted for productivity, have increased from 20% of U.S. costs to some 50%.

That still gives China an advantage in direct labor costs, but the additional costs of international sourcing must also be considered. When transportation, duties, supply chain risks, and other costs are fully accounted for, the cost savings of manufacturing in China begins to diminish.

In any case, unless there's a major downturn in China, its overall competitiveness is likely to continue to decrease.

Of course, the more excitable commentators like to claim that China's cost increases alone will push manufacturing back to the U.S. But the truth is that's nonsense.

Here's why.

There are many other low-wage emerging market countries with decent political and economic stability, all of which have had their competitiveness enhanced by the same Internet and mobile telephony that has pushed Chinese outsourcing ahead.

As such it only follows that the return to U.S. manufacturing from rising Chinese costs alone would be modest.

But there's another factor involved here - and this one is home grown.

The second thing bringing manufacturing back to the U.S. is the rise of fracking techniques for the immense U.S. shale gas deposits. That's different than the oil shale fracking which is unlikely to affect U.S. competitiveness much, because oil can be transported fairly readily (though in the short term excess production from Canadian tar sands has made oil much cheaper there).

However, gas is expensive to transport without an infrastructure of pipelines, which don't exist in most places. With the arrival of shale gas fracking, the United States now has a substantial energy cost advantage for applications which can efficiently use gas to supply energy for local plants--especially those near these shale gas formations.

Finally, in the long run a third U.S. cost advantage may reappear. It is the cost of capital.

With the world's most advanced and developed capital markets, the U.S. has traditionally had the lowest cost of capital- combining the lowest cost of debt with the greatest ease of raising equity for medium-sized companies.

Unfortunately, Alan Greenspan and Ben Bernanke have lost this U.S advantage. By making money easy to get at cheap rates, they have driven the banking system and international investors to invest in emerging markets, lowering their cost of capital artificially.

Whereas previously their cheap labor was offset by expensive capital, today their labor is still cheap, while their capital is also a little more expensive than in the U.S. For instance, when the near-bankrupt, impoverished socialist Bolivia can borrow $1 billion for 10 years at less than 5%, the U.S. capital cost advantage has effectively disappeared.

Of course, with some countries it's not coming back.

China has $3 trillion in foreign reserves and a very high savings rate. Under those circumstances it's going to get all the capital it needs at a cheap price.

But lesser countries, like Vietnam, India and most of Africa, will find capital expensive again once U.S. monetary policy has stopped creating money artificially. That will increase the cost advantage of U.S. manufacturing, at least in some cases.

Of course, who knows when Bernankeism will finally end. My guess is that a crisis will precipitate a return to sanity, but of course emerging markets will suffer in that crisis, as they did in 2008.

How to Invest in the Manufacturing Renaissance
To judge where to put a factory in the U.S. and get the best cost advantage, you need to look at where the gas is, and also where the workforce is abundant.

North Dakota, for example, is unlikely to get a big influx of factories from the Bakken shale. There are barely enough people there to get the gas itself out, and the boom has pushed the unemployment rate down to 4% and brought a massive housing shortage.

Meanwhile, Pennsylvania (and parts of New York and Ohio) have the gigantic Marcellus shale and lots of unemployed workers. However in these states there's another problem: Heavy unionization and no right-to-work laws which makes labor expensive and potentially recalcitrant. My guess is, these states will benefit less than they should from shale gas manufacturing.

The best bets are places like Michigan, where there is the substantial Antrim shale, but also a new right-to-work law, reducing the power of the unions and making labor potentially cheaper.

With high unemployment and good manufacturing capabilities, Michigan could see major manufacturing investments in coming years. Similarly Texas has gas, a steady supply of workers, a right-to-work law and a favorable business climate; it should benefit accordingly.

As for individual companies, it's worth researching in detail, bearing in mind that a modest return to U.S. manufacturing won't benefit General Electric (NYSE:GE) much, for example, because of its size.

However, you might look at the big chemical companies like Dow Chemical (NYSE:DOW) (based in Midland, MI) which recently split from the National Association of Manufacturers because of the latter's support for natural gas exports.

That's because the chemical business by its nature is gas intensive. Obviously for companies like DOW, if the gas can't be exported, it becomes cheaper here in the U.S.

You might also look at Irving,Texas-based Fluor Corp. (NYSE: FLR) , which will get a large chunk of any business building chemical plants and its share of industrial construction in general.

The great American rebound has just begun.

Source :

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2016 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife