Best of the Week
Most Popular
1.The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - Doug_Wakefieldth
2.Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - Nadeem_Walayat
3.The Trend Every Nation on Earth Is Pouring Money Into - Keith Fitz-Gerald
4.Do Tumbling Buybacks Signal Another Stock Market Crash? - 26Mike_Whitney
5.Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - Nadeem_Walayat
6.Gold And Silver Price - Respect The Trend But Prepare For A Reversal - Michael_Noonan
7.U.S. Economy Faltering Momentum, Debt and Asset Bubbles - Lacy Hunt
8.Bullish Silver Stealth Buying - Zeal_LLC
9.Euro, USD, Gold and Stocks According to Chartology - Rambus_Chartology
10.Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - EWI
Last 5 days
US Mortgages, Risky Bisiness "Easy Money" - 30th Oct 14
Gold, Silver and Currency Wars - 30th Oct 14
How to Recognize a Stock Market “Bear Raid” on Wall Street - 30th Oct 14
U.S. Midterm Elections: Would a Republican Win Be Bullish for the Stock Market? - 30th Oct 14
Stock Market S&P Index MAP Wave Analysis Forecast - 30th Oct 14
Gold Price Declines Once Again As Expected - 30th Oct 14
Depression and the Economy of a Country - 30th Oct 14
Fed Ends QE? Greenspan Says Gold “Measurably” “Higher” In 5 Years - 30th Oct 14
Apocalypse Now Or Nirvana Next Week? - 30th Oct 14
Understanding Gold's Massive Impact on Fed Maneuvering - 30th Oct 14
Europe: Building a Banking Union - 30th Oct 14
The Colder War: How the Global Energy Trade Slipped From America's Grasp - 30th Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VIII) - 29th Oct 14
Flock of Black Swans Points to Imminent Stock Market Crash - 29th Oct 14
Bank of America's Mortgage Headaches - 29th Oct 14
Risk Management - Why I Run “Ultimate Trailing Stops” on All My Investments - 29th Oct 14
As the Eurozone Economy Stalls, China Cuts the Red Tape - 29th Oct 14
Stock Market Bubble Goes Pop - 29th Oct 14
Gold's Obituary - 29th Oct 14
A Medical Breakthrough Creating Stock Profits - 29th Oct 14
Greenspan: Gold Price Will Rise - 29th Oct 14
The Most Important Stock Market Chart on the Planet - 29th Oct 14
Mysterious Death od CEO Who Went Against the Petrodollar - 29th Oct 14
Hillary Clinton Could Be One of the Best U.S. Presidents Ever - 29th Oct 14
The Worst Advice Wall Street Ever Gave - 29th Oct 14
Bitcoin Price Narrow Range, Might Not Be for Long - 29th Oct 14
UKIP South Yorkshire PCC Election Win is Just Not Going to Happen - 29th Oct 14
Evidence of New U.S. Housing Market Real Estate Bust Starting to Appear - 28th Oct 14
Principle, Rigor and Execution Matter in U.S. Foreign Policy - 28th Oct 14
This Little Piggy Bent The Market - 28th Oct 14
Global Housing Markets - Don’t Buy A Home, You’ll Get Burned! - 28th Oct 14
U.S. Economic Snapshot - Strong Dollar Eating into corporate Profits - 28th Oct 14
Oliver Gross Says Peak Gold Is Here to Stay - 28th Oct 14
The Hedge Fund Rich List Infographic - 28th Oct 14
Does Gold Price Always Respond to Real Interest Rates? - 28th Oct 14
When Will Central Bank Morons Ever Learn? asks Albert Edwards at Societe General - 28th Oct 14
Functional Economics - Getting Your House in Order - 28th Oct 14
Humanity Accelerating to What Exactly? - 27th Oct 14
A Scary Story for Emerging Markets - 27th Oct 14
Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - 27th Oct 14
Europe Redefines Bank Stress Tests - 27th Oct 14
Stock Market Intermediate Correction Underway - 27th Oct 14
Why Do Banks Want Our Deposits? Hint: It’s Not to Make Loans - 26th Oct 14
Obamacare Is Not a Revolution, It Is Mere Evolution - 26th Oct 14
Do Tumbling Buybacks Signal Another Stock Market Crash? - 26th Oct 14
Has the FTSE Stock Market Index Put in a Major Top? - 26th Oct 14
Christmas In October – Desperate Measures - 26th Oct 14
Stock Market Primary IV Continues - 26th Oct 14
Gold And Silver Price - Respect The Trend But Prepare For A Reversal - 25th Oct 14
Ebola Has Nothing To Do With The Stock Market - 25th Oct 14
The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - 25th Oct 14
Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way? - 25th Oct 14
Gold Price Rebounds but Gold Miners Struggle - 25th Oct 14
Stock Market Buy the Dip or Sell the Rally - 25th Oct 14
Get Ready for “Stupid Cheap” Stock Prices - 25th Oct 14
The Trend Every Nation on Earth Is Pouring Money Into - 25th Oct 14 - Keith Fitz-Gerald
Bitcoin Price Decline Stopped, Possibly Temporarily - 25th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

The Great American Economic Rebound Has Just Begun

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

By: Money_Morning

Economics

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 :http://moneymorning.com/2013/02/13/the-great-american-rebound-has-just-begun/

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: customerservice@moneymorning.com

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

© 2005-2014 http://www.MarketOracle.co.uk - 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

Free Report - Financial Markets 2014