Best of the Week
Most Popular
1.UK General Election BBC Exit Polls Forecast Accuracy - Nadeem_Walayat
2.UK General Election 2017 Seats Final Forecast, Labour, Conservative Lib-Dem, SNP - Nadeem_Walayat
3.UK General Election 2017 Forecast: Conservative 358, Labour 212 Seats - Nadeem_Walayat
4.Theresa May to Resign, Fatal Error Was to Believe Worthless Opinion Polls! - Nadeem_Walayat
5.UK House Prices Forecast General Election 2017 Conservative Seats Result - Nadeem_Walayat
6.The Stock Market Crash of 2017 That Never Was But Could it Still Come to Pass? - Sol_Palha
7.[TRADE ALERT] Write This Gold Stock Ticker Down Now - WallStreetNation
8.UK General Election Results Map 2017 vs 2015 vs Opinion Polls - Nadeem_Walayat
9.Orphaned Poisoned Waters,Severe Chronic Water Shortage Imminent - Richard_Mills
10.How The Smart Money Is Playing The Lithium Boom - OilPrice_Com
Last 7 days
Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - 24th Jun 17
Gold Summer Doldrums - 23rd Jun 17
Hedgers Net Short the Euro, US Market Rotates; 2 Horsemen Set to Ride? - 23rd Jun 17
Nether Edge By Election Result: Labour Win Sheffield City Council Seat by 132 Votes - 23rd Jun 17
Grenfell Fire: 600 of 4000 Tower Blocks Ticking Time Bomb Death Traps! - 22nd Jun 17
Car Sales About To Go Over The Cliff - 22nd Jun 17
LOG 0.786 support in CRUDE OIL and COCOA - 22nd Jun 17
More Stock Market Fluctuations Along New Record Highs - 22nd Jun 17
Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - 22nd Jun 17
Green Party Could Control Sheffield City Council Balance of Power Local Election 2018 - 22nd Jun 17
Ratio Combo Charts : Hidden Clues to the Gold Market Puzzle - 22nd Jun 17
Steem Hard Forks & Now People Are Making Even More Money On Blockchain Steemit - 22nd Jun 17
4 Steps for Comparing Binary Options Providers - 22nd Jun 17
Nether Edge & Sharrow By-Election, Will Labour Lose Safe Council Seat, Sheffield? - 21st Jun 17
Stock Market SPX Making New Lows - 21st Jun 17
Your Future Wealth Depends on what You Decide to Keep and Invest in Now - 21st Jun 17
Either Bitcoin Will Fail OR Bitcoin Is A Government Invention Meant To Enslave... - 21st Jun 17
Strength in Gold and Silver Mining Stocks and Its Implications - 21st Jun 17
Inflation is No Longer in Stealth Mode - 21st Jun 17
CRUDE OIL UPDATE- “0.30 risk is cheap for changing implication!” - 20th Jun 17
Crude Oil Verifies Price Breakdown – Or Is It Something More? - 20th Jun 17
Trump Backs ISIS As He Pushes US Onto Brink of World War III With Russia - 20th Jun 17
Most Popular Auto Trading Tools for trading with Stock Markets - 20th Jun 17
GDXJ Gold Stocks Massacre: The Aftermath - 20th Jun 17
Why Walkers Crisps Pay Packet Promotion is RUBBISH! - 20th Jun 17
7 Signs You Should Add Gold To Your Portfolio Now - 19th Jun 17
US Bonds and Related Market Indicators - 19th Jun 17
Wireless Wars: The Billion Dollar Tech Boom No One Is Talking About - 19th Jun 17
Amey Playing Cat and Mouse Game with Sheffield Residents and Tree Campaigners - 19th Jun 17
Positive Stock Market Expectations, But Will Uptrend Continue? - 19th Jun 17
Gold Proprietary Cycle Indicator Remains Down - 19th Jun 17
Stock Market Higher Highs Still Likely - 18th Jun 17
The US Government Clamps Down on Ability of Americans To Purchase Bitcoin - 18th Jun 17
NDX/NAZ Continue downward pressure on the US Stock Market - 18th Jun 17
Return of the Gold Bear? - 18th Jun 17
Are Sheffield's High Rise Tower Blocks Safe? Grenfell Cladding Fire Disaster! - 18th Jun 17
Globalist Takeover Of The Internet Moves Into Overdrive - 17th Jun 17
Crazy Charging Stocks Bull Market Random Thoughts - 17th Jun 17
Reflation, Deflation and Gold - 17th Jun 17
Here’s The Case For An Upside Risk In The Global Economy - 17th Jun 17
Gold Bullish on Fed Interest Rate Hike - 16th Jun 17
Drones Upending Business Models and Reshaping Industry Landscapes - 16th Jun 17
Grenfell Tower Cladding Fire Disaster, 4,000 Ticking Time Bombs, Sheffield Council Flats Panic! - 16th Jun 17
Heating Oil Bottom Is In.(probably) - 16th Jun 17
Here’s the Investing Reason Active Funds Can’t Beat Passive Funds—and It Worries Me a Lot - 16th Jun 17
Is There Gold “Hype” and is Gold an Emotional Trade? - 16th Jun 17

Market Oracle FREE Newsletter

The MRI 3D Report

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

© 2005-2017 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

Catching a Falling Financial Knife