Report outlines positive future for American manufacturing

December 22, 2011

The return to prominence for American industry may come sooner than expected, according to a report from The Boston Consulting Group. The analysis shows that by 2015 the manufacturing of goods in some parts of the country will be just as economical as producing the goods in China.

While the U.S. has an increasingly flexible workforce and a resilient corporate sector, China is seeing its cheap labor force disappear. Recent developments in the Asian country have led to wage and benefit increases of 15-to-20 percent per year.

According to the report, this will slash China's labor-cost advantage over low-cost states in the U.S. from 55 percent in 2011 to 39 percent by 2015. Because labor is only a small part of the manufacturing cost, the motivation for companies to move operations overseas is declining.

The wage increases have an impact on the state of Chinese manufacturing for several others reasons.

According to the report, manufacturing in China will need to focus on providing for their domestic population over the next several years, as the higher wages for their workers will lead to increased consumption levels. This will bring some production work back to the U.S., as companies will favor a more focused workforce.

The report indicated that other countries, including Vietnam, Indonesia and Mexico, will begin to replace China as a cheap source of labor. This may also benefit the sector in the U.S., as certain operations unfit for the infrastructure of these nations will return to America.

"While China will remain an important manufacturing platform for Asia and Europe, the U.S. will become increasingly attractive for the production of many goods sold to consumers in North America," stated the report.

The emerging markets will also help revive the U.S. sector, as manufacturing output had increase by one-third from 1997 to 2008, prior to the recession. The report noted that the reallocation of production is still in its early stages, but it is set to accelerate in the next several years.

Bloomberg reported that Chinese factory output may decline for a second month in December, as opposed to the growth that was experienced for manufacturing in the New York and Philadelphia regions.

According to the news source, the U.S. manufacturing data showed that American industry was less affected by the European debt crisis, in terms of comparative output, than the Chinese sector.
Investment in China slid 9.8 percent from a year ago, the Ministry of Commerce told Bloomberg.