Report: Rising labor costs not sole reason for U.S. manufacturing revival

September 12, 2012

There are many outside factors that have contributed to a resurgence in the U.S. manufacturing sector, but rising foreign labor costs have been outlined by many as the main reason for a revival of American industry.

However, a new report from PriceWaterhouseCoopers noted that other factors may have had as much of an impact on the sector as the increases in foreign wages.

According to the report, there are seven major factors that have contributed to the resurgence, each playing an important role for American industry.

Analysts for the firm also noted that these factors will not only help to bring work back from overseas factories, but could support a long-term renaissance with America. This potential recovery would be able to survive beyond the short-term reach of any immediate factors, and increased investment in production, employment and research & development may occur.

According to the report, the seven factors are transportation and energy costs, currency fluctuations, U.S. market demand, labor costs, U.S. talent, availability of capital and the tax and regulatory climate.

Not only are these factors driving production back to the U.S., but localizing manufacturing efforts helps to limit and mitigate supply chain disruptions, which accounted for a $2.2 billion negative impact for American companies in 2011.

"The reviving industrial manufacturing sector is instrumental to U.S. economic recovery," said Bob McCutcheon, PwC's U.S. Industrial Products leader. "Beyond the cyclical rebound, however, a host of structural changes is emerging that may lead to the U.S. becoming an important location for basing production and R&D facilities for several industries. In addition to trends in labor costs, other factors include the need to reduce transportation and energy costs; the emergence of the U.S. as a more attractive exporter and the relative attractiveness of the U.S. markets."

Though the factors outlined in the report may impact certain sectors more than others, the shift in production has already begun for many industries, according to Reuters.

Automakers, appliance manufacturers, chemical firms and metal producers have already relocated back to the states, and the market is benefiting from the production being so close to the consumers who are buying the products and a restructuring of business strategy by many firms.

"If end-market production – if automotive and appliance and other markets begin to shift production to the U.S. – the steel and the aluminum industries will supply those businesses from the U.S.," McCutcheon said in the report.