Several factors contributing to resurgence of American manufacturing industry

December 21, 2011

The U.S. manufacturing sector has undergone a quiet but significant change in the past year, according to The Atlantic, and it seems that the industry is due for a comeback because of several factors.

The news source reported that along with the recent results of the Cook Associates survey, which showed that 85 percent of manufacturing executives expect some factory work to return to the U.S., rising wages in China may also help to bring jobs back to America.

Although Chinese workers still remain a cheap source of labor for American companies, they are receiving more money than in previous years. The average hourly wage doubled in China between 2002 and 2008, leading to higher costs for U.S. businesses operating in this country, according to the American Institute for Economic Research (AIER).

The AIER reported that the average cost of living has gone up in China due to economic growth. This coupled with the rising value of its currency, has led to higher wages among its large force of workers, posting an annual growth rate of 16.7 percent.

The New York Times reported that if China allows its currency to appreciate more than it already has, economists have predicted that the relative cost for American companies to manufacturing in the Asian superpower will rise.

"For a long time, China has been the anchor of global disinflation," Dong Tao, an economist at Credit Suisse, told the newspaper. "But this may be the beginning of the end of an era."

These developments are relevant to American companies, as these businesses used to deal with the logistics nightmares that occur in the Pacific region because of the lower operating costs. Now that these expenses have increased, a return to the U.S. could occur as a way to eliminate shipping and operational costs, according to The Atlantic.

Rising fuel costs also play into this problem, especially for low-volume, heavy goods where labor only makes up a small part of the fiscal equation, the news source reported.

Companies like Honda are beginning to shift part of their production to the U.S. Since the American market is one of the largest for many businesses, firms can cut shipping and operating costs while eliminating supply interruptions that can result in cross-oceanic dealings, according to 24/7 Wall Street.

States like Pennsylvania have already seen the potential effects of this manufacturing trend, as the new orders index in the Philadelphia region climbed from 1.3 in November to 9.7 in December, according to Bloomberg