U.S. manufacturing shines brightly among overseas markets

January 25, 2013

U.S. manufacturing has started the new year as it ended the last one, by showing strong growth that owes much to a domestic resurgence and increased demand from overseas markets.

According to Reuters, the manufacturing industry recorded the fastest rate of growth since March 2011, with business analysts crediting the drop in unemployment levels and the apparent upturn in the housing market as reasons for optimism. The U.S. manufacturing industry has also benefited from an improvement in economic conditions in China, with economists suggesting that the domestic economy will be able to take advantage of this.

“The consumer is coming back,” said Tim Condon, an ING economist in Singapore. “Manufacturers are seeing the pick-up in spending growth as reason to expand production.”

Of course, while consumer spending ability in overseas markets can have a positive effect on the U.S. manufacturing industry, the domestic market has become a focus of attention. Part of this has been attributed to the current trend of reshoring, coupled with the continued adherence to lean enterprise that has allowed U.S. companies to make up significant ground on overseas competitors.

A recent article in The Economist highlighted reshoring as one reason why American companies could continue to demonstrate the commitment to quality management in manufacturing that made the country a global leader in the marketplace, citing the decisions of Apple, General Electric and Caterpillar to bring products home as vindicating the strength of the industry. However, there are some business analysts who believe that the practice, although welcome, should be kept in proportion, arguing that the goods being produced are intended primarily for the domestic market, and not for overseas consumption, with less than 100 companies actively “reshoring”.

One factor that has influenced the discussion is the increased cost of manufacturing overseas. Chinese workers have seen their wages increase by up to 19 percent since 2005, while the government has set minimum targets of 13 percent per year until 2015 at the earliest. Union representation, the bane of U.S. manufacturing for many years, has also increased in the Asia-Pacific region with Honda forced to give its workers a pay rise of 47 percent after a series of strikes in 2010.

This has led to U.S. manufacturing companies taking a step back from the overseas production line and consider the advantages of working from home. There is no doubt that the availability of talented labor and cheap energy has played its part in making America an attractive alternative to a foreign supply line, but while the future is looking brighter, the focus is now firmly on maintaining this precious advantage.