Why U.S. Manufacturing is Back

Much has been written about the loss of U.S. manufacturing overseas, but there is room for optimism. Gains in U.S. manufacturing (around 3.5% this year) will outpace the broad-based economy[i]. The fundamentals are in place for a U.S. recovery:

• The U.S. is the only industrial nation whose cost of labor has declined over the last decade. The per unit labor costs in China and South Korea have soared over 40% over that time, deeply diminishing the cost advantage of off-shoring. While U.S. labor rates will be impacted by a rise in the minimum wage, it doesn’t appear that the Obama administration has the votes in Congress to raise it to the President’s target (over $10 per hour)[ii] .

• Investment in automation and robotics by U.S. firms is paying off.[iii] The cost of robots has fallen significantly. The power of silicon chips and digital sensors are game-changing advances that will propel competitive advantage. Google’s purchase of 8 robot start-ups in 2013 is an indication of the momentum within the industry.

• The U.S. is producing higher value goods. 45% of U.S. manufacturing exports are from advanced technologies. Not only do such companies provide higher paying jobs, but their products are subject to less price competition.

• Heavy industries such as automobiles and aerospace are in growth mode. U.S. airplane manufacturers have a significant backlog, an encouraging sign for OEM’s and tier level suppliers.

• Health care manufacturing is surging, with medical equipment, pharmaceuticals and biotech companies experiencing strong export demand.

U.S. manufacturing output suffered during the recession. However, the surge in U.S. production goes deeper than the stabilization of the economy.

Many Americans are concerned that China has upstaged the U.S. as the world’s largest manufacturing nation. A recent Deloitte Study ranked the U.S. as third, behind China and Germany in terms of manufacturing competiveness. Yet, manufacturing volume alone does not measure the overall strength of an economy.

In effect, we have exported our low-value manufacturing to Asia. For the U.S. to remain competitive, we must continue to focus on developing high value products.

The intersection of innovation, technology, and intellectual property is still ground zero in the fight for economic supremacy.

As companies squeeze every penny out of their operations, the Made in the USA moniker has limited resonance. U.S. companies should look at their domestic partners to provide the best solutions, just-in-time delivery, and competitive cost. U.S. based manufacturers know all to well, that they need to win based on merit. The starts are aligning for them to do just that.

Marc Emmer is President of Optimize Inc. based in Los Angeles. He can be reached at marc@optimizeinc.net

[i] The Kiplinger Letter March 14^th, 2014 [ii] Democrats Consider Smaller Minimum-Wage Increase –The Wall Street Journal April 3, 2014 [iii] Rise of the Robots –The Economist March 29^th, 2014