Economic Outlook n° 1187 | Special Report | The Reindustrialization of the United States
Euler Hermes
economy and millions of manufacturing jobs were lost. But this trend is now on the cusp of reversal for seve- ral reasons. U.S. manufacturing productivity has grown at a relatively high rate compared to other industrialized nations, making U.S. unit labor costs the lowest in the industrialized world. Highly skilled American workers can more reliably produce higher value-added goods. Costs such as transportation, inventory and lag time are lower while tax incentives and cheap energy make manufacturing in the U.S. even more attractive. As a result, U.S. manufacturing is enjoying a renais- sance and recently led the country out of the most severe recession since the Great Depression, contri- buting much more to GDP growth than one would expect given its weight in the economy. In fact, after the recession, the only job growth outside the ser- vices sector was in manufacturing. Of course the out- look is brighter for some industries and regions than it is for others, but the business environment sug- gests that conditions going forward will continue to be favorable, even in a world of uncertainty.
tions all around the world. The incidents highligh- ted how dangerous exposure to foreign supply chains could be and how a lack of preparedness for these risks causes difficulty in implementing risk management protocols for what were previously thought to be unthinkable events.
Short-lived effect or durable trends?
determinants of this reindustrialization are: > lower labor costs, especially in the southern States; > lower cost of energy resulting from the shale gas bonanza; and > the ability to steer the economic environment to leverage the positive cost reductions from which companies have been benefitting. Another factor is the new awareness of operating vul- nerability created by an over-stretched supply chain. In 2011, the localized production disruptions in Japan following an earthquake and a tsunami, and in Thailand from flooding, disrupted industrial opera-
B
eyond positive macroeconomic factors such as credit availability and low interest rates, the three
Going forward, and when examining specific U.S. industry dynamics, it seems important to selectively support: > The “shining” industries mentioned above, in order to identify more specifically the growing sub- sectors (agriculture, construction/mining, machi- nery, medical equipment, petroleum-related pro- ducts, semiconductor-related products) and examine their dynamics. The automotive sector also seems to be reviving from its ashes; > A conducive business climate with a clear empha- sis on innovation. The new era in the business envi- ronment (tightening gap between Chinese and American wages, appreciation of the yuan, access to cheap energy in the U.S., structural high oil prices, mounting awareness of the vulnerability caused by an over-stretched supply chain) could help U.S. manufacturing sustain this momentum. U.S. com- puter/electronic product manufacturing, machinery, furniture and miscellaneous product manufacturing are expected to take advantage of the falling Chinese wage competitiveness. Chemicals and primary metal sectors should gain ground thanks to cheap shale gas; and > Regional strengths make the efficient specializa- tion of the individual states feasible. The dynamics in the South, Texas, and California - particularly with niche sectors, incentives, and opportunities - are par- ticularly important as they appear to be the rene- wed growth centers of the U.S. This degree of industrial investment demands that the U.S. economy present sound, reliable growth prospects and that the financial system (banks and bond markets) support these capital intensive pro- jects. It also requires a confidence injection for the private sector to continue to re-shore and invest in the economy. Finally, the path to industrial rebirth will require a highly skilled workforce.▣