Industrial Insight

US manufacturing….. | October 17, 2011

http://www.businessweek.com/finance/hope-for-american-manufacturingmdashand-maybe-jobs-10142011.html

Economy October 14, 2011, 9:48 PM EDT

Hope for American Manufacturing—and Maybe Jobs

Some factory work is returning to the U.S., thanks to a narrowing wage gap with low-cost countries and to the rising risks posed by long supply lines

By Chris Farrell

To paraphrase Mark Twain, the demise of U.S. manufacturing has been greatly exaggerated. The country remains a global manufacturing powerhouse, accounting for one-fifth of the world’s manufacturing output in real terms. U.S. manufacturers exported $1.3 trillion in goods in 2010–a sum about equal to the size of Australia’s economy. If current trends through August hold, 2011 will be an even better year.

The problem is that all this activity doesn’t create as many jobs as it used to. Far from it: American manufacturers have been producing much more with many fewer workers. U.S. manufacturing output has grown by 2.5 times since 1970, even as employment shrank by 30 percent…..

The lure of cheap labor persuaded many U.S. companies to move production offshore. Now managers have to take into consideration rising labor costs in many key emerging markets. For instance, average annual wage gains in Brazil from 2003 to 2008 were 21 percent, according to Simchi-Levi. The comparable figures for Malaysia and Mexico were 8 percent and 5 percent, respectively Most important, China’s wage rates have been growing at a 15 percent to 20 percent yearly clip. In 2010, China’s average productivity-adjusted production wage rate in U.S. dollars was $7 an hour, 31 percent of the U.S. average manufacturing wage, according to Boston Consulting Group. That’s up from $3.80 an hour, or 23 percent of U.S. manufacturing wages, in 2000. BCG expects the wage gap to narrow to 43 percent by 2015. The bottom line: “All of a sudden, the costs in the U.S. don’t look as high,” says Harold L. Sirkin, senior partner at BCG.

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