Manufacturing Jobs Return to US as Asia Loses Edge

Manufacturing employment has grown faster in

the US than in any other leading developed economy since the start of the recovery， raising hopes for an American industrial renaissance， according to Financial Times on January 17.

The US has added more net manufacturing jobs since the start of 2010 than the rest of the Group of 7 developed countries put together， with only two other economies， Germany and Canada， increasing factory employment at all.

At 11.79 million， employment in US manufacturing is still about 2 million below its pre-recession levels. About 2.3 million factory jobs were lost in 2007-09， and 328，000 jobs(seasonally adjusted) have been created since then.

However， hopes are rising that the US is entering a sustained manufacturing revival.

Since the start of 2010， manufacturing employment has risen 2.9 per cent in the US compared with 2.4 per cent in Germany and 1.9 per cent in Canada. In Japan， the UK， Italy and France it has fallen.

Mark Zandi， chief economist of Moody’s Analytics， said， “I think we are at an inflection point for manufacturing in the US. Employment in the industry has been in decline for decades， but it is now at a point where it is going from quite strong to stronger.”

A furniture business as an example

Bruce Cochrane’s family furniture business illustrates what may be the start of a US industrial renaissance.

The Cochranes were in the furniture business for five generations， employing more than 1，000 people in the early 1980s. But by 1996 the going had become too hard and they decided to sell out. Under the new owners， their factory in Lincolnton， North Carolina， was closed， the equipment was dismantled and production was moved to Asia.

Mr. Cochrane worked for 12 years as an import consultant， advising companies on how to source furniture from Asia to sell in the US. But by last year， he had come to the view it was viable to make furniture in the US again， even against competition from China.

“Back in 2000， the average wage in China was about 50 cents an hour; now it’s $3.50，” he says.

Non-wage costs have also risen in China. The Chinese authorities have become “much more aggressive” about environmental regulation， he adds. Taking into account the higher productivity of US workers， and shipping costs， the competitive advantage of Asian manufacturing was disappearing， he said.

So last year， he announced that Lincolnton Furniture would open up production of high-quality wooden beds， tables， chairs and cabinets in his family business’s old plant. “The ‘Made in the USA’ label is more important now than it’s ever been. People are looking for American-made，” he said.“I’m convinced that our timing is exceptionally good.”

Causes of the job return

Productivity growth， subdued wages， the steady decline in the dollar since 2002 and rapid pay inflation in emerging economies have combined to make the US a more attractive location.

In 2002-10， US manufacturing unit labour costs in dollar terms fell 11 per cent， compared with rises of 3 per cent in Japan and 41 per cent in Germany.

The US has also been improving its relative cost position compared with China， where wages have been rising annually by 15 per cent or more for most of the past eight years.

“Over the past decade， the US has had some huge gains in productivity， and we have seen unit labour costs actually falling，” says Chad Moutray， chief economist at the National Association of Manufacturers. “A lot of our members tell us that it sometimes is cheaper to produce in the US， especially because labour costs are lower.”

The increased competitiveness of US production has been reflected in manufacturing job creation plans in the US announced by Ford， GM， Caterpillar， Sleek Audio， Farouk Systems and many others in the past couple of years.

In some cases， companies say that they plan to bring back to the US production previously done in emerging economies such as China and Mexico. President Barack Obama recently called it a “hopeful trend”.

Higher oil prices， which raise transport costs， and the shale gas boom that has cut local energy bills have also made the US a more attractive location.

Mark Perry of the University of MichiganFlint said: “All these factors are coming together: the stars are aligning to favour US manufac- turing. The sector has been getting stronger， and I expect that to continue in 2012 and beyond.”

Lack of highly skilled workers

Mr. Cochrane’s story also offers insights into the pitfalls facing manufacturers wanting to build up their US production.

Although there was a substantial population of unemployed and under-employed former furniture workers in Lincolnton， many did not know how to use the latest equipment.

“People have to be retrained for the new machinery，” Mr. Cochrane says. “Even people with experience of computer-aided woodworking machinery are amazed at the new technology that’s available.”

It is the flipside of the improvement in productivity. Modern factories are now highly sophisticated， using automation and other advanced technology. This enables them to compete against producers in China while still paying much higher wages. The result， however， is that they need fewer people， and they tend to be more highly skilled.

Mei Xu is a Chinese-born entrepreneur who has become a standard bearer for “re-shoring” production in the US. Chesapeake Bay Candle， her company， employs about 120 of its 2，000 staff in factories in Maryland and California.

At a meeting at the White House last week to discuss what the administration has dubbed“insourcing”， she stressed the need for workers with the right skills and aptitudes.

“We really need high school kids to get some vocational training，” she says. “They need the skills to be able to work in a factory that is entirely automated. Workers in their 50s may be willing to work， but may not have the computer skills to use the technology.”

James Guyette， the chief executive for North America of Rolls-Royce， the aero-engine company， who was also at the White House meeting， agrees that “the education system must improve”.

Rolls-Royce is creating about 600 highly skilled jobs in the US， but has cut some lower-skilled ones， so the net gain in its employment is lower. The company is working with universities， colleges and even schools in an attempt to raise skill levels in the states where it has its plants and research and development facilities.

Mr. Guyette warns that however strong the recovery， the labour market will never return to what it was.

“Many of the jobs that have been lost in this country are never coming back，” he says.“And those are the low-skilled jobs.”