Friday, October 07, 2011

More on the U.S. Manufacturing Renaissance

CHICAGO, October 7, 2011—"Transportation goods such as vehicles and auto parts, electrical equipment including household appliances, and furniture are among seven sectors that could create 2 to 3 million jobs as a result of manufacturing returning to the U.S.—an emerging trend that is expected to accelerate starting in the next five years, according to new research by The Boston Consulting Group (BCG).

The BCG analysis identifies those broad industry clusters that are most likely to reach a “tipping point” by around 2015—a point at which China’s shrinking cost advantage should prompt companies to rethink where they produce certain goods meant for sale in North America. In many cases, companies will shift production back from China or choose to locate new investments in the U.S. The U.S. is also expected to become a more competitive export base in these sectors for Europe and Canada.

“A surprising amount of work that rushed to China over the past decade could soon start to come back—and the economic impact could be significant,” said Harold L. Sirkin, a BCG senior partner and lead author of the analysis. “We’re on record predicting a U.S. manufacturing renaissance starting by around 2015. Now we can be more specific about which industries will return and why.”

In addition to transportation goods, electrical equipment and appliances, and furniture, the sectors most likely to return are plastics and rubber products, machinery, fabricated metal products, and computers/electronics. Together, these seven industry groups could add $100 billion in output to the U.S. economy and lower the U.S. non-oil trade deficit by 20 to 35 percent, according to BCG.

The tipping-point sectors account for about $2 trillion in U.S. consumption per year and about 70 percent of U.S. imports from China, valued at nearly $200 billion in 2009. The job gains would come directly through added factory work and indirectly through supporting services, such as construction, transportation, and retail."

HT: Robert Keuhl

Related: China Labor Costs Push Jobs Back to U.S.  (HT: Scott Lincicome)

22 Comments:

At 10/07/2011 3:52 PM, Blogger aorod said...

A result of lower wages?

 
At 10/07/2011 4:44 PM, Blogger Rufus II said...

Lower wages here, higher wages there, and higher transportation costs.

Also, we will, eventually, get our heads back out into the sunlight, and fix a totally dysfunctional Corporate Tax policy that drives investment dollars overseas.

The Next step, though, has to be to graduate high school students capable of working in an efficient, automated factory.

 
At 10/07/2011 4:54 PM, Blogger Walt G. said...

Automated factories will be looking for skill sets normally obtained after high school from community colleges. Eliminating highly paid skilled trades is the wave of the future. The companies even want to pay us big money to leave. For that to happen, production workers will have to know how to control robots, machinery, and other tooling through software programs.

 
At 10/07/2011 5:28 PM, Blogger Rufus II said...

Those are the exact skill sets we should be teaching in High School (and Jr. High, and, maybe, to some extent, in Grade School.)

It's time to drop the "Foreign" Language, nonsense, and start teaching a Language that our students really need to know - The Language of the Computer.

 
At 10/07/2011 5:35 PM, Blogger Rufus II said...

We need forklift drivers. But, the forklift drivers we need are the ones that can sit at a keyboard, and control 20 forklifts.

Half of the boys (or thereabouts) that graduate high school have had all the "schoolin'" that they want. They want to get outta there, go to work, and do stuff. You're not going to change their minds.

What we have to do, if we're going to get our money's worth from our property taxes (that fund the schools) is teach those kids the skills they'll need to be productive (and, thus, off the dole, and out of our pocketbooks.)

 
At 10/07/2011 5:46 PM, Blogger Stephen said...

These BCG dudes have a great record over the last couple years, so I thought I would post a couple of their quality predictions:

March 10, 2008

http://www.bcg.com/media/PressReleaseDetails.aspx?id=tcm:12-8449

"The crisis will continue to cast a shadow over the industry in the near term," said Achim Schwetlick, one of the leaders of BCG's investment banking practice and coauthor of the report. "The industry's growth rate should rebound after 2008, but this will depend largely on the return of both liquidity and investor confidence."

Equities hold the greatest promise for growth in the near term, while growth rates for all products should reach high single digits over the next three to four years . The recovery will vary by region. "Emerging markets were largely unaffected by the problems that radiated from the U.S. mortgage market," noted Ranu Dayal, another of the report's authors. "Markets in Latin America, the Middle East, and Asia-Pacific, excluding Japan, should maintain strong growth."

June 2008:
http://www.bcg.com/media/PressReleaseDetails.aspx?id=tcm:12-8440

NEW YORK, June 12, 2008 — Investment banks faced a difficult start to 2008 but showed signs of improvement. Revenues of leading banks remained negative in the first quarter, largely due to write-downs. Excluding write-downs, however, first-quarter revenues were actually 18 percent higher than in the previous quarter. The report, Investment Banking and Capital Markets, by The Boston Consulting Group, is being released today.
"This is far from a full recovery,but it shows that investment banks are beginning to return to form," said Achim Schwetlick, one of the leaders of BCG's investment-banking practice and coauthor of the report.

The report examines opportunities for investment banks in Asia-Pacific. "Some markets remain stressed by the financial crisis," said Schwetlick, "but that should only encourage banks to look for new pathways for growth. Several trends-including deregulation, rapid economic growth, and the accumulation of personal wealth-make Asia-Pacific an attractive area for growth."

The per capita income in the PRC is about $7500/yr, which is less than $4/hr, even with the millionaires averaged in. Manufacturing wages are still less than one dollar per hour. With US minimum wages above $8/hr, I think there is allot BS in that article...but if their GDP does match ours in 2016 due to massive currency swings and other issues, then they might have an argument; but only because we will have fallen a whole lot more...

http://www.nytimes.com/2010/06/08/business/global/08wages.html

The salaries of factory workers in China are still low compared to those in the United States and Europe: the hourly wage in southern China is only about 75 cents an hour.

 
At 10/07/2011 5:51 PM, Blogger Walt G. said...

High schools are teaching to standardized tests to pass the No Child Left Behind (NCLB) law. There's not much money or time left to teach students entering the workforce without obtaining a four-year degree. I agree with you, that needs to change. Our forktrucks are computer-dispatched with on-board monitors, so even driving fortrucks uses basic computer skills

 
At 10/07/2011 5:56 PM, Blogger Walt G. said...

Stephen,

Wages are only part of the manufacturing cost of doing business so far away with a different culture. The U.S. does not necessarily have to match the lowest wages to be competetive if we have a lot of other factors in our favor.

 
At 10/07/2011 7:20 PM, Blogger Craig said...

A result of lower wages?

A result of higher wages there caused by inflation. Now, if the Fed insists on pumping up our money supply, inflation will likely worsen here, too. That will cause prices to rise and [nominal] wages to increase.

It would negate the proposed renaissance and just move production to Viet Nam, or, who knows, Africa.

The opportunity's there, though, if we can just get rid of the inflationists advising the government.

 
At 10/07/2011 7:36 PM, Blogger Larry G said...

how about teaching to the Armed Services Vocational Aptitude Battery test of which about 40% of blacks cannot?

or teaching the SAT?

I don't see a problem with teaching to a test if that test represents knowledge and skills that you need to compete successfully for a 21st century job.

Only about 30% of our students achieve "proficiency" in language, math and science literacy.

what do we "teach to" to get the other 60% a proper education?

I'd recommend that any kid who is not on a college track - get taught what is in the Armed Services Vocational Aptitude Battery test as a real-world teach-to-the-test goal.

we keep thinking that if 60% of kids don't achieve a workforce-level education that it's okay to say it's the parents fault.

Maybe - but every kid who cannot grow up to get a job - or even ones who do but become working poor - will likely pay no federal taxes, consume entitlements and not be able to pay for their own kids needs... and that's the best case.

the worst case is incarceration...

by the way - many colleges, including community colleges report that significant numbers need remedial help in language literacy... confirmation that only about 30% of our students graduate with "enough" for the next step.

 
At 10/07/2011 8:27 PM, Blogger Benjamin said...

This is fascinating--I have also heard that the Chinese government is becoming more arrogant--and remember, China is a communist nation and the Communist Party runs the show. You have to pay homage to them, and you don't get your factory in China. They were hungry 10 years ago and now they are not.

It may be jobs switch to India or Mexico, but some say those manufacturing platforms are too corrupt.

 
At 10/07/2011 10:36 PM, Blogger Rufus II said...

The factory of the future (present, actually) will have a bunch of robots, and some people writing code. (and, a few "mechanics," of course.)

We should be teaching our kids how to write code. The seventh grade seems reasonable. The Second might be better, at least for the precocious ones.

 
At 10/08/2011 4:28 AM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 10/08/2011 4:32 AM, Blogger Ron H. said...

"Only about 30% of our students achieve "proficiency" in language, math and science literacy.

what do we "teach to" to get the other 60% a proper education?
"

You have certainly made your point! You are your own poster child for lack of proficiency in math.

 
At 10/08/2011 7:01 AM, Blogger Larry G said...

touche !

the percentages are approximate and don't round but the basic facts are that the vast majority of the non 30% do not get a sufficient education to compete for 21 century non-college jobs and that's where we have failed.

We rank about 29th on world comparisons of language, math and science proficiency.

the "new" manufacturing jobs that ARE available are a lot like the "new" military jobs that are available in that much technology is involved and in order to successfully use it - people need to know how to read and write in today's technologies and if you cannot read and write PROFICIENTLY - not even the US military wants you much less corporations.


Much of the discussion in this blog focuses on how 1/2 the people don't pay taxes and consume all manner of entitlements... but the simple reality is if one does not have an education in the world today - you're not going to work or if you do.. you won't earn enough to pay taxes - and you will need entitlements.

so the 60% or 70% number is not near as important as the underlying point about the link between modern jobs and education.

 
At 10/08/2011 7:52 AM, Blogger Walt G. said...

I suggest that anyone who wants to understand the skills mismatch between high school and the workforce (structural unemployment) read a February 2011 Harvard study Pathways to Prosperity. Just Google it because I can't hyperlink it from my phone right now.

 
At 10/08/2011 8:01 AM, Blogger Larry G said...

here's another:

Shut Out of the Military:

Because the test assesses many occupational skills, low scores mean these applicants
are also unlikely to succeed in the civilian workforce.

http://www.edtrust.org/sites/edtrust.org/files/publications/files/ASVAB_4.pdf

 
At 10/08/2011 8:07 AM, Blogger Larry G said...

here's Walt's link;

http://www.gse.harvard.edu/news_events/features/2011/Pathways_to_Prosperity_Feb2011.pdf

but I don't agree with the premise that more post-high school education is needed because the problem is that they are not getting out of high school with a basic education which is what the military is testing for.

Kids who don't go to college - use to depend on the military and manufacturing for their blue collar life but they are no longer graduating from high school with the kind of education that is needed to compete for 21st non-college, manufacturing and technical jobs.

When a kid who graduates from high school cannot qualify for our military -you know the problem is not post-high school education.

 
At 10/08/2011 8:30 AM, Blogger Walt G. said...

Larry G

You have to separate education from training. They are not the same thing, and they do not use the same approach to knowledge transfer. A lot of educated people are not trained to do much of anything.

It’s impossible to expect great results putting 100% of the high school students on a college track when only half will go to college and only about half of those will get a degree in six years. We need to get past the notion that anything less than a bachelor’s degree means automatic failure.

Basic education, what ever that is, will not cut it anymore even for the military. About 1/4 of my students are either in the military of have been (most of the others are laid off or never have had a job)

 
At 10/08/2011 8:37 AM, Blogger Larry G said...

" We need to get past the notion that anything less than a bachelor’s degree means automatic failure."

I agree - it's the non-college technical skills but you have to be proficient in language, math and science literacy to be able to gain those skills.

This is what the international PISA assessments show and we rank low compared to most other industrialized countries.

You do not need to be college-bound to be able to use critical-thinking skills involving real-world problems and that's our problem.

we are essentially abandoning the non-college track students in high school and the military and manufacturing jobs have both advanced technologically to the point where what the non-college kids get in our high schools in not sufficient - and also is deficient when compared to other non-college kids in other countries.

Our military test - decides in addition to what kind of job you qualify for - what kind of training.

think about that... the military is not going to train you either if you lack a basic education.

 
At 10/08/2011 10:24 AM, Blogger Michael E. Marotta said...

We should let spontaneous order develop rather than prescribing what schools and manufacturers, parents, and the government should do.

Rufus II wrote above: "The factory of the future (present, actually) will have a bunch of robots, and some people writing code. (and, a few "mechanics," of course.)

That was the theory in 1980. It did not turn out that way because in order to program a computer to weld sheet metal, you yourself must know how.

We should be teaching our kids how to write code.

... except that coding is not programming: web design is often GUI-based. And code fads come and go. Fortran ... C... C+ and C++ ... Java ... html and now XMetal ... and from Access to Drupal...

And like music or biology or anything else, not everyone is good at it.

It's time to drop the "Foreign" Language, nonsense, and start teaching a Language that our students really need to know - The Language of the Computer.

No need to learn Chinese, Spanish, or Arabic? If anything, we should teach three languages from kindergarten.

 
At 10/08/2011 10:33 AM, Blogger Rufus II said...

Well, you're right about one thing. If we don't teach our children the skills to make a living they'll certainly need to know Chinese - especially, the crucial words, "Yes, Boss."

 

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