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Trends in U.S. Manufacturing

March 07, 2014

A look at energy costs, labor expenses, investment challenges and increasing global demand.

While great visibility has been given to the migration of U.S. manufacturing to other nations, there are many trends in this particular sector that could help rejuvenate it. Indeed, many are beginning to talk about “onshoring,” or the trend on the part of some companies to bring some of their manufacturing activity back to the US.

Energy costs

One trend that is helping make U.S manufacturing more competitive relative to the sector in other nations is the robust availability of energy in North America. More specifically, natural gas production in the nation has surged in recent years.

Companies have been producing this energy source in America in an efficient manner, and have been providing natural gas at a time when global oil prices have lingered at high levels. As a result of the situation, American companies have the ability to manufacture goods domestically for less since they don’t have to pay the expenses associated with having the items transported from foreign nations.

It has been noted that the lower energy costs associated with robust production of natural gas have helped reduce the operational expenses of certain companies more than others. Companies that require substantial amounts of energy to produce their goods, for example those that manufacture chemicals and cement, can enjoy more dramatic cost savings as a result of the recent surge in natural gas production that has been enjoyed in the U.S.

It has also been noted that the energy needed to produce certain goods could potentially be reduced as a result of leveraging new approaches to creating compounds or other materials.

Labor expenses become less critical

While the cost savings that can be enjoyed by sending the manufacture of goods to nations such as China has been emphasized by many, the situation seems to be changing. The compensation paid to workers in Asia’s largest economy is rising.

It has been noted that while wages in the U.S. have increased over the last few years, they have grown at a far slower pace than those in China. Labor expenses have risen in America during this period, but at a very modest pace.

In addition, companies in developed nations are at an advantage because of the access they have to robust automation technologies such as robotics.

Investment challenges

Another key trend that was noted for manufacturing was lackluster investment activity. This particular challenge has been emphasized recently by market experts, who cite a handful of factors that are serving to undermine the capital flow to the sector. Additionally, the price environment for commodities is challenging and many individual projects are suffering from problems such as unexpected costs and delays.

Fortunately, manufacturing firms may have an easier time producing goods with lower amounts of capital. Companies can potentially develop smaller operational structures to produce goods because of the availability of additive manufacturing. Firms that create goods in the U.S. might be able to get an advantage over the competition by manufacturing items closer to where they will actually be used.

Increasing global demand

Finally we are seeing the effects of the Great Recession on demand for American-made products begin to where off. Manufacturing output numbers among the richest countries in the world, led by the US, continue to rebound. As the global economy gets stronger, so is the demand for US products.

All of these indicators show promise, but as events in Ukraine show us, there are always headwinds that will serve to challenge us. Nonetheless, it is nice to be focusing on the positives after such a deep financial crisis followed by what has been at best a tepid global recovery.

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