American manufacturing is coming back (to a degree) but not without a few caveats in exchange.

by theintrospectivemaster

The new normal of American manufacturing: Less pay and paying more for received benefits.

U.S. manufacturing is experiencing a bit of resurgence (nothing grand) but is reporting some positive growth in the sector. General Electric recently spoke about bringing manufacturing jobs back to its United States division from overseas.

Te rationale for this perceived “in-sourcing” that is occurring in manufacturing has to deal with a few key points:

  1. Currency fluctuations (the decline in the value of the Dollar and the increasing value of the Yuan currency).
  2. Oil prices (cargo ship fuel has increasingly become more expensive since 2000 and as a result increases the cost of shipping manufactured goods from abroad).
  3. Wages increase in China (wages paid to workers overseas in manufacturing are nearly five times greater that they were a decade ago; as wages increase, this lowers the profit that can be earned on manufactured goods).
  4. Natural gas production is up and cost are down (the boom in the natural gas industry has pushed the cost of it below the cost of oil, in turn, this lowers the operational cost of the machinery used in manufacturing).
  5. American unions have become more “agreeable” (from the 1980’s to 2000’s unions have often been identified as a factor that has complicated U.S. manufacturing i.e. (driving cost through wage increases and strikes); unions today are much different than they were 20 years ago. Their membership is down and they have negotiated lower wage agreements with manufacturers to secure jobs).
  6. U.S. labor is more productive (U.S. labor has continued an upward climb in productivity measures; U.S. labor can produce more than it once good before which lowers operational and production cost and improves profit).

One particular factor to draw attention to is #5; unions facing a decline in membership and losing bargaining power through recent right to work legislation in states have become more agreeable with manufactures in accepting concessions in regard to wage and benefit agreements for their members.

One example of this new “modern U.S. manufacturing” is taking place in Michigan (the former bastion of the automotive industry) where companies like American Axle are bringing back investment in U.S. manufacturing and with it new jobs.

The caveat is that the jobs being created are only paying half of what they used to almost 20 years ago.

New employees hired at New Axle are being compensated $10.50 an hour and are required to contribute more to their health benefits and retirement than their counterparts did 20 years ago. The company itself almost went bankrupt in 2008 at the beginning of the recession but has in the last few years been able to spring back thanks to increases in consumer demand for automotives.

With the increase in consumer demand and new agreed upon concessions with the United Auto Workers Union has created new opportunities for manufacturing in the United States to be more competitive with their global counterparts.

Whether or not this trend will remain to be seen in years to come is a discussion of contention among analyst, but, one thing is for sure, manufacturing is returning to the U.S. slowly but surely.

Courtesy of Market Watch

Courtesy of The Curious Capitalist

Courtesy of Carpe Diem

Courtesy of Forbes Leadership Forum