Is Manufacturing Coming Back to the US?

Manufacturing Exports up over past 18 months for USA.

Douglas Burtnick of Aberdeen Asset Management was heard on NBR recently talking about how the US export story is really interesting, and often overlooked by those not focused on the manufacturing industry. He said…

“Companies are seeing external demand for anything from machinery, to electronics, to chemicals, and they’re starting to think about where they really want to manufacture those products. That’s a big deal, because this is the first time in several decades that we’ve actually thought about manufacturing coming back to the US.”

Clearly that affects Aberdeen’s investment philosophy, but he also points out how the phenomenon will affect different regions in the US, and the types of products that will be built here.

This is a significant change from companies going overseas to look for lower costs. So what’s caused the change? Most agree that there are three major reasons.

. US Manufacturing is humming

The first is to do with the issues of distance, communications and language. Transportation costs are significant. Whilst communication and collaboration techniques from companies like Cisco enable real time connected manufacturing, meaning that manufacturing is becoming more connected, this makes the US itself more connected. Overseas transportation costs of materials and goods themselves  can still be significant, and a clear target for reduction.

Add to that the second reason which is the renaissance we’re seeing in the field of US energy. Fracking, or Hydraulic Fracturing, is allowing North America to become less dependent on foreign energy sources – some say independent over the next 15-20 years – at lower cost. Cisco is providing IT, Operational Technologies, Communications and Collaboration solutions to the major energy companies today.

The third area has been well articulated by commentators. Clearly labor costs overseas have been on the rise. As the overseas manufacturing areas, most notably in Asia, develop emerging middle cases and see modest inflation in costs, the US is becoming more attractive. Cisco is already providing collaboration and Operational Technologies to enable US Subject Matter Experts (SMEs) and production personnel to be more productive and more available here at home in the US.

Add to these three areas the fact that the ‘plodding’ US economy is doing better that many other parts of the world, especially Europe, with consumers seeing a modest (or more-than-modest) rise in residential property values in some areas of the US, and house-starts will look to local labor and locally sourced finished materials and goods in order to keep costs down.

Talking of housing, the analogy is clear. The US is not yet a perfect house, but on the global scene it looks to be the best property on the block. And with many US manufacturers using some of the best available manufacturing and productivity solutions from companies like Cisco Systems, I’m cautiously optimistic for the future.

What do you think?