The U.S. economy in 2013 should get a badly needed push from the acceleration of an improbable trend - the return of offshored manufacturing jobs to America.
Often referred to as reshoring, the trend started to gain traction this year, but is attracting more and more interest from manufacturers who just a decade ago couldn't move production to China and other foreign countries fast enough.
Companies rushed to send work abroad to take advantage of cheaper labor costs as well as to have factories closer to customers in rapidly expanding Asian economies.
Some companies did improve their bottom line, but at a great cost to the U.S. economy: America lost nearly 6 million manufacturing jobs between 2000 and 2010.
Yet calculations that favored the offshoring of manufacturing just a few years ago no longer add up. Some argue they never did, as offshoring turned out to have many hidden, unforeseen costs for many companies.
"There was a herd mentality to the offshoring," John Shook, a manufacturing expert and the CEO of the Lean Enterprise Institute, told The Atlantic. "But it was also the inability to see the total costs - the engineers in the U.S. and factory managers in China who can't talk to each other; the management hours and money flying to Asia to find out why the quality they wanted wasn't being delivered. The cost of all that is huge."
Now jobs once thought lost forever are starting to return to the U.S.
According to a Boston Consulting Group survey taken in February, 37% of U.S. companies with sales of $1 billion or more are either planning on reshoring some production or actively considering it.
Why Companies are ReshoringReshoring already has reversed the long, steady decline of manufacturing jobs in the U.S. Since 2010 America has added 500,000 manufacturing jobs, an increase of 4.3%.
With the disadvantages to manufacturing overseas growing each year, it's no wonder reshoring is becoming popular:
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Stock Market Today: Markets Slide as Manufacturing Shrinks
Here are the major headlines in the stock market today.
- Manufacturing declines for third straight month - The Institute for Supply Management's factory index contracted to 49.6 last month from 49.8 in July, its lowest level since July 2009. Economists are worried that the looming fiscal cliff could deter businesses from spending in the upcoming months. "As I look at this and try to find some rays of sunshine, it's quite difficult," Bradley Holcomb, chairman of the ISM survey, told Bloomberg News on a conference call. "I would characterize this as a sobering picture of U.S. manufacturing right now without any clear signs of immediate improvement."
- Construction spending falls - Construction spending fell 0.9% in July to a seasonally adjusted annual rate of $834 billion, the Commerce Department said Tuesday. Economists had expected a 0.5% gain. Private residential construction fell 1.6%, private non-residential construction fell 0.9% and public construction spending fell 0.4%. Compared with July 2011 spending is up 9.3%.
2011 Manufacturing Outlook: Slow, but Steady Growth Could Win Profits for Investors
It's often said that a little bit goes a long way, and that will certainly be the case for U.S. manufacturing growth in 2011. Although most projections still call for slower improvement in the sector than in 2010, the estimates have been characterized as "less bad" than originally expected -and that could translate into increased profit prospects for investors.
The market gave evidence of that just last Tuesday (Jan. 4) when the major indexes shrugged off other concerns and moved nicely higher in response to a larger-than-expected 0.7% rise in November factory orders, which had been forecast to fall by 0.1% according to a Thomson-Reuters survey of economists. Orders excluding the volatile transportation sector also posted their biggest gain in eight months.
Analysts characterized the numbers as "pointing to underlying strength in manufacturing." That bodes well for the greater economy, since U.S. manufacturers employ nearly 12 million people, or 9% of America's work force, and add $1.6 trillion annually to the U.S. economy, roughly 11% of gross domestic product (GDP).
Keeping Tabs on Thailand: An Asian Tiger Lurking Low in the Reeds
Last week we talked about Singapore and Thailand - two Asian economies that are quietly taking off. Today I want to add to those thoughts with a few more key points that opportunistic U.S. investors should know about Thailand, in particular.
Over the weekend, the Thai currency, the baht, rose to its highest level since 1997 due to an improved outlook for economic growth and expectations of more investor inflows. A current-account surplus of $5.42 billion this year through July and the fact that the Bank of Thailand has raised its benchmark interest rate twice this year have also helped the baht post the second-best performance among Asia's most-traded currencies excluding the yen.
"There has been quite a lot of demand to buy the baht from offshore, probably from foreigners to buy Thai stocks and bonds," Kozo Hasegawa, a Bangkok-based foreign-exchange trader at Sumitomo Mitsui Banking Corp., told Bloomberg News. "Money is flowing into Asia on the region's strong economic outlook."
The rise in the currency has coincided with a 30% advance in Thailand's SET Index since May, when government troops smashed anti-government protests.
Two Asian Economies Flying Under the Radar
You know about China, India, and maybe even Korea, but there are two other Asian economies making waves in the South China Sea.
I'm talking about Singapore and Thailand.
While the U.S. economy would be really lucky to poke along at a 3% annualized rate this year and next, the fast-growing countries on the other side of the globe are ripping higher.
Regional analysts surveyed by Bloomberg News survey said they see Singapore expanding at a record pace this year of 14.9% due to improving demand for the city-state's exports. That's up from an estimate of 9% published three months ago. Singapore's economy relies on trade, finance and tourism. Its central bank said the surge would be led by a 29% expansion of manufacturing.
There's Reason to be Pessimistic about the U.S. Economy, but Never Panic
Pessimism increased again among investors last week, as a slew of economic data stoked fears of a double-dip recession.
Indeed, housing and unemployment continue to weigh on the U.S. economy. But don't panic. Remember that the prospects for a full economic recovery are much better outside the United States, and that it's often good to be greedy when others are fearful.
To find out more about the precarious state of the U.S. economy read on...
Flat Consumer Spending and Declining Factory Orders Point to Slower Economic Recovery
Consumer spending in the United Sates was flat in June and personal savings were the highest in a year, underscoring how unemployment continues to hamstring the U.S. economic recovery.
Separately, U.S. factory orders fell by more than expected in June from May, and pending home sales continued to plunge as the expiration of a government subsidy for first-time homebuyers depressed housing market activity.
Taken together with the gross domestic product (GDP) data for the second quarter, the latest string of reports shows a U.S. economy that is drawing closer to a double-dip recession.
Taipan Daily: Zero-Interest-Rate Market Investments
We all know the economy has a tough row to hoe… We're facing severe unemployment. Almost 50% of those unemployed have not been able to find a job in six months. We've also seen huge bankruptcies over the past two years, such as General Motors, CIT Group and Lehman Brothers, and more than 100 banks [...]
China Manufacturing Slowdown Not Enough to Cause "Double Dip"
The China manufacturing sector expanded at the slowest rate in 17 months in July, showing the government's efforts to tighten lending is weighing on the country's economy. But the Asian juggernaut is still posting strong enough growth to keep the rest of the world out of a "double dip" recession.
The HSBC China Manufacturing Purchasing Managers' Index released Sunday showed activity fell to 49.4 in July from 50.4 in June. A reading above 50 signals expansion, indicating manufacturing activity actually contracted for the first time since China's economic recovery began.
The HSBC PMI's reading was the first below 50 since March 2009. Measures of output, orders and export orders all showed contractions. Another measure, the official government PMI released yesterday (Monday), fell to 51.2 in July from 52.1 in June, the third straight month it has declined.
"We're in a moderate slowdown, not a double-dip," Ken Peng, a Beijing-based economist for Citigroup Inc. (NYSE: C) told Bloomberg News.
Similarly, HSBC Holdings plc (NYSE ADR: HBC) economist Qu Hongbin said China is having a "slowdown not a meltdown" and "there is no need to panic."
Unemployment Report Shows Sluggish Recovery Will Take Years to Replace Jobs Lost in Great Recession
Unemployment figures released Friday confirmed that the U.S. economy is still recovering, but they also showed it will take years to replace the 8 million jobs lost during the Great Recession.
And until meaningful hiring takes place, consumers are unlikely to loosen their purse strings, the key to putting the economy back on track to full recovery.
Employment fell in June for the first time this year, reflecting a drop in federal census workers and a smaller-than-forecast gain in private hiring.
Payrolls declined by 125,000 as the government cut 225,000 temporary workers conducting the 2010 census, Labor Department figures in Washington showed. Economists projected a decline of 130,000, according to the median forecast in a Bloomberg News survey. Private employers added 83,000 to their payrolls.