Though the U.S. economy is growing more slowly than we'd like, it is growing. Much of that growth can be attributed to manufacturing, which has seen steady overall growth over the past two years. A big reason for that, according to a recent study from TD Economics, is a slowdown in offshoring activity.
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The report states that about one-quarter of the manufacturing jobs added in the past 12 months can be attributed to jobs that were once being offshored now staying here in the U.S.
The drivers behind the deceleration of offshoring result from a unique combination of global and domestic conditions. On the global scale, offshore wages have risen rapidly, while an appreciating renminbi and volatile transportation rates have weakened offshoring’s cost advantages.
As Barry Lawrence, director of the global supply chain laboratory at Texas A&M University told MDM in February: "China's labor isn't so cheap anymore." On top of increases already seen, economists are forecasting that China's minimum wage will growth by 15 to 20 percent over the next five years, further chipping away at the cost advantages to manufacturing overseas.
Domestically, existing intellectual property protection, flexibility arising from tighter supply chains, a trend toward mass-customization and access to natural gas energy from shale formations have begun to tip the manufacturing scales back in the favor of the U.S.
This reshoring trend is being led by a group of relatively capital-intensive industries: computers & electronics, machinery, fabricated metals, electrical equipment and plastics & rubber. Labor-intensive industries – including apparel and textiles – are not expected to follow suit any time soon, according to the TD Economics report.
But don't expect all of the jobs lost over the last decade to return through reshoring. New manufacturing jobs tend to be less labor-intensive due to automation and process improvement. They also tend to require a higher skill level – an area where America has a competitive advantage.
Read the entire report from TD Economics, an affiliate of TD Bank.
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