Economic issues are dominating the political conversation as we near the November presidential elections.  From my perspective as a manufacturer, there is one encouraging economic trend that is gaining traction, but a number of other issues that need to be resolved no matter who occupies the White House next year.

First, the good news.  For decades, millions of American manufacturing jobs have travelled overseas.  Now, production is returning the United States.  The process – commonly called “reshoring” – accounted for the creation of about 50,000 manufacturing jobs in the last few years.  That’s about 10% of the 495,000 manufacturing job additions since the low in January 2010, according to an article in the September 10 issue of Plant Engineering
.

Proponents of sending work offshore list low labor costs and outsourcing non-core competencies as the major reasons for assigning production orders to China or other emerging markets. Many of them believe that labor costs in these areas can be low enough that they offset the often hidden costs of manufacturing overseas.  These hidden costs include delivery, quality and communications issues. These factors, plus rising offshore labor rates and increases in transportation costs, make production in the United States increasingly attractive.

For example, with Chinese wages rising at about 17% annually and the value of the yuan continuing to increase, the gap between U.S. and Chinese wages is narrowing rapidly. After adjusting for higher American productivity, wage rates in Chinese cities such as Shanghai and Tianjin are expected to be about only 30% cheaper than rates in low-cost U.S. states.  Meanwhile, over the last four years, shipping costs have risen 71% because of higher oil prices, as well as reductions in the total number of ships and containers.

The reshoring trend has been documented by a number of sources.  In a recent survey of 252 North American Die Casting Association (NADCA) members, 23% of respondents reported they had gained business from offshore competitors last year.  Other evidence of reshoring’s increase was cited in a PricewaterhouseCoopers (PwC) report this year and an analysis released by The Boston Consulting Group (BCG) last year.

Despite the good news on reshoring, manufacturers still face a tough economy in the months ahead. While there are many aspects of the economy that would affect the manufacturer, there are four issues that matter more than others, according to Dr. Chris Kuehl.  Kuehl is managing partner of Armada Corporate Intelligence and economic analyst for the Fabricators & Manufacturers Association International.