Economic Development in the World's Fourth Largest Economy
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 Fall 2015

  
 Features

Ten Reasons Why Manufacturing is Booming in The South

1. Fracking frenzy (the shale gas boom), has reduced U.S. natural gas prices by two-thirds since 2008. Energy intensive manufacturing, such as petrochemicals, metals, glass and fertilizers are benefiting here more so than any other place in the world. This energy cost advantage is expected to continue for U.S.-based manufacturers for a decade or more.

2. The U.S. is at the forefront of technology advances in manufacturing, particularly in data analytics, advanced automation, simulation, modeling, robotics and digitization on the factory floor. U.S.-designed software and other IT innovations as they apply to manufacturing are transforming the process and essentially have just begun to take shape. Therefore, according to Mark Muro of Brookings in a recent Wall Street Journal article, "The game is now being played on American terms."

3. Don't expect this manufacturing renaissance to be a major job-generating factor, but it will be a factor. Big companies like GE and Caterpillar have reshored approximately 20,000 jobs from Asia and there have been nearly 700,000 manufacturing jobs created in the U.S. since 2010 with about 380,000 of those created in the South. Manufacturing employment in the U.S. hit a record low of just over 11 million in 2009. Expect anywhere from three to five million new manufacturing and support jobs from reshoring and onshoring by 2020. But with automation ruling the factory floor, reaching the 1979 U.S. peak of 20 million manufacturing jobs is unlikely. Currently, unemployment is 6.1 percent in the U.S., but in the manufacturing sector it is 5.2 percent.

4. Offshoring to Asia for the manufacture of goods for U.S. consumption is not over, but according to the Reshoring Initiative the U.S. is now gaining as many manufacturing jobs from overseas as it is losing. In 2013, 40,000 manufacturing jobs were reshored and about the same were lost to offshored plants. In 2003, 150,000 manufacturing jobs were lost and 2,000 were reshored. 

5. Almost 60 percent of executives surveyed by the Boston Consulting Group of companies with sales of $1 billion or more that operate plants in Asia for U.S. consumption are either engaged in the reshoring process or are considering it. The primary reason is the wage gap between in the U.S. and China is nowhere near where it was when China joined the WTO in 2001. 

6. U.S. manufacturing values and worker productivity are growing rapidly. Manufacturing in the U.S. is currently valued at $2.1 trillion, or larger than the entire GDP of India. Since the end of the recession, manufacturing production has increased by 30 percent, doubling the growth rate of the economy as a whole. The four-year run is the longest period "manufacturing has outpaced U.S. economic output since 1965," according to a recent report by the U.S. National Economic Council.

7. The U.S. is the No. 1 foreign-direct-investment nation in the world, with almost $1 trillion invested by foreign companies. The American South has captured more than 40 percent of that total each year over the past 10 years.

8. "Physically close to customers" is a growing trend. The shorter supply chains companies prefer now have companies looking to reshore primarily to three areas: the Midwest, the South and Mexico. Mexico is now the No. 1 competitor for manufacturing projects in the South.

9. The South is seeing some gains in labor force skill sets to keep up with manufacturers' demand for talented workers, but it's still not enough to fill the 600,000 manufacturing positions that are available now. More work has got to be done on the skill set front. Some Southern states are quickly addressing the issue. 

10. Commercial aircraft fleets are expected to double by 2025 and surging demand for automobiles will help those two sectors in the South, particularly in exports. Automotive will continue near-record output since the average age of the U.S. automotive fleet is 11.4 years.


  
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