Is the U.S. manufacturing slowdown a speed bump or a sink hole? Honestly, the answer really doesn't matter.
The June 2012 Institute for Supply Management™ Manufacturing Business Survey—the Purchasing Managers Index—declined 3.8 percentage points from the May numbers, falling to 49.7 percent, which typically means U.S. manufacturing went into contraction. This is noteworthy because the retrenchment comes after almost three years of consecutive months of growth; the last time the survey came in under 50 percent was in July 2009.
Enlightened manufacturers might show some concern, but they are looking ahead because they know U.S. manufacturing is about to undergo a big change. The work is going to be there for those that can deliver quickly and be cost-competitive.
So what's the big change? Apparently, the jobs trickling back from China just may be the first of a wave of work that is being "reshored," according to The Boston Consulting Group (BCG). In a February survey of more than 100 executives of manufacturing companies from several industry sectors, 37 percent said that their companies were planning to bring manufacturing operations back to the U.S. or are "actively" considering it. For those companies with $10 billion or more in annual revenues, a third of the sample, that rates jumps to 48 percent.
Mike Zinser, a BCG partner, said labor savings associated with manufacturing in China aren't what they once were. As a result, when a company takes into account the Chinese wage rate increases, the appreciation of the Chinese currency, the continued productivity gains by U.S. workers, and management headaches of trying to orchestrate manufacturing activities from across an ocean, manufacturing at home makes a lot more sense.
BCG identified seven industry sectors as nearing a "tipping point," where rising production costs in China would offset any economic advantage companies might find by manufacturing there and might encourage them to shift production to the U.S. Those industries are computers and electronics; appliances and electrical equipment; machinery; furniture; fabricated metals; plastics and rubber; and transportation goods. The BCG study states that the U.S. imported nearly $200 billion worth of products in these categories from China in 2010.
"Today you are starting to see a trickle [of jobs coming back]. You are starting to see some evidence," Zinser said. "But our expectation is that as those trends lay out in the next few years, you'll see this accelerate."