ARTICLE
22 April 2016

U.S. Manufacturing Continues As World Leader

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Foley & Lardner

Contributor

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In the last 13 years, U.S. productivity growth has exceeded competitors.
United States Finance and Banking

The latest Research Briefing from Oxford Economics claims that the U.S. manufacturing sector is "the most competitive worldwide." Pretty strong statement there. Reading the news (or here, or here, or here, etc.), one would find it hard to believe, so let's dive deeper.

What are the actual statistics? All that follow is from the March 14, 2016 Research Briefing issued by Oxford Economics (sorry, no link, you have to buy it).

In the last 13 years, U.S. productivity growth has exceeded competitors. Manufacturing output per employee is up 40% and is significantly more productive than developing countries such as India and China. "But labor costs in the US are so high!" I can already hear someone bellowing. Turns out, wage growth in places like China has far outpaced productivity growth to the point that labor costs in the U.S. are not so high in comparison. Add in the myriad of uncertainties over manufacturing in the developing world (e.g. intellectual property protection), and building that new plant elsewhere is not so attractive any more. This does not mean that manufacturing is reshoring at a record pace, but, instead, countries like Mexico are looking more and more attractive. Still, even in Mexico, there are fewer uncertainties and easier logistics to manage.

Potential Implications

Of course, how this changes in the next 5-10 years is tough to predict. Currency fluctuations, exchange rates, commodity prices, etc. can all materially impact the best place to manufacture. The death of U.S. manufacturing is greatly exaggerated. Though, equally exaggerated may be its rebirth.

Perhaps, as with many things, the truth lies somewhere in between: manufacturing in the U.S. has its advantages, and disadvantages. The worldwide market for everything continues to shrink and developing countries continue to develop. The playing field may just become level for everyone, everywhere.

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