In yesterday’s Wall Street Journal article “Once Made In China: Jobs Trickle Back To US Plants,” the author discusses a new trend in manufacturing called “reshoring” – the process of bringing back to the US some of the manufacturing work lost to low-cost producers like China in the past few decades. The increase in reshoring is due to several factors, including that wages are rising in many of the countries where jobs were originally outsourced. In addition, US workers have become more productive, so their higher cost is offset by higher productivity. Add in the facts that firms do not have to worry about exchange rate fluctuations and shipping costs are lower because the plants are closer to their customer base and you have a recipe for reshoring. The bottom line is that the US manufacturing sector’s competitiveness is improving.
But in a note sent to clients BofA ML thinks “reshoring” will not create a surge in manufacturing jobs. Here is what they wrote:
“… we argued [in other reports] that most businesses would meet their production needs by investing in capital equipment. To increase production, firms can choose to increase labor, capital or a mix of both. Today, firms are leaning more toward increasing capital than labor. Low interest rates support capital spending and the high uncertainty surrounding the economic outlook means it is easier and cheaper for a firm to shut down a machine than have to fire or idle a worker. This labor vs. capital dichotomy is reflected in our economic outlook. We expect capital spending to outperform the labor market.”