US Manufacturing: Coming Back On Shore

It's common to hear people say that U.S. manufacturing is in decline. It’s presumed wisdom that the U.S. doesn’t make anything anymore. In fact, I myself have repeated it. We are now here to correct the error of our ways and to dispel this common myth.  In truth, there is a lot of stuff made in the U.S. and we are still a mighty giant in manufacturing. The broom sweeping away the old cobwebs is research from a group called Turner Investment Partners, with over $18 billion under management. Turner just put together an eye-opening report called, U.S. Manufacturing: “Still the One.” The report emphasizes that the U.S. remains the world’s leading manufacturer. Indeed, if the U.S. manufacturing industry were a national economy, it would be the eighth largest in the world, worth $1.6 trillion.  All by itself, the U.S. is 22% of global manufacturing. As an exporter, it ranks third behind only China and Germany, with an 8% market share. That is a pretty big blow to the idea that the US doesn’t make anything anymore.

Of course, we all see the same headlines, such as the big failure of U.S. autoworkers. We see the “Made in China” label slapped on nearly everything. We know Japan makes all kinds of electronics that the U.S. no longer makes. We hear about companies moving plants overseas.  It’s no secret that American manufacturing has continued to suffer during the past decade, mostly due to competition from abroad. Cheaper production costs in foreign countries have led companies to abandon mills and factories across America. Annual revenues for the U.S. manufacturing industry have declined an amazing 50.2 percent since 2000.  Let’s take a baby step back, In the 1970’s manufacturing jobs accounting for almost 40% of the jobs in the U.S., today it is less than 9%. But wait a minute, output has increased twice as fast as any another industry.  When we break down the costs of manufacturing, we find that the costs for construction, machinery, energy and raw materials are similar throughout the world. The major deferential in regional costs are labor and transportation.

So if a company can produce goods close to where its customers are located, it naturally saves on transportation. Remove labor from the equation, and a company can now compete with manufacturers anywhere in the world. Per Industry Week magazine; manufacturing technology orders are up 101% from 2010. In August 2011, U.S. manufacturing technology orders totaled $460.61million, according to the Association for Manufacturing Technology and the American Machine Tool Distributor's Association. Despite news reports that wider economic growth may be stagnating, the manufacturing technology industry is sustaining its momentum. With orders still up substantially over last year, there is clear optimism within the industry as firms are seeing future growth opportunities that merit new capital investment. Hence the age of “shoring” also known as “on-shoring,” and home-shoring, it is now the trend to bring manufacturing back to the U.S. A.

This is where things get more interesting.  Since 1983, manufacturing output in the U.S. has more than doubled. (This, in inflation-adjusted dollars, by the way, makes the feat all the more impressive.) But it did so with about 26% fewer workers.  That work force, though, is very productive. It’s doing a lot more with less.  As the Turner report indicated; “U.S. manufacturing workers are the most productive – 50% more productive than workers in the 11 next-best nations.”

The opportunity for funding providers (like us) is best illustrated in that industrial manufacturing space has been hit very hard and we have seen many smaller to midmarket companies fall out of the strike zone for traditional/ standard asset-based lenders and banks tend to shy away from the term piece due to the highly volatile assets value.  The mere fact that in 2010 most companies saw a limited improvement in working capital performance, which can be attributed to higher levels of working capital requirements, is associated with increased sales growth.  Please take a look at “Cash on the Chip” report from Ernest and Young (http://www.ey.com/Publication/vwLUAssets/Cash_on_the_chip_-_US_technology_companies_and_working_capital_management_2011/$FILE/1104-1246882_Cash%20on%20the%20chip_A4_FINAL.pdf)

The following is a summary analysis; an ongoing study of the future of global and U.S. manufacturing market sector.  

Again, the point all came down to primarily 2 simple questions:

1.      Who is our client and why?

2.      How can we find these companies, engage them and what funding solutions can we offer them?

http://www.ey.com/GL/en/Services/Advisory/Managing-performance-through-famine-and-feast---3-becoming-an-economic-advisor

“Stay thirsty my friend” (LOL).

Best Regards,