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May 29th, 2014

Production Jobs Return to the U.S.

WHITEWATER, Wis. — In 2001, Generac Power Systems joined the wave of American companies shifting production to China. The move wiped out 400 jobs in southeast Wisconsin, but few could argue with management’s logic: Chinese companies were offering to make a key component for $100 per unit less than the cost of producing it in the United States.

Now, however, Generac has brought manufacturing of that component back to its Whitewater plant — creating about 80 jobs in this town of about 14,500 people.

The move is part of a sea change in American manufacturing: After three decades of an exodus of production to China and other low-wage countries, companies have sharply curtailed moves abroad. Some, like Generac, have begun to return manufacturing to U.S. shores.

Although no one keeps precise statistics, the retreat from offshoring is clear from various sources, including federal data on assistance to workers hurt by overseas moves.

U.S. factory payrolls have grown for four straight years, with gains totaling about 650,000 jobs. That’s a small fraction of the 6 million lost in the previous decade, but it still marks the biggest and longest stretch of manufacturing increases in a quarter century.

Harry Moser, an MIT-trained engineer who tracks the inflow of jobs, estimates that last year marked the first time since the offshoring trend began that factory jobs returning to the U.S. matched the number lost, at about 40,000 each.

“Offshoring and ‘re-shoring’ were roughly in balance — I call that victory,” said Moser, who traces his interest in manufacturing to his parents’ work at the long-closed Singer Sewing Machine plant in New Jersey. (He once worked there too.)

He now runs the Reshoring Initiative, a Chicago nonprofit that works with companies to bring manufacturing jobs back to the United States.

Several factors lie behind the change. IMG_1815

Over the last decade, Chinese labor and transportation costs have jumped while U.S. wages have stagnated. The average hourly pay for non-supervisory manufacturing workers in the United States has barely kept up with inflation, rising on average just 2.3 percent over the last 10 years and by only half that since 2010, according to Labor Department figures.

Factoring in the rise in value of its currency, China’s base wage, measured in dollars, has risen 17 percent a year, according to an April report by Boston Consulting Group.

Manufacturing also has become more automated, further reducing labor’s weight in the cost equation.

The boom in natural gas production in the United States, largely driven by fracking and other new drilling techniques, has led to a 25 percent decrease in gas prices in the United States, contrasted with a 138 percent increase in China, Boston Consulting found.

And the rise of online commerce has made local control of supply chains more important, especially because many U.S. manufacturers report growing problems with quality control of goods made in China.

“We got to the point where everything we were bringing in had to be inspected,” says Lonnie Kane, president of Los Angeles apparel maker Karen Kane, noting that his company used to check just 10 percent of goods from China.

“Now prices are escalating, quality is dropping and deliveries are being delayed,” he says. In the last three years, Kane has shifted 80 percent of his production from China back home.

Article By Don Lee McClatchgy Newspapers


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