Part of this is the wage-gap story, as you can see highlighted in the chart below. Within the next few years, the "total landed cost" (definition below the chart) will have fallen to only 16%, explaining why many businesses are bringing work, equipment and plants back to the United States or are preparing to do so in the future.
Labor and Other Cost Spreads Narrowing
Source: Supply Chain Optimization Study, The Hackett Group 2012. Landed Cost=total cost of a product once it has arrived at buyer's door and includes original cost of the item, all brokerage and logistics fees, complete shipping costs, customs duties, tariffs, taxes, insurance, currency conversion, crating costs and handling fees. Not all components are present in every shipment, but all must be considered part of the landed cost.
I won't go as far as suggesting full-on "decoupling" is underway, but do notice the sharp difference between the PMIs for the United States over the past six months versus other key regions around the globe. But key in the next month or two is to see whether US growth can hold up in the face of likely continued deterioration in Europe and some emerging markets. The June 4 factory orders report was weak for the second month in a row, so the environment remains rocky.
US PMIs Outperforming
Source: Bloomberg, FactSet, as of May 31, 2012.
Of course manufacturing is nowhere near the primary driver of our economy, and its momentum has waned recently. The consumer still represents 70% of US GDP, but manufacturing is a major re-up-and-comer and suggests better things to come for jobsâat least of the manufacturing variety.
Take a look at the table below, which highlights the employment multiplier of many of the industries right in the heart of the renaissance. Top on the list is petroleum refining. By the way, the United States, for the first time in the modern era, is now exporting more refined petroleum products than it's importing. For every 100 jobs created in refining, nearly 1,200 related jobs are created elsewhere. Even for manufacturing more broadly, the multiplier is nearly 300.
Source: ISI Group, "Updated Employment Multipliers for the US Economy (2003)," by Josh Bivens. Economic Policy Institute Working Paper No. 268, August 2003.
These numbers swamp the industries that were the some of the big drivers of the last economic expansion's leaders, including investment banking, retail and construction.
The near-term risk for manufacturing is of course global growth. Much of peripheral Europe is already in recession and China, among other emerging economies, is experiencing a sharp slowdown. This remains the greatest risk to the muddle-through story that has kept US growth in the black and the stock market from moving into bear territory.
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