Check out this bit of eye candy from the Wall Street Journal (Radical Shifts Take Hold in U.S. Manufacturing, Feb 3):
This graph shows how capacity has changed over the recession in various industries. Some industries have contracted while others have expanded. The story goes that firms with commodity (or close to commodity) products have closed US capacity and moved overseas. Some of this simply represents moving to where markets now are. For example, Huntsman Corp has been expanding its production of basic chemicals in China and the Mideast in part because that is where they are being used. What it has left in the US is focusing on industries like aviation. The point then is that the US manufacturing base is being remade. The semiconductor industry shows what is staying:
A large chunk of semiconductor production takes place abroad, but many companies still prefer to produce in the U.S., particularly if their manufacturing entails little human labor or is highly complex. Being close to the U.S.-based design centers of major chip users like computer maker Dell Inc. and consumer-electronics maker Apple Inc. also can be an advantage.
“This is a kind of manufacturing that will make sense to do in the U.S. for a long time to come,” said Tim Peddecord, chief executive of privately held memory-module producer Avant Technology, which recently opened a new 50,000-square-foot plant in Pflugerville, Texas. The new plant will boost the company’s capacity to 800,000 modules a month from 500,000.
Mr. Peddecord said his company is bulking up after a shakeout that drove many rivals out of business. Manufacturing in the U.S., he said, allows it to turn around U.S. orders in 24 hours, an advantage in an industry where demand is volatile and clients try to keep inventories low. In addition, the reduced freight costs, compared with shipping goods from China, can offset the added cost of U.S. labor, since labor accounts for less than a hundredth of his average sales price.
So what is staying is stuff where labor is very, very productive. That makes this graph also from the Journal particularly interesting (‘Productivity Paradox’ Pays Off in Long Run, Feb 4):
Productivity is up and US manufacturing is shifting more and more to highly productive fields. That suggests job growth in the economy could be a long way off.
