Wall Street Journal: The Great Reversal: Playing the U.S. Manufacturing Boom
Investors who have favored emerging markets like China in recent years should pay attention to another growing manufacturing center. It boasts plenty of skilled workers; cheap and abundant energy; stable institutions; and a large middle class that likes to shop.
It is the U.S., where a long industrial decline might be in reverse.
In March, manufacturing expanded for the 32nd straight month, and contributed 37,000 of the 120,000 U.S. jobs added, the government reported. That's partly because of the ongoing recovery from the Great Recession. But the economy is also changing.
Manufacturing's share of gross domestic product plunged to 11% in 2009 from 26% in 1947, according to the Commerce Department. In 2010, it rose to 11.7%—the biggest yearly gain in more than 50 years. The 2011 numbers will be released on April 26, and the anecdotal evidence is promising; companies like Caterpillar, CAT -2.17% Ford Motor F -2.00% and NCR say they are moving some operations back to the U.S.
Three trends suggest America's "manufacturing renaissance" is just getting started, says Neil Dutta, U.S. economist at Bank of America Merrill Lynch. First, the cost advantages of outsourcing factory work are narrowing. Emerging market wages, while still much lower than U.S. wages, are rising, and high oil prices have made shipping more expensive. That is expanding the range of goods U.S. factories can produce at competitive prices (think sophisticated machines, not toys).
Second, a weakening dollar makes U.S. goods more attractive to foreign buyers. The dollar has fallen by nearly one-third over the past decade against a basket of currencies including the euro, British pound and yen.
Third, energy production is booming in the U.S., and domestic natural-gas prices have recently plunged. That gives an edge to U.S. producers of fabricated steel, transportation equipment, machinery and chemicals, which use natural gas extensively, according to a recent report from Citigroup C -2.36% . ...