Reduced offshoring of jobs spearheading revival of U.S. manufacturing sector: study

The revival of the U.S. manufacturing sector is proving a key driver in that country’s economic recovery, largely due to a slowdown in offshoring activity, according to a new report by TD Economics, an affiliate of TD Bank.

“This slowdown has kept in the U.S. some of the jobs that used to be rapidly offshored, especially ones in relatively capital-intensive industries such as plastics and rubber, computers and electronics, machinery, and fabricated metals, accounting for about one-quarter of the 200,000 manufacturing jobs added over the last 12 months,” the report concluded.

The report indicates that since the trough occurring in January of 2010, the manufacturing sector has added nearly 500,000 jobs, in part due to the deceleration of shipping jobs overseas. The drivers behind the deceleration result from a unique combination of dynamic global and domestic conditions.

On the global scale, offshore wages have risen rapidly, while an appreciating Chinese currency and volatile transportation rates have weakened offshoring’s cost advantages. Domestically, existing intellectual property protection, flexibility arising from tighter supply chains, a trend toward mass-customization and access to natural gas energy from shale formations have begun to tip the manufacturing scales back in the favour of the U.S.

“Even though manufacturing has shed jobs in the past two months, it does not detract from the remarkable upswing that has been underway since the Great Recession ended. This resurgence has bucked a trend that has been in place for more than a decade allowing manufacturing jobs to be a key driver of the economic recovery,” said Michael Dolega, the TD Economist who authored the study. “We believe that capital-intensive manufacturing industries will lead this onshoring trend, while labour-intensive industries such as apparel and textiles will remain, or perhaps be pushed even further, offshore.”

The report cautions that “en masse” industry onshoring isn’t likely to occur, nor will the trend replace the nearly six million jobs lost to offshoring since the peak in the mid-2000s. The report also concluded that new manufacturing jobs will require less labour-intensive, but more high-skill, highly-productive positions that the U.S. has a competitive advantage in.

The full TD Economics report can be viewed at this link.