Manufacturing sector likely to begin a revival

London: The era of widespread offshoring of manufacturing from the US to China is coming to an end, according to a study that forecasts a renaissance for American production industries over the next five years.

The report by the Boston Consulting Group (BCG) forecasts that, by 2015 — on the back of good productivity growth and relatively low wages — the US is likely to be slightly ahead of China as a base for making many of the goods destined for sale in North America.

Another important factor is rapidly rising wage growth in many parts of China, which is reducing the incentive to base production in that country for anything other than selling to the large domestic market.

The study will be welcomed in the White House, where President Barack Obama has made the revival of US manufacturing an important feature of plans for a sustained upturn.

In recent months, large companies such as Caterpillar, General Electric and Ford have announced plans for new investments in US manufacturing, while the production sector increased at an estimated annual rate of 9.1 per cent in the first quarter of 2011, making it the fastest-growing part of the US economy.

Outlook

However, the projected rise in US industry's fortunes is unlikely to be enough to enable the nation to regain its title as the world's biggest manufacturer, which it held for more than a century until China overtook it last year.

Hal Sirkin, senior partner at BCG, said the expected "immense demand" for goods by Chinese industry and consumers in the next few decades would be sufficient to keep China in the number one slot for some time, with supply of most of these products coming from locally based factories. "All the indications are that the US will remain a strong number two [in manufacturing] and well ahead of other countries such as in western Europe, where the economic trends are less favourable," said Sirkin.

John Makin, a resident scholar at the American Enterprise Institute think-tank, said the projected rise in US industry fitted into trends in which more US companies were re-orienting production to "more sophisticated goods that can be made with novel labour-saving technology".

Dan DiMicco, chief executive of Nucor, the second-biggest US steel producer, said many American companies had a "great opportunity" in the next decade to increase manufacturing in the country, helped by the weaker dollar.

Last year, China accounted for 19.8 per cent of world manufacturing output.

— Financial Times