7 key factors for US reshoring

After making the case for reshoring in a previous article, PwC identified 7 key factors influencing potential US manufacturing resurgence. Obviously, labor cost is one of those factors but not the only one.

“Industrial manufacturers may increasingly rethink their U.S. strategies, including the merits of continuing to separate production and R&D and producing abroad and importing back to U.S. buyers. Depending on the industry, there may be considerable benefits to establishing regionalized supply chains and R&D facilities in the U.S.,” said Bob McCutcheon, PwC’s U.S. Industrial Products leader.

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U.S. firms in China say their No. 1 fear is rising labor costs

U.S. companies operating in China cited rising labor costs as the biggest risk to their business in the country for the first time, the 2013 China Business Climate Survey Report by the American Chamber of Commerce in China, AmCham China, showed.

Among 325 businesses surveyed, 47 percent said rising labor costs were their biggest risk, just above the number that said slowing economic growth in China was the major concern, the 2013 China Business Climate Survey Report  said. More than a quarter of respondents said they had been the victim of data theft.

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US Labor Costs rise sharply in Q4

Labor costs rose at a 4.5 percent rate in the fourth quarter 0f 2012, the fastest gain since the first quarter of 2012. However, for all of 2012, labor costs were up a modest 0.7 percent. That compared to a gain of 2 percent in 2011 and a decline of 1 percent in 2010.

Labor costs were rising more rapidly before the Great Recession, which triggered millions of layoffs and reduced workers’ bargaining power.

The main reason for the increase in Labor Costs was a fall in productivity. U.S. worker productivity shrank in the final three months of 2012 although the decline was caused by temporary factors.

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Made in the USA: A Case for Reshoring

Reshoring Gives Economic Hope to Manufacturers

Offshore outsourcing has become one of the hot button political issues of the day. Especially in light of the U.S. economic downturn, there is a desperate need for more jobs for American workers, while at the same time companies are looking for ways to save money to keep themselves afloat. But now it looks as though reshoring might be an idea that makes sense for both sides, making reshoring a trend that just might stick.

The OffShore Outsourcing Controversy

Off-shoring in the manufacturing, customer service, and tech industries has been happening for some time now and opponents feel there are far more negatives than positives to offshore outsourcing (delays, hidden costs, quality control), while others see nothing but an effective strategy for keeping costs down.

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Worker productivity slows as labor costs rise in the final months of 2011

Labor costs increased at a 2.8 percent rate in the fourth quarter. That’s lower than the 3.9 percent rise in the third quarter, but much higher than the initial fourth-quarter estimate of 1.2%.

Growth in U.S. worker productivity slowed at the end of last year, while labor costs rose. Fewer gains in worker output suggests employers must add workers if they want to meet higher demand.

The Labor Department said Wednesday that productivity rose at an annual rate of 0.9 percent in the October-December quarter. While that’s a slight upward revision from last month’s preliminary estimate, it’s half the pace from the July-September quarter.

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America’s Productivity Boom

Of the 19 economies tracked by the BLS, only Taiwan managed to improve its unit labor cost position more than the United States did.

U.S. workers can be placed at a competitive disadvantage because of low labor costs abroad. This disadvantage was especially severe in the early years of the 2000s when the enduring effects of earlier financial crises in many parts of the world depressed production costs in much of Asia, Brazil, Russia, and elsewhere. Since then, continued robust productivity growth in the United States, particularly in the manufacturing sector, has been reinforced by a gradual realignment of the currencies of many U.S. trading partners.

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Worker Productivity Rises, Labor Costs Fall

Labor costs dropped at an annual rate of 2.4 percent in the third quarter, the first decline since late 2010.
U.S. workers increased their productivity this summer by the largest amount in a year and half, and they cost their employers less. The trend is good for corporate profits but not necessarily for job growth.

The Labor Department says productivity rose at an annual rate of 3.1 percent in the July-September quarter after two straight quarterly declines. Labor costs dropped at an annual rate of 2.4 percent in the third quarter, the first decline since late 2010.

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Cheap Labor in China Coming to an End

“We’ve seen our wage costs in China go up nearly 50 percent in the last two years alone,” said Charles Hubbs of Guangzhou Fortunique, which is a medical supply company for some of the United States’ largest health care companies. “It’s harder to keep workers on now, and it’s more expensive to attract new ones. It’s gotten to the point where I’m actively looking for alternatives. I think I’ll be out of here entirely in a couple of years.”

Years ago, several U.S. manufacturers moved production plants to China in an effort to cut labor costs. However, the age of cheap labor in China is ending as annual wages for manufacturing workers continue to grow, and now, some of the larger plants in China are looking for a new home.

But where will plants go to next? Countries like India, Laos, Cambodia and Vietnam are a few options for cheap labor. Also, some companies like Wham-O, a toy company, are returning to the U.S. Last year, Wham-O moved 50 percent of its Frisbee and Hula Hoop production to the U.S. According to a study by the Boston Consulting Group (BCG), China’s average wage rate was 36 percent of the United States’ in 2000, and by the end of 2010, this “gap” shrunk to 48 percent. By 2015, BCG predicts it will be 69 percent.

via DailyTech – Cheap Labor in China Coming to an End.

Analysis: Eurozone Labor Costs Rose Faster Than Expected In 1Q

The annual increase in Eurozone labor costs accelerated sharply in 1Q to +2.6%, boosted by a pick-up in wage costs and especially employer payroll contributions, Eurostat said Monday.

Most analysts had expected a more moderate annual rise of 2% at most.

After bottoming out in the middle of last year, labor costs gains have now recouped over half the slowdown from the previous high of 3.5% in the spring of 2009, but they are still far below the pre-crisis peak of 4.3%.

Stronger labor cost increases in 1Q reflected both faster wage gains, up 2.3% on the year after +1.4% in 4Q, and a spike in non-wage costs, which include social security contributions and employment taxes, to a two-year high of 3.6% — double the rise in 4Q.

via Analysis:Eurozone Labor Costs Rose Faster Than Expected In 1Q | iMarketNews.com.

U.S. Productivity Rises 2.6% in Fourth Quarter, Costs Fall (1) – Bloomberg.com

For all of 2010, productivity climbed 3.9 percent, the most since 2002. Labor costs fell 1.5 percent after a 1.6 percent decrease in 2009. It was the first back-to-back drop since 1962- 63, the Labor Department said.

March 3 (Bloomberg) — The productivity of U.S. workers increased in the fourth quarter at a faster pace as companies sought to pare costs to preserve profits.

The measure of employee output per hour rose at an unrevised 2.6 percent annual rate after a third-quarter gain of 2.3 percent, figures from the Labor Department showed today in Washington. Labor expenses fell for a second straight year.

Increased demand may prompt companies such as Intel Corp. to ramp up hiring as they bump up against efficiency limits with their current labor force. Declines in labor expenses help keep inflation contained amid rising commodity prices, giving the Federal Reserve scope to complete its unconventional easing program through June.

“Businesses have consistently surprised on the upside by squeezing out productivity gains,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said before the report. “We’re hoping some of the pickup in demand will translate into stronger job growth, perhaps at the cost of slippage in productivity.”

via U.S. Productivity Rises 2.6% in Fourth Quarter, Costs Fall (1) – Bloomberg.com.