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US Recovery Hopes Rest on Manufacturing

By: Dock Treece | Thursday, January 20, 2011

Regular readers will recall that we have repeatedly expressed our long-term bullishness on the US economy, particularly the industrial/manufacturing sectors. Our arguments were laid out most recently in The Next Motor City, published in December of 2010.

In that piece and elsewhere we have detailed growing demand among emerging Asian nations (e.g. Indian and China) for many of the goods for which more developed countries have relied on them for production.

These countries, once valued for their cheap labor, have started to become developed nations, thanks in large part to outsourcing from the west. Now many of their people are beginning to want the luxuries they have producing for people in wealthier countries, which already take many of these goods for granted.

In "The Next Motor City" and elsewhere we argued that the wave of outsourcing that has been so characteristic of developed industrial nations during recent decades is finally drawing to a close. The availability of available cheap labor has declined significantly, and has been the source of poor publicity for more than one Fortune 500 company.

Moreover, many firms are beginning to realize that production in countries like India, China, and Mexico have costs aside from shipping. Quality control has become a serious issue, as has theft of intellectual property.

Just as importantly, with real unemployment in the United States at over 15%, the cost of labor in this country has declined. Finally, companies are taking notice.

The Wall Street Journal recently published a telling article entitled U.S. Factories Buck Decline. It seems that 2010 was the first year in over a decade (since 1997) that American manufacturing added more jobs than it lost, netting 136,000 new jobs.

Some might dismiss this tidbit as a flash in the pan, but every indication is that it is the start of a trend that might just last. According to the Journal article, Ford plans to hire roughly 7,000 new employees during the next two years. Following suit, Caterpillar is currently building a $120 million plant in Texas.

It seems that the market is finally learning what we argued last month in The Heresy of Higher Education, which was largely echoed in video from Glenn Reynolds on PJTV titled College Isn't for Everyone. Yahoo! Finance recently reiterated some of this thinking in a new article and video short, Brain Drain: Most College Students Learn Next to Nothing, New Study Says.

The truth is that the concept of a "post-industrial" economy, which had never been seen before the US, doesn't exist. In order to maintain its status as an economic superpower, the United States (or any other developed nation for that matter) needs a strong industrial sector. Sure, there's money to be made in technology, finance and other sectors, but those are built on the foundation of strong manufacturing.

 

Author: Dock Treece

Dock David Treece

Dock David Treece

Dock David Treece is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and is licensed with FINRA through Treece Financial Services Corp. He provides expert content to numerous media outlets. The above information is the express opinion of Dock David Treece and should not be construed as investment advice or used without outside verification.

Copyright © 2010-2014 Dock David Treece