TD Economics report heralds revival of U.S. manufacturing sector through reduced offshoring

October 22, 2012

TD Economics, an affiliate of TD Bank, has released a report crediting the revival of the U.S. manufacturing sector as a key driver in the economic recovery, largely caused by a slowdown in offshoring activity. This slowdown has kept in the U.S. some of the jobs that used to be offshored rapidly, especially ones in relatively capital-intensive industries such as computers and electronics, machinery, fabricated metals, and plastics and rubber, accounting for about one-quarter of the 200,000 manufacturing jobs added over the last 12 months.

The report indicates that since the trough occurring in January 2010, the manufacturing sector has added nearly 500,000 jobs. The drivers behind the deceleration result from a combination of dynamic global and domestic conditions. On the global scale, offshore wages have risen rapidly, while 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 favor 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 under way 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, economist and author of the study. "We believe that capital-intensive manufacturing industries will lead this onshoring trend, while labor-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 6 million jobs lost to offshoring since the peak in the mid-2000s. Also of note is that new manufacturing jobs will require less labor-intensive but more high-skill, highly productive positions.

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