- April 30, 2013, 11:57 AM ET
The Myth of the Manufacturing ‘Renaissance’
Morgan Stanley has firmly joined the “Where’s the beef?” crowd when it comes to America’s supposed factory renaissance.
In a 125-page “blue paper,” the bank concludes there’s “little real evidence” of a revival. Some domestic producers will certainly benefit from the dual force of breakthroughs in domestic energy production and rising costs in China. But not so fast, says the bank. “Outside of the chemicals sector, low natural gas prices will likely have limited ramifications on capacity decisions.”
Here’s why: In the larger scheme of things, labor and energy make up a relatively small slice of the costs for most U.S. manufacturers. Much more important is raw material and component purchases. Transportation costs are big and the bank acknowledges more U.S. companies are increasingly looking for ways to shorten their supply lines. But that could easily mean moving production from China to Mexico — or vice versa, if enough end customers for a given product are in China.
As part of their research, the bank surveyed 266 manufacturers in seven industries about how they saw their production footprint changing over the next five years, compared to the last five. “Our survey work indicates that larger manufacturers expect to allocate a stable proportion of global capex budgets to the U.S. over the next five years,” the report says, noting that the current level of U.S. investment in manufacturing is “still at depressed levels.”
There is good news though. While Morgan Stanley doesn’t see a stampede back to the U.S., it does conclude that the “draining away of manufacturing capacity to China” and emerging markets has halted.