US Manufacturing Picking Up Steam

CHICAGO—Over the past few decades, cities across the US have watched factories vanish as manufacturing shrank due to overseas competition. But recently, there has been a lot of talk that American manufacturing is back, leaving many in the commercial real estate world wondering what sort of impact, if any, this possible revival will have in their market. And this Tuesday, consulting experts from JLL will hold a webinar at 12 PM EST and attempt to provide a few answers.

“Everybody felt for quite awhile that manufacturing was lost in the US,” Richard H. Thompson, a Chicago-based managing director and global leader for supply chain and logistics at JLL, tells GlobeSt.com. Thompson will participate in the webinar along with Matt Jackson and Shannon Curley. Most observers point to the massive loss in the number of US workers engaged in manufacturing and the rise of China as an economic rival as evidence of American decline.

“They are right, but in a number of important ways they are also wrong,” Thompson says. Manufacturing employment has certainly declined during the last 40 years. In 1970, roughly 25% of US workers were engaged in manufacturing, and today that number is only about 8%.

However, “their productivity is at an all-time peak,” he adds. In a recent study, a Federal Reserve official in Chicago found that what it took 1000 workers to do in 1960 takes only 184 workers today, partly due to the use of high-tech tools. This productivity means that, whatever the number of workers involved, “the US is still very much a manufacturing powerhouse in the world.” In fact, the country still produces 21% of all the manufactured goods in the world, and with China still dominated by low-skill occupations, the US retains even greater prominence in highly-finished goods that require a lot of intellectual effort to create.

Furthermore, even though China is expected to continue growing at a fast pace, although perhaps not quite as fast as it did during the past decade, in some significant ways the playing field will begin tilting in America's direction, Thompson says. “The manufacturing cost gap between the US and China will close in five years.” The cost of moving freight, for example, is going up, and in the near future it will be more expensive to move goods from China to the US. In addition, the cost of labor in China, one of the great advantages that country has over the US, is expected to go up 15% per year. These and other factors have made companies far more likely to place new manufacturing facilities near their customers in the US. “The math has changed. We are seeing a real resurgence in manufacturing in the US and Mexico.”

This trend has been most helpful to industries such as computers, electronics and other high-tech products. Other American industries that have an especially bright future, Thompson adds, are railroads, aerospace, engine and turbine manufacturing and motor vehicles. Many of the benefits will flow to the Southeast, partly due to its concentration of auto manufacturing. Volkswagen, Hyundai and many other foreign manufacturers have taken advantage of the relatively low labor rates, great infrastructure and proximity to major population centers to establish operations there. “It used to be that if you bought a Mercedes, it was made in Germany; today it's made in the US.”

The Southwest, Southern California, the Dallas region, among others, will see tremendous benefits from the expansion of the aerospace industry, he adds. And metro areas like Portland and many in California will continue to grow along with computer companies located there. In addition, manufacturers that service agriculture, construction and mining operations, another source of US strength in the coming years, will boost Chicago and other Midwest cities.

“Companies are regionalizing their manufacturing,” Thompson says, primarily to be near their eventual customers, especially the dense concentrations of affluent Americans. “We're not going to make everything in one country and then ship the goods all over the world.” He adds that the tsunami that hit Japan made a big impression on many companies, as they watched one local disaster disrupt manufacturing operations and supply chains that stretched across the globe.

And with the increase in production, cities all over the US will need new and bigger distribution facilities, he says. “All this will have a domino effect on industrial real estate.”

Thompson believes all this expansion is real and sustainable. There are too many drivers for it to be a short-term fad. In addition to all of the other factors, the extraordinary increase in energy production, and the consequent drop in prices, will help fuel US manufacturing. “I believe this growth will continue for at least five years and probably much more.”