DOMESTIC MANUFACTURING OUTLOOK BRIGHTENS

It may not be accurate yet to describe it as a tide that has flowed back in with the same speed as it ebbed, but manufacturing is coming back to these shores. A new report from Cushman & Wakefield finds that reshoring to US as well as Canada and Mexico makes good business sense for a variety of reasons.

“While the manufacturing sector in North America may not play as large a role in the regional economy as it once did, the outlook is encouraging,” says John Morris, leader of C&W’s industrial services group. “On the heels of a steady decline that seemed a permanent trend, the positive story revealed in our report is one that some would have doubted was possible just a few short years ago. Competitive disadvantages of the past that hurt the North American region have been muted and in some cases have flipped over to the positive side.”

C&W says that critical factors including labor costs along with proximity to customers, time to market, currency volatility and transportation concerns are now bigger assets for this region. In particular, for those manufacturers who want to access the coveted U.S. consumer market, “North American locations are enticingly close, and no longer disproportionately expensive,” according to C&W’s report.

As the global manufacturing landscape changes, C&W accordingly sees shifts within the region continuing. “In the US, the Midwest will remain a vital part of the manufacturing industry but the Southeast and Mid-south will also capture a significant share of manufacturing investment,” the report states. In Canada, meanwhile, non-energy goods produced and exported from Central Canada, British Columbia and other oil-consuming provinces are expected to lead growth, while oil-producing provinces wait for oil price recovery in order to resume investment.

Through the balance of this year and into 2016, C&W expects the recent momentum of North American manufacturing recovery to continue at a modest but steady rate. US manufacturing, for example, is expected to grow at about the same rate as the GDP, 2.5%. Canada’s projected growth in this sector is lower at 2.2%, while Mexico’s outlook calls for as much as 4.5% growth through 2016.

“The industry will benefit from anticipated gains in employment in the US and further upticks in consumer spending—a net benefit to both Canada and Mexico,” Morris says. “At the same time, the sector will also face uncertainty, and undoubtedly headwinds, from declining Asian demand and continued sluggishness in Europe."

There are also challenges, the report notes, which in the US include the cost of government compliance and a coming shortage of qualified labor. "Long term, however, the manufacturing industry here stands in a better position to compete globally for investment and jobs than it has in decades,” says Morris.

A particularly bright sign for domestic manufacturing, according to the report, came with General Electric’s announcement last April that it would largely exit the financial services business. GE’s idea to create “a simpler, more valuable company by reducing the size of its financial business and focus on industrial growth was a strong vote of confidence in favor of strategic investment in manufacturing,” the report states. “Under the plan, GE expects that by 2018 more than 90% of its earnings will be generated by its high-return industrial side, up from 58% in 2014.”