Apple to Relaunch Manufacturing in US, Net Result +200 Jobs; Lights Out

In bits and pieces, manufacturing is returning to the US. Unfortunately, jobs (at least human jobs) are not returning as well.

For a case in point, the Fiscal Times reports Apple’s Big Manufacturing Boom to the U.S. — 200 Jobs.

At the end of last week, CEO Timothy Cook announced that Apple intends to invest $100 million next year to relaunch part of its manufacturing operations in the US.

Apple and Foxconn, the contractor responsible for manufacturing iPhones, iPads and a host of other Apple products in China and other countries, is expanding its existing operations in America to build Mac computers. How many jobs will it create? About 200—a number that wouldn’t even get you noticed in the Fortune 1000.

Last year the Boston Consulting Group published a study forecasting a “manufacturing renaissance” in the U.S. as China’s wage rates and currency rise, skilled workers grow scarcer, and U.S. productivity maintains a strong lead over China’s. Apple thus joins a group of U.S. companies—Caterpillar, Ford, NCR—that have already reckoned that “Made in USA” makes good business sense.

Something important is happening here. With the rapid emergence of China, India, and other developing countries as “middle income nations,” the classic cheap-labor-for-exports model is losing its primacy. So, it appears, is the automatic assumption that wage rates more or less dictate where a manufacturer will locate. As Boston Consulting argued, in the future companies such as Apple will manufacture in China for the Chinese market and in America for American consumers.

It will be interesting, with these studies in view, to see how manufacturing fares in the U.S. in coming years. We still have 2 million fewer manufacturing jobs than we did pre-crisis back in 2007. And do not forget: Apple is all about iPads and iPhones now; the Macs coming back account for less than a fifth of its revenue. It still promises some jobs. But what is good for Apple may not prove good for everybody making things. This is not the beginning of a gold rush.

Forces in Play

1. Rise in labor costs abroad
2. Theft of intellectual property
3. Productivity
4. Automation
5. Shipping costs
6. Diminishing tax advantages of overseas production

Each point above provides incremental reason to repatriate manufacturing. Whether jobs return as well is another matter.

Lights Out

Labor costs are on the rise in China on a relative, if not absolute basis vs. the US. Concerns. Theft of intellectual property by China remains a serious concern. The higher the price of oil, the higher the shipping costs. Corporate tax advantages of overseas production will likely be negotiated away in Congress.

However, the standout reason for the return of manufacturing to the US is automation. What used to take 20 workers may now only take 4 and in a few years 1.

The actual numbers are irrelevant, the enormous trend towards lights-out manufacturing and robotics is not.

The more robots are in use, the more labor costs are irrelevant, and the more manufacturing will return. It's that simple.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com