Manufacturing in America

Abigail and Dolley readers I have had a wonderful opportunity in my new position to sit and visit with business people from across the spectrum.  While confined to a geographic region, these business folks hail from companies large and small and cover the gambit of industries represented in the Southern USA.  I thought I would share some of the insights I have gathered on these conversations.

"We are doing very well but we are just waiting to see what this economy will bring..." - this is the overwhelming sentiment among business people.  Company health is solid, there is plenty of cash in the bank, and they have fundamentally changed the way they do business.  Risk and capitol investment are on hold, expansion is not in the cards right now, and even if they wanted to the banks are not lending.

"American manufacturing is returning.  Companies that had previously moved production to China are reopening factories in the USA.  We shipped an order to a factory in Mississippi that has not made this product in over a decade."  This my friends is good news.  The cost of fuel and labor has made the Chinese goods much less attractive.  If you factor in the absolute corruption in the communist run country you get a picture of a collapsing model.  I have written about the labor market in China before (Chinese Manufacturing) and how American workers and firms have a huge intrinsic advantage.

"We are always hiring at the plant but it's hard, dirty work and nobody wants to do it for $10/hour."  Hmmm, this one surprised me.  I guess when you get down to it, unemployment pays about the same wage and a lot of folks figure they are better off waiting for a higher paying job.  The thing about that is the benefits that this company pays equal about $8/hour and unemployment doesn't give you that.  Imagine though, if the income tax rate for corporations was cut to 9% what could happen to wages in this plant.

"Lead times on finished products have gone through the roof and retailers are still making Christmas purchases."  This plays into the first point but is quite telling.  Christmas purchases are usually completed and shipping commences in July - October.  Here we are in mid October and they are STILL buying.  For the first time in a decade, we did not have a peak season surcharge out of Asia.  This is a significant and fundamental change in the business cycle.  Folks are not producing on anticipated demand, they are producing by the order.

The companies that have survived this Great Recession have hunkered down, changed their behavior, mitigated risk, and saved their money.  The weak, inefficient, and poorly run enterprises have been weeded out.  Many misplaced workers are busting with ideas and the entrepreneurial spirit is alive and well in America, just cash starved and waiting for a break.  A repeal of the stifling regulatory climate, tax system overhaul, and new leadership is all that is missing.  November 2012 can't get here fast enough.  When this thing turns and it WILL turn we are going to see an explosion.  I guess I picked a good time to go back into sales...