NEW YORK — Although U.S. manufacturing is currently facing meaningful headwinds from a stronger dollar and the collapse in investment in the shale energy sector, it remains the most competitive worldwide, according to a new report release by Oxford Economics.
The rapid and broad-based 20 percent U.S. dollar appreciation since mid-2014 has done some significant damage to US manufacturing competitiveness. However, three factors have offset the hit from the stronger currency: the greenback was arguably the most competitive it has been before the surge, U.S. manufacturing productivity is the strongest in the world, and the U.S. is "gifted" with a stable regulatory framework, a flexible labor market, low energy costs and access to a large domestic market, writes Gregory Daco, head of U.S. economics, Oxford Economics, in a research note released today.
The report makes these additional points:
• Since 2003, productivity growth in the US has outpaced most of its peers, with manufacturing output per employee rising about 40 percent (2.5 perce per annum on average) from 2003 to 2016 compared with only 25 percent growth in Germany and 30 percent growth in the UK. While productivity growth has lagged that of Japan, the U.S. manufacturing sector remains 25 percent more productive. Likewise, while productivity has doubled in India and China, the U.S. manufacturing sector remains 80-90 percent more productive.
• Most advanced economies have seen similar compensation growth over the past 13 years, but stronger productivity in the US has allowed it to maintain generally lower unit labor costs. Since wage growth in China has largely outpaced productivity growth, and the renminbi has strengthened, China’s unit labor costs are now only 4 percent lower than in the US.
• While we have seen growing evidence of reshoring, especially in the most competitive and export-intensive US manufacturing sectors, Mexico appears to offer a sensible “near-shoring” alternative with costs 10 percent lower than in China, a stable regulatory environment and generally unhindered access to the US market.
• In our baseline forecast, we see the US dollar appreciating another 3-5 percent through 2017 before gradually depreciating thereafter. In this environment, the US manufacturing sector will maintain its edge. Another 20 percent appreciation of the dollar, on the other hand, would certainly dent US competitiveness, and once again make China an attractive production hub, as well as giving Japanese manufacturers a significant advantage over US firms.
To receive the entire report, contact Gregory Daco at email@example.com.