U.S. Could Add 5 Million Manufacturing and Supporting Jobs by 2020

The United States is becoming a one of the lower-cost manufacturing centers in the world, according to a new study by the Boston Consulting Group (BCG). Low labor and energy costs are expected to continue making the U.S. more competitive and could lead to as many as 5 million new manufacturing and supporting jobs in the U.S. by 2020. BCG also notes that U.S. exports have grown by 30% since 2006.

The cost of manufacturing in the U.S. will be anywhere from 5% to 25% lower than costs in Germany, Italy, France, the United Kingdom and Japan by 2020, according to BCG. The outcome:

[T]he U.S. could capture 2 to 4 percent of exports from the four European countries and 3 to 7 percent from Japan by the end of the current decade. This would translate into as much as $90 billion in additional U.S. exports per year…

Adding in exports to the rest of the world, BCG estimates that the annual addition to GDP would total $130 billion. The firm says that the largest gains will come in machinery, transportation equipment, electrical equipment and appliances, and chemicals.

Earlier this year consulting firm Accenture PLC (NYSE: ACN) also released a study on reshoring — that is, returning jobs that had been moved out of the U.S. back to American soil. Sometimes called “onshoring” or “insourcing,” the trend appears to be picking up steam. According to the Accenture survey of 81 senior manufacturing executives, the leading location for new plants is now the United States.

The primary drivers of the move back are low labor costs and low energy prices. BCG notes that when adjusted to take into account U.S. worker productivity, the average labor cost in other developed countries is 20% to 45% higher than in the U.S.

Labor costs are higher in Europe because of the much higher levels of unionization. Union membership has fallen to below 12% of workers, about half the unionization rate in the European Union. Given recent history, there is little reason to expect U.S. union membership to rise if more manufacturing jobs return. And it is worth remembering that slightly more than half (about 7.6 million ) of all U.S. union members (about 14.8 million) are public sector employees.

Low natural gas prices are another major driver of reshoring. Natural gas is anywhere from 50% to 70% cheaper in the U.S. than in any other developed country. That lowers the cost of generating electricity and for fuel to drive industrial plants and for feedstock for chemicals producers.

BCG’s announcement is available here.

Paul Ausick