Rising Like a Phoenix? US Economy…

This may well just continue to work and turn the US economy around…

As long as conservatives don’t get elected to screw it up.

The fact is, it has now become cheaper to manufacture many products in the US than in China. Those companies who haven’t made plans to “inshore” yet may well be holding losing cards. This could have a net impact on the US economy of over 3 million new jobs in 3 years. Foreign based companies have figured it out, with both Asian and European companies flocking to build plants in America. You add that to the two major “bleeding edge” chip foundries being built right here in America – and there are some fundamental economic changes afoot.

No small contributor to this shift is that energy independence thing. The US isn’t very far from being able to be self-sufficient. There are humongous reserves of Natural Gas in the Midwest, and oil reserves beggaring those in the Middle East in the Gulf of Mexico. This should mean stabilized energy costs, no longer at the whim of some crackpot oil-can Dictator.

China’s counterfeiting and Intellectual theft issues are huge for tech industries, it is also impacting firm’s brand names. I for one, have never been convinced it was ultimately profitable to move any high tech or leading edge product production to China because of the theft issue. It really doesn’t matter if you can make a big screen TV 15 cents cheaper – if the manufacturer is making knockoffs, using your logo, and selling them $100.00 cheaper. I think it’s time to cut the George Bush (pick one) support system for China. They have a huge internal market, and there is no reason their economy should not be strong once the necessary changes are made in how their government works, and business is conducted are made.

World power swings back to America

The American phoenix is slowly rising again. Within five years or so, the US will be well on its way to self-sufficiency in fuel and energy. Manufacturing will have closed the labour gap with China in a clutch of key industries. The current account might even be in surplus.

Assumptions that the Great Republic must inevitably spiral into economic and strategic decline – so like the chatter of the late 1980s, when Japan was in vogue – will seem wildly off the mark by then.

Telegraph readers already know about the “shale gas revolution” that has turned America into the world’s number one producer of natural gas, ahead of Russia.

Less known is that the technology of hydraulic fracturing – breaking rocks with jets of water – will also bring a quantum leap in shale oil supply, mostly from the Bakken fields in North Dakota, Eagle Ford in Texas, and other reserves across the Mid-West.

“The US was the single largest contributor to global oil supply growth last year, with a net 395,000 barrels per day (b/d),” said Francisco Blanch from Bank of America, comparing the Dakota fields to a new North Sea.

Total US shale output is “set to expand dramatically” as fresh sources come on stream, possibly reaching 5.5m b/d by mid-decade. This is a tenfold rise since 2009.

The US already meets 72pc of its own oil needs, up from around 50pc a decade ago.

“The implications of this shift are very large for geopolitics, energy security, historical military alliances and economic activity. As US reliance on the Middle East continues to drop, Europe is turning more dependent and will likely become more exposed to rent-seeking behaviour from oligopolistic players,” said Mr Blanch.

Meanwhile, the China-US seesaw is about to swing the other way. Offshoring is out, ‘re-inshoring’ is the new fashion.

“Made in America, Again” – a report this month by Boston Consulting Group – said Chinese wage inflation running at 16pc a year for a decade has closed much of the cost gap. China is no longer the “default location” for cheap plants supplying the US.

A “tipping point” is near in computers, electrical equipment, machinery, autos and motor parts, plastics and rubber, fabricated metals, and even furniture.

“A surprising amount of work that rushed to China over the past decade could soon start to come back,” said BCG’s Harold Sirkin.

The gap in “productivity-adjusted wages” will narrow from 22pc of US levels in 2005 to 43pc (61pc for the US South) by 2015. Add in shipping costs, reliability woes, technology piracy, and the advantage shifts back to the US.

The list of “repatriates” is growing. Farouk Systems is bringing back assembly of hair dryers to Texas after counterfeiting problems; ET Water Systems has switched its irrigation products to California; Master Lock is returning to Milwaukee, and NCR is bringing back its ATM output to Georgia. NatLabs is coming home to Florida.

Boston Consulting expects up to 800,000 manufacturing jobs to return to the US by mid-decade, with a multiplier effect creating 3.2m in total. This would take some sting out of the Long Slump.

As Cleveland Fed chief Sandra Pianalto said last week, US manufacturing is “very competitive” at the current dollar exchange rate. Whether intended or not, the Fed’s zero rates and $2.3 trillion printing blitz have brought matters to an abrupt head for China…

Volkswagen is investing $4bn in America, led by its Chattanooga Passat plant. Korea’s Samsung has begun a $20bn US investment blitz. Meanwhile, Intel, GM, and Caterpillar and other US firms are opting to stay at home rather than invest abroad…

Yet America retains a pack of trump cards, and not just in sixteen of the world’s top twenty universities.

It is almost the only economic power with a fertility rate above 2.0 – and therefore the ability to outgrow debt – in sharp contrast to the demographic decay awaiting Japan, China, Korea, Germany, Italy, and Russia.