BNY Mellon Investment Manager Sees U.S. Industrial Distributors, Automation Companies Also Gaining
The biggest potential beneficiaries from the anticipated resurgence of U.S. manufacturing include U.S.-based small and midsize industrial suppliers and distributors, according to a white paper from The Boston Company Asset Management, LLC, the Boston-based equity manager for BNY Mellon.
The white paper, Potential Beneficiaries of a U.S. Manufacturing Renaissance, concludes that a series of incremental changes over the past decade have allowed U.S. manufacturing to become more globally competitive. These include:
- A weakening dollar,
- Narrowing wage differentials between the U.S. and other key manufacturing economies,
- Declining natural gas prices in the U.S., and
- Increasing costs and slower speeds of global supply chains.
"The significant decline in the dollar against other key currencies over the last 10 years has reduced the relative cost of U.S. wages," said Shirley E. Mills, vice president and senior research analyst for The Boston Company and the report's author. "This is among the factors that have helped to drive down the labor costs in the U.S. versus many other countries, reducing corporations' incentives for sending production outside the U.S."
Labor has become an increasingly less important cost component of manufacturing, as automation has increased, the report said. In addition, energy, another important production component, has become less expensive in the U.S. as natural gas prices continue to decline, making the U.S. more attractive to manufacturers, according to the report.
The Boston Company also cited the February 2012 rise in U.S. manufacturing payroll employment, which marked the first time that manufacturing employment grew faster than the non-manufacturing payroll since the 1980s, according to the report. While large multinational companies are likely to allocate greater production to the U.S. because of these favorable trends, the smaller U.S.-based operations that supply these larger manufacturing complexes are likely to grow faster, the report said.
"We see the list of winners encompassing components suppliers, transportation companies and raw material producers," said Bart A. Grenier, chief executive officer and chief investment officer of The Boston Company. "The most attractive beneficiaries may not be the most obvious. In addition to the direct beneficiaries, we see benefits accruing to retailers, banks and others that serve regions where manufacturing activity increases."
The report notes that the shift toward higher U.S. manufacturing could stall for a number of reasons, such as a significant appreciation of the U.S. dollar or a lower differential between the price of natural gas in the U.S. and other manufacturing areas. It also notes that the lower cost for natural gas could dampen the prospects of some U.S. industries such as the coal industry.