In recent posts I highlighted various indicators suggesting that the U.S. economy is not only gaining strength, it is becoming more attractive as a destination for foreign direct investment (FDI) and for manufacturing generally.
With respect to the latter, the growing cost-competitiveness of the U.S. is part of a trend that began with nearshoring, i.e., locating manufacturing facilities or outsourcing services to foreign, but somewhat more “local” sites, and is now manifesting itself in “onshoring,” which refers to the outright return of production or processes to domestic locations.
While this is good news, of course, I did refer in one such post to the “cloud in the silver lining,” if you will, and by that I meant that it is not merely rising prosperity in foreign markets and rising fuel costs that have made off-shoring less financially attractive.
It must be said that relative stagnation in U.S. wages has played a role in bringing jobs back to these shores. Overseas costs of production are rising quickly in relative terms, i.e., they’re gaining on domestic production costs, in part because wages here aren’t rising much at all.
Good for manufacturers (in the short run, anyway) but bad for workers and others in the economy that depend upon workers’ paychecks … Of course, one can say that any employment these days, particularly employment with benefits, is good. Period. End of report.
But that’s another post … I want to highlight in this post another encouraging bit of news regarding the “repatriation” of investment, this time in the chemical industry.
Bloomberg Businessweek reports in its July 29, 2013 issue that chemical companies are rushing to the U.S. because foreign companies are recognizing that it’s cheaper to build in the U.S. According to Bloomberg, scores of companies, including ExxonMobil, Chevron, and Sasol plan to spend $100 billion to build or expand chemical plants in the U.S.
Bloomberg attributes this massive shift to … natural gas.
With dramatically falling gas prices (attributable to fracking and shale gas extraction), investment in the chemicals industry is growing, and employment in the industry is beginning to rise again. Most of the investment is headed to Louisiana and Texas.
Roughly half the new investment is coming from foreign sources: South Africa, Taiwan, Russia, and potentially Saudi Arabia.
Investment? Good. Jobs? Good.
Fracking? Now, this is where things get interesting … Care to weigh in?