Is U.S. manufacturing staging a comeback?

Until recently, manufacturing and industrial decline had seemed a permanent feature of the U.S. economy. More recently, we’re seeing another trend, perhaps even an “industrial renaissance.”

New factory construction is mushrooming in the U.S. Last month, fixed domestic industrial investment actually doubled on a year-on-year basis. “Outlays for factory-related structures jumped in January through March,” says the National Association of Manufacturers, “surging at a 95 percent pace” year-on-year. Investment in new plants has grown at the strongest rate since recordkeeping began in 1958. Meanwhile, outsourcing has slowed and, in some industries, ceased altogether.

Many factors prompt this change. Labor costs have risen in Asia’s “platform economies,” where lack of contractual enforcement and theft of intellectual property still persist. Long-distance transport and transshipment gobble up ever larger slices of overall production costs, whatever temporary bump recent devaluations may give to China. For example, 3-D printing and ASRS (Automated Storage and Retrieval Systems for inventory control), make it cheaper to site factories closer to American consumers.

All these reasons have their place, but none comes close to the impact of America’s abundant energy.

The U.S. has become the world’s largest producer of natural gas, a fuel now costing 3-4 times as much in China, Europe and Mexico. This provides a stupendous competitive advantage to power-intensive industries, many now locating or relocating factories in the U.S. Companies making aluminum, cement, chemicals, glass, iron and steel, paper, plastics, rubber and an array of fabricated metal products figure prominently on the list.

As well as generating electricity, natural gas provides feedstock for making fertilizer and other products. So does the ‘tight oil’ also produced from shale.

Regionally, the Gulf Coast’s new investment shows the industrial consequences awaiting other regions with plentiful shale gas deposits. In Louisiana and Texas, the natural gas byproduct, ethane, has made those states an epicenter of petrochemical production. The U.S. Chamber of Commerce says firms like South Africa’s Sasol, Germany’s Linde Group, or Taiwan’s Formosa Group have committed over $90 billion to a “petrochemical belt” reaching from the upper Texas coast to New Orleans. Dow Chemical, Exxon Mobil and Chevron Phillips are also adding capacity.

In public narrative, shale energy usually figures in an adversarial role, whether in environmental debate or as one side in a David-and-Goliath price war waged since mid-2014 by OPEC. We should give shale energy another role, as prime enabler of the most significant US industrial revival in decades.

As recently as in 2010, just a handful of U.S. manufacturers had “re-shored.” Four years later, 300 opted to “repatriate” — another word for the phenomenon. The management firm A. T. Kearney says electrical equipment, household appliances and apparel makers lead the queue heading home.

The Reshoring Initiative, a Chicagobased NGO, said earlier this year that reshoring has brought 170,000 manufacturing jobs back to the U.S. since 2010. The Boston Consulting Group and other firms’ surveys show rising numbers of manufacturing CEOs planning to come home. A reviving American market and abundant U.S. energy has brought major factory investment by quality European firms like Vallourec and Siemens.

Foreign or domestic, manufacturers in total have added nearly 700,000 jobs since 2010, bringing U.S. factory employment to 12.2 million. Only a 5 percent cost gap now separates manufacturing costs in the U.S. and China, according to Fortune magazine.

Just two years ago, the National Association of Manufacturers said the U.S. could expect “to reap enormous economic and job-creation benefits from domestic oil and shale gas production,” adding that “manufacturers’ best days are ahead.”

Watching shale industry resilience in its current OPEC price war, it’s hard not to feel a tinge of optimism. Could we have left behind the time when U.S. firms outsourced everything but their CEOs to China? Still competitive despite the OPEC onslaught, abundant American energy offers the best chance for a permanent manufacturing comeback, a literal “coming back” home from foreign platforms.