UPS down, housing up, market down, China up, and the euro testing lows is the news. UPS dropped its guidance and that is concerning, but housing prices up significantly year over year is a bright spot in an otherwise pessimistic market outlook. The euro testing lows is no big deal, as the market heading down is no big deal, at least not yet. The big news, though, is China.
The HSBC flash China manufacturing purchasing managers index rose to a five-month high in July, driven up by a jump in the output sub-index and signs of an improvement in new export orders. It was the first significant Chinese data in the third quarter and signaled that pro-growth government policies may be gaining traction in the world’s second-largest economy.
The above is comforting, even though it is doing little to comfort the market today. It indicates to me the second half of the global economic year could be better than most are now predicting and if not better, not worse. More importantly for traders and investors, China’s potential turnaround points to the economic transformation in the US I have been writing about.
For some thirty years or so, American businesses have been shipping jobs to China because of its low wages and highly incentivized business environment. That trend seems to be changing as the high price of oil, rising wages, and China’s economic issues bite into the profitability of American businesses that have set up shop in China. In this is opportunity.
Higher transportation costs and wage inflation in China could drive more production back to the United States. GE has shifted production of appliances from Mexico and China to Louisville, Kentucky, partly due to rising shipping costs.
Rising costs and rising wages are one thing, but the larger issue for businesses to overcome is the lack of Chinese workers able to run the highly technological factories rapidly becoming the norm for manufacturers in the US and overseas.
Caterpillar, which has announced nine new plants or expansion projects in the past year alone, said it has chosen to grow in the United States both to meet local demand and because it can find a steady supply of workers able to run the advanced equipment that powers its plants.
In other words, Caterpillar and other manufacturers are now deciding that wages are less important than technological expertise, as technological expertise offsets higher wages with fewer workers.
As manufacturers have learned to run factories with fewer workers – whose jobs consist of keeping high-cost, high-speed machines running smoothly, rather than assembling goods by hand – they have found that wages are a less critical issue in choosing a factory site.
The US economic transformation is in process, and it ain’t stopping until it is complete. Think opportunity and get to work exploiting it, as it is beginning to pop up everywhere.
A survey by the Hackett Group Inc consultancy found that 46 percent of executives at European and North American manufacturing companies said they were considering returning some production to the United States from China, while another 27 percent said they were actively planning for or are in the midst of such a shift.
Trade in the day; Invest in your life …
