By Michael Brush, MSN Money
Forget the doomsayers; US manufacturing is bouncing back. Here’s a look at 10 companies, from giant GE to a small candle-maker, expanding in the US and even bringing jobs back from overseas.
Hiring at home — and even ‘re-shoring’
As the presidential election campaign heats up, you’re almost certain to hear one line repeatedly: “The U.S. doesn’t make things anymore.”
It’s a canard that’s been kicking around since the 1980s.
Yes, there have been lean years for some types of manufacturing — and ensuing job losses — that have devastated some local economies.
But U.S. manufacturing didn’t die; on the contrary, it’s bouncing back ferociously. “The manufacturing sector is leading the recovery,” says James Paulsen, an economist and market strategist with Wells Capital Management.
More than a third of the 3% growth in the gross domestic product in the fourth quarter of 2011 came from manufacturing, though the sector makes up just 11% of the economy. And during the past four months, U.S. factories have contributed 17% of the new jobs. Key indicators such as industrial production and rail freight volumes are also showing solid strength.
In fact, “manufacturing has been a true bright spot in the economy over the last few years,” says Chad Moutray, an economist with the National Association of Manufacturers.
Expect this to continue for three reasons.
First, the U.S. economy is growing, and as demand rises, producers will add capacity, says Todd Lowenstein of the HighMark Value Fiduciary Fund (HMVMX). They’ll be creating jobs and buying tools, machine parts, cranes, trucks and other equipment.
Second, a middle class has emerged in the developing world because we have bought so much stuff made there. “Over the last couple decades, we were building a brand-new world to sell to,” says Paulsen. To wit: Exports of manufactured goods exports jumped 15% in February, and they accounted for three-fourths of a $16 billion gain in exports, says NAM’s Moutray.
Third, the idea that China will take all our manufacturing jobs is proving false. In fact, jobs are coming back home, a trend christened “re-shoring.” U.S. companies are fed up with low-quality production, counterfeiting and logistical headaches, says Michael Zinser, a manufacturing-sector expert with the Boston Consulting Group, and wages in China are rising rapidly.
Another force at work here is energy prices. A lot of U.S. companies set up shop in China when oil was $30 a barrel. “Now it is $100, and that makes a big difference in the cost of transportation,” says Curt Organt, an industrial sector analyst at T. Rowe Price. Meanwhile, in the U.S., a glut of natural gas has pushed prices far below most places in the world, making it cheaper to produce here.
Boston Consulting Group predicts in a recent report that by the end of the decade, these trends could help add 3 million factory jobs and $100 billion in annual output to the U.S. economy.
Hard to believe? I’m not surprised, since myths die hard — especially those that can be used for political ends. Read below to see 10 manufacturers, some big and some small, that are expanding in the U.S. and, in many cases, bringing factory jobs back here from overseas.
Ford’s pact with workers
Last year, when the United Auto Workers agreed to some pay cuts for entry-level jobs at Ford Motor (F), the car company promised to add 12,000 jobs at U.S. plants over four years in exchange — including lots of jobs brought back from overseas. Ford is making good on that promise; this year alone, the auto giant will add 5,500 of those jobs in the U.S.
As you read this, for example, Ford is in the process of “in-sourcing” from Mexico the assembly of battery packs used in hybrid vehicles. The battery packs will be put together in a plant in Ypsilanti, Mich., near a Wayne, Mich., plant that makes hybrid vehicles. Last month, a Sterling Heights, Mich., plant started making transmissions for hybrid cars — transmissions that used to be made in Japan.
And about 2,000 Ford factory jobs in Avon Lake, Ohio, will be saved because of in-sourcing from Mexico. The Ohio plant currently makes the Econoline (now known as the E-series) van, which is being phased out. Instead of closing the plant, Ford is moving production of F650 and F750 commercial trucks from Mexico. Down the road, additional capacity to produce the popular new Ford Fusion model will be added in Michigan instead of Mexico, where the Fusion is now made, says spokeswoman Marcey Evans.
UAW concessions also have analysts more bullish on Ford stock. The concessions helped stabilize costs at the automaker through 2015, says Morningstar analyst David Whiston, which is one reason he has a five-star rating on the stock, Morningstar’s highest. “This stability, combined with our expectation of a large increase in U.S. auto sales, means Ford’s earnings and free cash flow should be strong for a long time,” he says.
Chesapeake Bay Candle comes home
Rising labor costs in emerging-market countries and higher shipping costs are among the reasons companies move jobs to the U.S. So is the need to shorten delivery time, as U.S. retailers run leaner inventories.
Chesapeake Bay Candle cites all these reasons in its decision to start making things in the U.S. Founded in 1994, Chesapeake Bay until recently produced its candles and home-fragrance products exclusively in China and Vietnam. In June, though, it opened a factory in Glen Burnie, Md. The company still has factories in China and Vietnam, but in a telling twist, some of the candles made in the U.S. will be exported to Asia.
Chesapeake Bay Candle says it set up shop here partly so it can cast itself as an American brand, in an effort to sell premium products made in America. “Branding has played a critical role in our decision making,” says company spokeswoman Mareike Finck.
Don’t complain that Chesapeake Bay Candle is private (as are several others on this list), or that it has added “only” 50 manufacturing jobs in the U.S. so far. Most job creation happens in this country in small increments at small companies just like this one.
GE’s multistate ramp-up
Last year, General Electric (GE) added 10,000 jobs, net, in the U.S. Most were factory jobs. And there’s follow-through. Earlier this year, GE launched the production of appliances — including water heaters and high-tech refrigerators — at a new plant in its Louisville, Ky., Appliance Park.
The plant is GE’s first new factory there since 1957.
GE also recently announced plans to invest $580 million in 2012 to expand its aviation business in the U.S. GE Aviation is adding more than 400 manufacturing jobs, and, in 2013, it will open the three new plants in Ellisville, Miss.; Auburn, Ala.; and Dayton, Ohio. GE is also opening a locomotive plant in Texas that will create more than 500 high-tech manufacturing jobs.
GE makes a lot of products that typically don’t see a pickup in demand until the later stages of an economic recovery — one reason to consider buying the stock now, before that happens. These “late cycle” products include things like power-generation turbines, and valves and other equipment used in oil and gas transmission. There could be a lot of growth ahead at GE as the economy rebounds and businesses regain the confidence needed to buy such big-ticket items, says Doug Grant, who follows the manufacturing sector for the Invesco Charter Fund (CHTRX), which carries a four-star Morningstar rating. He thinks GE is a stock to own now, ahead of those trends. “It’s a cheap stock,” he says. “It is generating a ton of cash, and it has cured its balance sheet.”
Caterpillar growing all over
Pundits who claim we’ve had a “jobless recovery” obviously aren’t referring to Caterpillar (CAT), which makes heavy equipment used in construction and mining, like excavators, bulldozers, trucks and graters.
Cat’s not done yet. The company is adding capacity in Texas, Illinois, Georgia and Indiana, says Dana Cease, who covers industrials for Manulife Asset Management. Cease reckons Caterpillar is spending nearly half of its $4 billion annual capital budget in the U.S.
Caterpillar sells mining equipment used in what’s been a booming worldwide commodity business. And its construction equipment is in high demand in rapid-growth emerging-market countries that are building out infrastructure. Last year, Caterpillar saw its largest percentage gain in revenue since 1947, and it was a record-breaking year for U.S. exports, at nearly $20 billion.
This is not a “re-shoring” story, because Caterpillar is also adding jobs in China. But it makes sense to expand capacity in the U.S. ahead of what’s likely to be solid growth in U.S. nonresidential construction, says Morningstar analyst Adam Fleck. “Caterpillar has to able to fulfill that demand if it comes,” agrees Cease. A lot of the expected growth is already priced in to Caterpillar stock, says Fleck, who has a three-star rating on it, out of a potential five stars.
Still, Caterpillar will benefit from what will likely be two or three decades of infrastructure build-out around the world, says Cease. And demand for mining-related equipment probably has yet to peak.
NCR shifts closer to home
One of the key reasons companies move production to the U.S. from emerging economies is to position manufacturing closer to their markets and the people behind product design and development, says Zinser, at Boston Consulting Group.
That’s the case with Georgia-based NCR (NCR), which makes ATMs, cash dispensers and self-serve kiosks used in hotels, stores and casinos.
In March, NCR opened a plant in Columbus, Ga., that will employ about 100 people by the end of the year. Back in 2009, it announced plans to open another plant in Columbus that would eventually hire about 870 people. About 500 of those jobs have already been added.
NCR has factories in Hungary, India and China, and the new U.S. factories shift production from some of those locations. This helps NCR better control manufacturing and innovation, bring products to the market faster and lower shipping costs, says a company spokesperson.
Terex saves on shipping
Some products are so big and bulky that they’re very costly to ship. So it’s doesn’t make sense to set up factories in China for sales elsewhere. Instead, it pays to have factories near end markets. That’s the case with the cherry pickers — like the kind used by your local phone company — aerial work platforms and scissors lifts made by Terex (TEX).
Anticipating a pickup in U.S. demand, Terex has hired about 500 workers in the past six months at its Redmond, Wash., plant, which makes aerial work platforms. And it’s also been hiring at its Waverly, Iowa, plant, which makes cranes. Rather than re-shoring, the company is also adding jobs in China, Brazil, Russia and other developing markets, says a company spokesman.
Terex is the kind of “late cycle” manufacturing company favored by Invesco industrial sector analyst Doug Grant right now. Here’s what he means by that: Terex sells equipment used in construction — and spending and investment typically pick up here later in the economic cycle, when confidence has regained better footing. Companies like Terex do better later in the economic cycle, so its stock looks attractive ahead of those trends.
A lot of Terex equipment in the field now is old, which should drive a replacement cycle, says Grant. “There is a lot of earnings power in front of it as the replacement cycle happens,” he says. Morningstar’s Fleck has a four-star rating on the stock, which is fairly bullish. “We’re pretty excited about the prospects for Terex. We think the firm stands to benefit from its strong market position as demand rebounds,” says Fleck. I also like the recent insider buying at around $22. The stock recently sold for $24.
Yamaha’s ATV initiative
Yamaha Motor (YAMHF) already employs about 2,800 people in the U.S. But as it continues transferring production of its all-terrain vehicles from Japan and elsewhere around the globe to Georgia, that number will go up.
All told, about 200 jobs will be added at Yamaha’s Newnan, Ga., plant. Yamaha Motor estimates the re-shoring of ATV production will also add about 125 jobs at North American parts suppliers.
Why is Yamaha moving these jobs to the U.S.? “To take advantage of the excellent workforce and facilities in Georgia and move production closer to our largest ATV customer base,” says Yamaha Motor spokesman Van Holmes. By moving production closer to suppliers and dealers, Yamaha can more quickly respond to customer demands.
Outdoor GreatRoom seeks quality
One problem with making stuff in China is that quality can fall short. That’s what Outdoor GreatRoom, also a private company, found with production of some of its pergolas, a kind of arbor trellis. They arrived in the wrong color, and there were problems with misaligned holes in the hardware, says Ross Johnson, vice president in charge of marketing.
Another problem was response time. Products coming from China are on the water for about 30 days during shipping. Add in another 30 days of production time, and it’s tough to meet hot demand for a product, says Johnson: “When you produce in China, you have longer lead times and quality issues you don’t know about until products show up.”
As a result, Outdoor GreatRoom moved manufacturing of some of its pergolas to Minnesota. The move has created 50 jobs at the company and 100 jobs total, including positions added at suppliers and related companies, says Johnson.
Farouk Systems fights counterfeiting
Chinese counterfeiting may be a cultural stereotype, but to Farouk Systems, which makes ceramic hairstyling irons, hair dryers and hair-care products, it was all too real. After it set up production in China, the company noticed its CHI hairstyling iron was being counterfeited.
“These copied irons have resulted in burns, malfunctions and other injuries,” says company spokeswoman Amy Johnson. To help fight the problem, the company moved production of the iron to Houston, where it now uses holograms on packaging and power cords to verify authenticity.
“We have been bringing jobs back from China as well as Korea,” says company founder and Chairman Farouk Shami. “We were having quality-control issues and fighting counterfeiting problems overseas, so one of the main reasons I decided to bring jobs back was to ensure the integrity of our brand was maintained.”
The Houston factory employs about 1,000 people, and the company plans to create a warehouse for exports, which it says will eventually employ 300 people.
Coleman’s cooler move
Citing rising manufacturing costs in China, as well as higher shipping costs, Coleman announced last year that it’s moving production of its 16-quart plastic wheeled cooler from China to Wichita, Kan.
The company won’t say how many jobs have been created. But at least now, if you use this Coleman cooler for your drinks and food at your next Fourth of July celebration, it can be an all-American affair.