Made in the USA, Again: 3 Firms Bringing Jobs Home

caterpillar excavator neatly parked in open yard storage in repetitive pattern
Just a few years ago, you likely wouldn't have believed an article touting American manufacturing as a growing force in the global economy -- and for good reason. For much of the past 15 years, U.S. exports and our manufacturing sector have been on the decline.

But that trend appears not only to be slowing, but reversing.

The data is driven by America's increasing oil production, a commitment from retailers to buy more domestic goods, and other companies bringing their previously offshored manufacturing back home -- a trend called "reshoring." Besides being good for the nation, this may also have a very positive effect on various American companies, and their stocks. Below, we'll suggest three to consider. But first, let's review the trends.

Flip-Flopping Factories

According to a recent piece in The Wall Street Journal, U.S. manufacturing accounted for 19 percent of global exports in the year 2000. By 2011, that number had shrunk to 11 percent.

During that same time, Chinese manufacturing surged from 7 percent to 21 percent of global exports.

For the American factory and its workers, not to mention the economy, these were troubling numbers.
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Corporate executives simply said it was cheaper to produce elsewhere, and that the cost of making goods domestically would be too high to bear for both companies and consumers.

But now, the Chinese manufacturing landscape is maturing from a super-cheap labor force making cheap goods into a more expensive, sophisticated workforce producing higher-cost, technology-oriented products. Similar trends are visible in other regions that were recently the manufacturing hubs for most "American" goods.

This brings us to the second quarter of this year, when U.S. exports of manufacturing goods leaped nearly 20 percent year over year to $19.9 billion, according to the Journal. That's still just one-fifth of China's exports to the United States, but a strong signal that our nation's manufacturing sector is experiencing a competitive revival.

So, how do these economic indicators look in real life, and how will they manifest in your stock portfolio?

Investors, Take Note

The resurgence in U.S. exports has the predictable effects -- one being better employment rates in the U.S.

Though manufacturers employ just 12 million Americans, the Journal article cites figures suggesting that our export boom could reduce the U.S. unemployment rate by two to three points -- on the high end, that would mean an unemployment rate of just 5.4 percent.

For companies and their shareholders, the implications are positive as well. "Made in the USA" is a label that goes down smooth with Americans and encourages patronage. Even better is the fact that it's actually becoming cost-advantageous to produce goods here.

According to the Boston Consulting Group, the U.S. is becoming one of the least expensive places in the developed world for manufacturing. We've got cheap domestic sources for energy (thanks to the shale gas production boom), as well as relatively low wages. These cost advantages make U.S. manufacturing more akin to China or India just a couple of years ago. BCG projects that by 2015, U.S. labor will cost between 8 percent and 18 percent less than in the other five major export economies (Germany, Japan, France, Italy, and Great Britain).

3 Companies Coming Back Home

During the depths of the recession, heavy-machinery giant Caterpillar (CAT) closed down American plants and laid off thousands of employees.

Now the company is pouring money into new, U.S.-based facilities -- a trend it had eschewed for years in favor of foreign plants. In August 2012, Caterpillar opened a $200 million excavator-making plant in Texas.

CEO Doug Oberhelman appears to see opportunity in making its products here, but has publicly pushed for greater long-term investment in infrastructure as a catalyst to an improving U.S. production base. Though sales have been soft lately for the company, Caterpillar may offer investors attractive upside on the back of its reshoring efforts.

Apple (AAPL), infamous for its relationship with Chinese manufacturer Foxconn, has pledged to bring some manufacturing back onshore as well.

After months of suffering from a declining public image, Apple's re-dedication to U.S. manufacturing could push consumers, investors, and analysts to view the company in a more positive light -- not to mention send shares higher in anticipation of cost savings from the shift.

Harley Davidson (HOG), perhaps one of the most iconic U.S. brands, offers more evidence of how it's becoming attractive to produce here instead of abroad. Though it has always been a "Made in America" stalwart, Harley has learned to operate under a leaner, more efficient workforce. It negotiated with unions, and cut down on job classifications -- a move that allows employees to be more flexible and work across multiple areas of manufacturing. While a leaner workforce may not sound like a job-creating machine, the BCG study believes that overall, the combination of reshoring and building out new manufacturing facilities in the U.S. could create as many as 5 million new jobs here.

The company's stock trades near its 52-week high and has a two-year return of more than 80 percent. Things continue to look favorable for the company as motorcycle sales in Asia are up double digits, and even higher in Latin America.

Not Yet the Return of the King

Remember that the value of U.S. manufactured goods that we sent to China last quarter is still just a fraction of what China's manufacturers exported to us. The nation has a long way to go before we regain the manufacturing leadership we were once known for.

Many of the newly emerging domestic jobs require high-level skills -- skills that our current workforce may not be ready to provide. Also, as it becomes clear that companies are moving jobs back to the U.S., developing nations will try to find ways to lure back the lost offshorers. Another challenge is weakness in foreign economies, which could damage demand for U.S. products and result in layoffs.

On the other hand, for investors, it's far better to buy in on the beginning of a wave than the end, as this is where the opportunity lies. Instead of trying to figure out riskier emerging-market plays, take a look back at some domestic-goods makers.

After a long slide, it appears as if we've turned a corner in the once-great story of American manufacturing. Investors would be wise to look at the players mentioned above, along with other U.S. growth sectors such as oil refineries and distributors. We may be entering a new era of domestic production that could be a boon to the U.S. companies in your portfolio.

Motley Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our newsletter services free for 30 days.

9 Numbers That'll Tell You How the Economy's Really Doing
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Made in the USA, Again: 3 Firms Bringing Jobs Home
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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