WCA September 2014

From the Americas

 Mr Cave summed up on a cautionary note: “After all, as the rise of China showed once before, there is no guarantee that Mexican and American manufacturing will stay attractive for long.”

– reaching a high of about 14 per cent – while China’s share has declined. In addition to the US companies cutting back in China and heading to Mexico, Mr Cave noted, many manufacturers – including well-known names like Caterpillar, Chrysler, and Stanley Black & Decker – are expanding there. With their billions of investment dollars they are helping to drive the economic integration that US President Barack Obama and Mexican President Enrique Peña Nieto have both said is vital to growth.

The US economy

‘Ticking along at a good clip’ at midyear – but with plenty of room for improvement According to Bloomberg BusinessWeek economics editor Peter Coy, nearly seven years after the last recession began the US economy was “ticking along at a good clip” at the midpoint of 2014. If proof were needed, the ADP Research Institute reported that private employers added 281,000 jobs in June, exceeding the most optimistic forecast of economists surveyed by Bloomberg . (“Jobs Growth Adds More Sunshine to US Economic Performance,” 2 nd July) The Bureau of Labor Statistics had recently provided additional encouragement. May of this year was the first month which saw employment in the US climb above where it was when the recession began in December 2007. June results would extend the trend. “The labour market appears to be firing on all cylinders and is finally self-sustaining,” wrote two PNC Financial Services economists in a note to clients. No one would argue that all is well. Long-term unemployment remains high and many new jobs pay below-average wages. Productivity growth is weak, furnishing one reason for the strong job figures: companies need to hire more labour to get the job done. And consumer spending adjusted for inflation fell in both April and May. “The economy is not growing quickly enough to use up the excess capacity that has accumulated since the crises began several years ago,” Steven Ricchiuto, chief economist of Mizuho Securities USA, told Bloomberg .  Still, Mr Coy noted, the US economy was certainly looking stronger than one might have supposed from the 25 th June government report that GDP (gross domestic product) fell at an annual rate of 2.9 per cent in the first three months of 2014. A week later, economists were estimating that the economy in fact grew at a three per cent annual rate in the quarter — a remarkable reversal. In other good news on 2 nd July, capital goods shipments came in above expectations. And the research firm Autodata reported that May had been the best month in US light-vehicle sales since July 2006. Even General Motors, whose reputation has been badly damaged by record recalls, experienced a sales rise.

❍ Mexican president Enrique Peña Nieto

❍ United States president Barack Obama

While in some cases a move to Mexico is associated with job losses in the United States, economists consulted by the Times said that the American economy benefits more from outsourcing manufacturing to Mexico than to China. According to the National Bureau of Economic Research, a private research group, roughly 40 per cent of the parts found in Mexican imports came originally from the United States, compared with only four per cent for Chinese imports. Such comparisons appear to have blunted some of the scorn that greeted American companies moving production to Mexico in the 1990s, observed Mr Cave. Even so, it would be a mistake to believe that nothing is lost in the shift of a manufacturing base. Scott Stanley, a senior vice president at North American Production Sharing, one of the largest firms to help American companies set up production facilities in Mexico, told the Times : “There are a lot of examples of clients who were in Mexico, went to China and now want to come back, and most of them have given up their expertise in manufacturing.”  To draw more US companies to Mexico now – executives, officials and experts say – the adjoining nations will need to become better neighbours, more focused on sharing labour and moving product. Mr Wilson at the Mexico Institute called particularly for “globally literate workforces in both countries.” At a very basic level, he told the Times , that means teaching more Spanish in the US and more English in Mexico. Other, more immediate, improvements he considers necessary include shorter wait times at border crossings and, in Mexico, better roads and lower-cost electricity.

Dorothy Fabian Features Editor

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Wire & Cable ASIA – September/October 2014

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