Reindustrialization in USA - Euler Hermes

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Euler HermesEconomic Outlook n° 1187 | Special Report | The Reindustrialization of the United StatesFocus on… The Southern Drawu The Southern U.S. enjoys significantcompensation, productivity and unit labor costadvantages compared to the rest of the country.These advantages caused an influx of foreign automakersand are expected to continue. Additionally,exports are providing a boost to southern state economieswhile the expansion of the Panama Canal in2014 is likely to contribute to economic activity inthe region.The South has outperformed the U.S. in terms ofGDP growth in ten of the past twelve years (Figure16). And while the U.S., as a whole, had two negativeyears of growth in 2008 and 2009, the moreresilient South actually grew in 2008. More recently,the South grew more than twice as fast as the U.S. in2011, and expectations are that this outperformancewill continue.u Total compensation, which includes wages andbenefits, are lowest in the South as shown in Figure17 below.Total employment in the South has more than doubledover the past 50 years with an average growthrate 35% higher than the U.S. as a whole. Much ofthis job growth relative to the rest of the country canbe attributed to the South’s lower labor costs, whichin turn are due to its slower transition from an agriculturaleconomy and to the lesser role of organizedlabor.16. Real GDP Growthu Productivity and unit labor cost statistics arenot available by state or region, but proxies can beestimated using other data.The result of our analysis (see Table E) shows thatfour of the top six states in terms of productivity areSouthern: Louisiana, Texas, North Carolina and NewMexico. When it comes to unit labor costs, five of thetop eight are Southern.u The auto industryOne sector that has benefitted from this reindustrializationwave is the auto industry, as summarizedin Table F. It is noteworthy that the list is comprisedonly of foreign automakers and none of the U.S.“Big Three” of Chrysler, Ford, and General Motors.Expansion of the Big Three into the South has beenhampered by labor unions which have vehementlyopposed moving production to “right-to-work*”states in the South. By contrast, foreign automakershave taken advantage of this situation and movedproduction to the U.S. South where they could avoidelevated union wages and high legacy costs. Theirlower costs, in turn, make the total cost of manufacturingcars in the South lower than manufacturingoverseas and shipping to the U.S. In addition to theBig Three, the U.S. auto industry now has a secondconcentration in the seven Southern states of Alabama,Georgia, Kentucky, Mississippi, South Carolina,17. Employer CostsContinued page 20• • •6%5%4%3530$20.25$20.25$30.03$27.923%2%1%2520$8.53$10.17$8.76$8.51$26.16$7.54BenefitsWages and salaries0%-1%-2%1510$20.25 $22.81 $21.16 $19.42 $18.7118-3%U.S.South-4%2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Note: The South includes Alabama, Arizona, Arkansas, Florida, Georgia,Kentucky, Louisiana, Mississippi, New Mexico, North Carolina, Oklahoma,South Carolina, Tennessee, Texas, Virginia, and West Virginia.Source: Bureau of Economic Analysis50United StatesNortheastWestMidwestSouthNote: The sum of individual items may not equal totals due to rounding.Source : Bureau of Labor Statistics
Economic Outlook n° 1187 | Special Report | The Reindustrialization of the United StatesEuler HermesANADAThe Southern Draw…Pacific OceanSeatleOlympiaWASHINGTONPortlandSalemOREGONSacramentoSan FranciscoNEVADACALIFORNIACarson CityLos AngelesBoiseIDAHOARIZONAPhoenixUTAHHelenaSalt Lake CityMONTANAWYOMINGTop 10 States CANADA in AmericaCheyenneDenverCOLORADOSanta FeNEW MEXICOMEXICONORTH DAKOTAAustinHoustonMontpellierVERMONTProvidenceAugustaBismarck MINNESOTAAlbanyWISCONSINSOUTH DAKOTAMICHIGANNEW YORKSt. PaulMadison LansingNew YorkSioux FallsPENNSYLVANIADetroitIOWAHarrisburgChicagoNEBRASKAILLINOISColumbus WashingtonDes MoinesIndianapolisOHIOWESTLincolnSpringfieldVIRGINIAINDIANACharlestonTopeka Jefferson CityRichmondFrankfortKANSASMISSOURIKENTUCKYNashvilleRaleighOKLAHOMA ARKANSASTENNESSEELittle RockColumbiaOklahoma CityALABAMA AtlantaMISSISSIPPIGEORGIATEXASDallas LOUISIANAJacksonMontgomeryBaton RougeNew OrleansTallahasseeFLORIDAMAINEConcordDetroitRHODE ISLANDCONNECTICUTHartfortNEW JERSEYPhiladelphiaTrentonVIRGINIANORTH CAROLINASOUTH CAROLINAMiamiAtlantic OceanMASSACHUSETTSE. Top 10 StatesGSP Rank GSP Rank Combined/Employee Hour /Compensation Rank2011 2010Louisiana 209.3 1 5.0 1 1Oregon 163.4 2 4.1 2 2Wyoming 139.5 3 3.3 3 3North Carolina 93.0 5 2.8 5 5Texas 102.3 4 2.6 7 6Alaska 83.9 8 2.8 4 6New Mexico 92.7 6 2.7 6 6Delaware 82.2 10 2.3 9 10Virginia 81.2 11 2.4 8 10Source: Euler HermesMethodological Note:A proxy for productivity by state can be calculated as follows:• Gross State Product (GSP) in the manufacturing sector is known and canbe divided into 52 weeks;• then the number of employees and the average number of weekly hourscan be multiplied to determine the total number of “employee-hours/week”;• when this number is divided into GSP/week, the result is GSP/employee-hour.Conceptually, this is the dollar amount of output created by oneworker in one hour. A proxy for Unit Labor Costs can be derived madesimply by dividing GSP by total compensation (wages and benefits), effectivelyshowing how many dollars of GSP are created by each dollar of totalcompensation. The combined ranking is the simple average of the productivityand cost ranks.F. Auto Plants in the SoutheastOpened Company Location Employees Annual production capacity1983 Nissan Smyrna, Tenn. 6,000 550,0001986 Toyota Georgetown, KY 7,000 n/a1994 BMW Greer, South Carolina n/a n/a1997 Nissan Decherd, Tenn. 1,250 n/a1997 Mercedes-Benz Vance, Ala. 2,800 174,0002001 Toyota Huntsville, Ala. 768 n/a2001 Honda Lincoln, Ala. 4,000 300,0002003 Nissan Canton, Miss. 4,500 400,0002005 Hyundai Montgomery, Ala. 2,500 300,0002010 Kia West Point, Ga. 3,000 300,000b2011 Volkswagen Chattanooga, Tenn. 2,000c 150,000Fall 2011* Toyota Blue Springs, Miss. 2,000 150,000Notes: *projected to be 360,000 in 2012; projected to be 2,300 by fall 2011; projected opening dateSource: Individual companies, Congressional Research Service, Chambers of Commerce*A right-to-work state is one where employees are not required tojoin a union if one is in place, with the general effect of keeping totalcompensation lower than that in states where union labor dominates19
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