Reindustrialization in USA - Euler Hermes

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Euler HermesEconomic Outlook n° 1187 | Special Report | The Reindustrialization of the United StatesChemicals and primary metals industries to benefit mostfrom the low energy costsCould cheap energy increase foreign directinvestments to the U.S.?u The competitive edge provided by a cheapenergy supply and a growing U.S. market (atleast from a demographic point of view) wouldrepresent potent incentives for investmentfrom overseas companies, which may beplagued with lackluster or even contractingdomestic markets and structural impedimentsdarkening their prospects. For example,Japanese companies that are grappling witha declining domestic environment, mountingenergy costs and ongoing appreciation of theYen/USD, could see several reasons whichwould favor the location of new or additionalindustrial capacities in the U.S. These includeproximity to growth driver markets and toraw materials, ease of logistics, and lowercosts of energy and labor. The protractedeconomic doldrums in Europe may alsoprompt local manufacturing players there toconsider increasing their U.S. presence. Thesecompetitive advantages may be emergingeven now. The U.S. has already regainedtraction in foreign direct investment inmanufacturing since the recession (US $100billion in 2011), and is on the path to reach thepre-recession peaks.u The U.S. shale gas supply is a game-changing factorfor American industries all across the board, asmanufacturers may now:• access lower energy prices as many electric powersuppliers have been shifting their coal-fired plantsto gas-fired plants;• switch their energy supply from oil to gas; and• switch their feedstock supply from oil to gas.These developments will help reinforce the ongoingimprovement of the competitive position of U.S.manufacturers, especially in comparison to Europeanand Japanese counterparts. Beyond the strengtheningof operating profitability, the foreseeable outcomeof this growing competitive edge is that U.S.manufacturers will regain ground in global trade,expanding exports and putting downward pressureon imports. The sector which is first in line to takeadvantage of cheaper energy is chemicals, especiallybasic chemicals and fertilizers, since these industrieswill benefit from both cheaper energy and cheaperfeedstock supplies. This competitive advantage islikely to filter to downstream sectors such as agriculture,coatings, manufacturing, paint, and plastics.Considering the size of the trade and the characteristicsof the sector, the primary metals industry couldalso be a significant winner, improving its competitiveadvantage and gaining global market share. Asshown, Table H displays the relevant metrics by sector.In the short/intermediate run, these trends mayalso fuel substantial investments in these sectors tokeep pace with probable production increases. Playersin the chemicals sector have already planned toinvest $16 billion in the next five years. ©H. Top Sectors Benefitting from a Decrease in Energy PricesManufacturing 3%Part of energy Part in U.S. Imports Exportscosts in sector manufacturing energy ($Bn) ($Bn)input cost (%) input costs (%) 2011 2011Nonmetallic mineral products 11% 6% 17.7 10.7Paper products 10% 12% 21.9 25.7Primary metals 8% 16% 103.5 76.5Wood products 5% 2% 11.3 5.9Chemicals 5% 22% 201.8* 197.1*Textile mills and textile product mills 4% 1% 24.4 12.6Plastics and rubber products 3% 3% 40.2 29.1Food/beverage and tobacco products 3% 18% 67.9 66.7Apparel/leather and allied products 3% ~0% 116.4 9.024* $108.7Bn and $149.2Bn excluding pharmaceuticalsSource: Bureau of Economic Analysis – International Trade Administration
Economic Outlook n° 1187 | Special Report | The Reindustrialization of the United StatesEuler HermesFED. DE RUSSIE (Russia)ALASKAFocus on… Texas, the power plantAnchorageCANADA1/2TexasThe second largest state economy in the U.S.CANADAAugustaSeatleMontpellierMAINEOlympiaVERMONTWASHINGTONConcordNORTH DAKOTAProvidencePortlandHelenaDetroit MASSACHUSETTSSalemBismarck MINNESOTAAlbanyMONTANAWISCONSINOREGONBoiseSOUTH DAKOTAMICHIGANNEW YORKRHODE ISLANDSt. PaulCONNECTICUTMadison LansingNew YorkSioux FallsPENNSYLVANIAHartfortIDAHOWYOMINGDetroitIOWAHarrisburgChicagoNEW JERSEYCheyenneNEBRASKAILLINOISColumbus WashingtonCarson CityDes MoinesIndianapolisOHIOWESTPhiladelphiaSalt Lake CitySacramentoLincolnSpringfieldVIRGINIATrentonINDIANASan FranciscoCharlestonTopeka Jefferson CityRichmondVIRGINIANEVADADenverFrankfortUTAHKENTUCKYCALIFORNIACOLORADOKANSASMISSOURIRaleighNashvilleOKLAHOMATENNESSEEARKANSASNORTH CAROLINALos AngelesARIZONALittle RockColumbiaSanta FeOklahoma CityALABAMA AtlantaSOUTH CAROLINAPhoenixNEW MEXICOMISSISSIPPIGEORGIADallas LOUISIANAMontgomeryJacksonTEXASBaton RougeAustinFLORIDA Atlantic OceanPacific OceanHoustonTallahasseeMiamiNew OrleansMEXICOTexas is the second largest state economy in theU.S. after California, comprising 8.8% of U.S. GDPin 2011. The Texas economy has grown faster thanthe rest of the U.S. in nine of the past 12 years asshown below in Figure 23.Texas is also the second largest employer with 8.8%of all U.S. jobs, and through most of 2011 and 2012outperformed the rest of the U.S. in job growth asshown below in Figure 24. In fact, of all the 2.6 millionjobs created between January 2000 and August 2012,1.8 million, or 70%, were created in Texas. Forecastsfor 2013 Texas GDP and job growth are expected tosignificantly outperform the U.S. as a whole. Texascomprises 7.1% of all U.S. manufacturing jobs.One outstanding feature of the Texas economy is thehousing market, which was relatively resilient comparedto the entire U.S. From the period just beforethe housing bubble burst, January 2006 to May 2012,housing prices in Dallas fell only 2.7%, the least of anyof the 20 major cities nationwide measured by theCase-Shiller home price index. The average housingloss for the 20 cities nationwide over that time periodwas a remarkable 31%. Median single-family homeprices in Texas were up 5% in August 2012 comparedto the previous year. Sales of existing single-familyhomes over the same time period were up 17%compared to a nationwide average of 10%. Permitswere up 36% versus 24% nationwide. The strength inthe housing market will provide a boost to the entirestate economy and a robust environment for manufacturersof building materials going forward.• • •23. Real GDP Growth24. Manufacturing Employment6%5%4%3%6%3%0%USTexasUS2%1%0USTexas-3%-6%-1%-9%-2%-3%-12%-4%20000102030405060708091011-15%Aug-01Aug-02Aug-03Aug-04Aug-05Aug-06Aug-07Aug-08Aug-09Aug-10Aug-11Aug-12Source: Bureau of Economic AnalysisSource: Bureau of Labor Statistics25
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