There has been much said about the loss of American manufacturing jobs over the last two decades and the far reaching negative effects on the middle class household and the greater American economy. For many years, globalization of manufacturing has left America importing more goods. American consumers have enjoyed lower costs for many of their purchased items at the expense of costing millions of manufacturing jobs.

Today there are significant signs that this trend is beginning to reverse. It is likely attributed to four factors:

America’s boom in natural gas, and the resulting much lower cost of this form of energy, has benefited American manufacturers in many ways from lower heating costs for factories to gas powered fleets of delivery vehicles. These are significant components to the cost of manufactured goods that have seen cost reductions in the last decade.
The wage gap between US and foreign labor costs has narrowed significantly. In 2002, the average wage in China was 60 cents per hour. Today, the average wage is $4.07 and still increasing from 15% to 20% per year.
New automation technology has allowed US manufacturers to produce many more items with much less menial assembly line labor. This has allowed them to trade ocean freight costs and foreign labor costs for technology investment.
To globalize and have American businesses purchase manufactured goods overseas exposes that business to currency risk, foreign political risk, and many other risks in a supply chain that spans the world versus the control of manufacturing the same products at home.

What does all this have to do with your investment portfolio? Should you care if you don’t work in or have family in American manufacturing?

Manufacturing is 12.5% of the American economy and has been declining for decades (it was 16% of GDP in 1994). For the US economy and businesses to prosper long term, having a significant domestic manufacturing sector is crucial economically and for national security. It is also the sector with the largest GDP multiplier, per the National Association of Manufacturers, a multiplier of 1.32 times. That means that for every dollar of output, other sectors benefit by an additional 32% in spillover effects. There are 17.4 million Americans working in manufacturing. The industry is becoming much more technological and therefore offering higher skilled and wage jobs.

In order for the value of our investments in US stocks and bonds to continue to grow, America needs a solid, albeit new, tech manufacturing sector. It appears that after 20 years of losses, we are finally seeing a resurgence.