Texas manufacturing costs will soon be on level with China

Emerging trends in the Texas economy are making domestic production increasingly favorable, according to Comerica Chief Economist Robert Dye.

While lower costs of labor have traditionally made China an ideal place for manufacturing, a growing supply of natural gas in Texas is helping to decrease production costs. At the same time, increasing wages in China and expensive shipping costs are acting to make offshore production less favorable, Houston public radio station KUHF news reported.

At the Comerica Bank's quarterly business forum, Dye explained how overall business costs – including the cost of labor, capital, energy and securing a loan – are at competitive levels in many states, but none so much as Texas. Energy-intensive companies, in particular, are taking advantage of lower energy costs in the Lone Star State.

Larger supply of energy
The decreasing cost of domestic manufacturing can be linked to a boom in energy production, Plastic News reported. Especially in Texas, shale gas extraction has boosted the local supply. In turn, an abundance of natural gas reduces reliance on imports, which lowers the overall cost.

In fact, imports of crude oil are projected to soon fall below pre-1970 levels, according to Bill Sanderson, vice president of downstream research and consulting for IHS Chemical. They are expected to stay that low through 2025. Lower imports means reduced oil costs over the next few decades, which can help explain Texas' manufacturing advantage.

But energy costs are not the only reason companies are favoring domestic operations. In an MIT study, companies cited a host of issues with overseas production including poor quality control, language and cultural barriers and problems with intellectual property protection. Faster communication is good for companies that frequently change orders and subsequently must change production procedures. Close proximity to clients is beneficial for companies who make heavy products that incur large shipping costs.

The growing benefits of domestic manufacturing could mean a surge of operations brought back the U.S., or more specifically, brought back to Texas. While firms will enjoy lower business costs, they could experience challenges staffing local plants. Despite the country's vast history of manufacturing innovation, the U.S. is experiencing a shortage of skilled workers. The current educated workforce of the manufacturing industry is composed largely of baby boomers who will be retiring in the next decade.

Many firms will likely turn to manufacturing recruiters to get new facilities in operation. Recruiters offer access to a pool of educated, industry-specific workers. Although conditions may be increasingly favorable for a surge in U.S. manufacturing, without the talent base, companies will have trouble getting off the ground.