Sunrise at US Factories? Strategy for New Economy: Bring Production Onshore

Monday, March 15, 2010

The saying “You can’t go home again” doesn’t apply to US corporations. Caterpillar’s latest announcement is that it is bringing some major equipment production back to the US. What on earth is going on here? And what does it mean to the US economy – and to investors? Well, this is upbeat news and gives us good insights into where this “new economy” of ours is heading.

The Wall Street Journal describes Caterpillar’s new strategy in “Caterpillar Joins ‘Onshoring’ Trend” (March 12; page B-1).   So, why would a major manufacturer want to return production to the US? After all, haven’t we learned that offshore production the heart of globalization? Here is the article’s explanation:

The trend, known as onshoring or reshoring, is gaining momentum as a weak U.S. dollar makes it costlier to import products from overseas. Manufacturers are also counting on White House jobs incentives, as well as their ability to negotiate lower prices from U.S. suppliers who were hurt by the downturn and willing to bargain.

After a decade of rapid globalization, economists say companies are seeing disadvantages of offshore production, including shipping costs, complicated logistics, and quality issues. Political unrest and theft of intellectual property pose additional risks.

Pretty powerful stuff – just the thing to create a new secular trend. And what does this mean for our supposed jobless recovery, with perpetual manufacturing layoffs? Hmmm. Looks like company management once again foils those grand, dark forecasts, seeing opportunity where others see despair.

Caterpillar’s latest strategic move continues the company’s setting itself up to ride the next economic wave. And they are in the right places: global infrastructure development, industrial expansion and renewal, mining exploration and extraction, and that currently moribund sector: construction.

Beyond Caterpillar, this news about onshoring/reshoring highlights, yet again, corporate America’s acting in anticipation of a coming inflationary environment. No matter what the Federal Reserve says about tame inflation, the large money issuance by the Fed and the Treasury is building a much higher plateau for money creation when the next economic growth heats up and banks start lending again. The quantity of money and the rapidity of its creation will produce the inflationary pressure. Corporations, unlike the Fed, are not waiting until the handwriting is on the wall.

So, for this coming new economy, search out companies that are taking steps now to position themselves for the future – like Caterpillar.

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Previous articles describing Caterpillar and corporate activities:

To Pick a Stock in Today’s Market, Think Spring and Levers (2/11/10)

Apple and iPad? Cool. Caterpillar and Bullwhip? Exciting! (1/28/10)

Message from Companies: Growth with Inflation Is Coming (12/4/09)

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