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An American Comeback Story

Written By Briton Ryle

Posted June 26, 2013

In late 1951, Appliance Park Building 1 started rolling GE-brand washing machines and dryers off its assembly line.

Just a few years later, 16,000 union workers in six massive factory buildings were churning out 60,000 GE ranges, refrigerators, and dishwashers a week.

A massive 10-acre building, Appliance Park Building 1, or AP1, was the first factory to come online at General Electric’s (NYSE: GE) state-of the-art Appliance Park near Louisville, Kentucky. At 1,000 total acres, Appliance Park had its own zip code: 40225. It had its own fire department and power plant. Appliance Park also employed the first computer to ever be used in a factory.

By 1973, 23,000 people worked at this mecca of American manufacturing.

But just ten years later, the golden age for U.S. factories was over. In 1984, Appliance Park employed fewer workers than it did in 1955.

American manufacturing went from boom to bust in just 30 years.

When GE was getting crushed by the financial crisis in 2008, CEO Jeffrey Immelt tried to sell Appliance Park, along with GE’s entire appliance business…

But Immelt couldn’t find a buyer. Good thing, too — because that sale might have gone down as one of the biggest blunders in GE’s history.

The New Age of American Manufacturing

The challenge to American factories has been plain to see. In 2000, the average Chinese worker made $0.52 cents an hour, the equivalent of 20 or 30 Appliance Park employees. That was pretty attractive to the corporate bottom line.

And let’s not overlook the cost-conscious American consumer, who might complain about how “Made in China” costs American jobs, but still want to buy $30 running shoes at Marshall’s. (Now, I’ll readily admit it’s tough to argue against the benefit of a pair of Levi’s that costs only slightly more than they did when I was in 6th grade…)

The American manufacturing sector lost an estimated six million jobs in the first decade of the new millennium. But Chinese workers are now enjoying an improved standard of living, as wages have risen from $0.52 and hour to $8.50 an hour over the last 10 years. Private sector wages in China rose 11% in 2011 and another 12% in 2012.

Six months ago, John Shook, a manufacturing expert and the CEO of the Lean Enterprise Institute, told the Atlantic:

There was a herd mentality to the offshoring…And there was some bullshit. But it was also the inability to see the total costs—the engineers in the U.S. and factory managers in China who can’t talk to each other; the management hours and money flying to Asia to find out why the quality they wanted wasn’t being delivered. The cost of all that is huge.

That’s not just idle speculation on Mr. Shook’s part…

On February 10, 2012, GE opened the first new assembly line at Appliance Park in 55 years to make water heaters. These new water heaters made at Appliance Park in Louisville, Kentucky, sold for $1,299. The same heater made in China sold for $1,599.

About a month later, another new assembly line opened at Appliance Park to make high-end refrigerators. Still more new lines opened to make washers and dryers and dishwashers.

GE is spending $800 million to modernize Appliance Park.

By the end of 2012, Appliance Park employed around 3,600 hourly employees. It nearly doubled its workforce in 12 months.

This Boom is the Key to It All

GE’s appliance unit does $5 billion revenue.

A little more than half of that $5 billion comes from products that are made in the U.S.A. Next year, GE says that percentage will rise to 75%.

And it’s not just GE…

Whirlpool (NYSE: WHR) is bringing mixer-making back from China to Ohio. Otis will start making elevators in South Carolina instead of Mexico. Even Wham-O Frisbees will now be molded in California.

Caterpillar (NYSE: CAT) and Ford (NYSE: F) are bringing manufacturing back to the States, too.

Even semiconductor manufacturing is growing. In 2013, over $8 billion will be spent on semiconductor equipment to outfit new semi plants or expand existing ones.

Manufacturers contributed $1.87 trillion to the economy in 2012, up from $1.73 trillion in 2011. This was 12% of gross domestic product. It’s going to improve again this year — and next year.

Now, there are several reasons that U.S. manufacturing sector is growing again…

But none is more important than America’s energy resources.

Ten years ago, no one knew how much natural gas was trapped in the shale rock of the Appalachian Mountains. And no one knew there were billions of barrels of oil in North Dakota’s Bakken.

The fact is, in just a few years, the U.S. will produce more oil than Saudi Arabia.

All those billions of dollars that have been traveling overseas will stay at home.

Right now, companies like steel-maker Nucor (NYSE: NUE) and Dow Chemicals (NYSE: DOW) have taken advantage of low natural gas producers and locked in years of supply. And they aren’t the only ones.

America’s energy boom is the key to a new era of prosperity that’s literally right around the corner.

We are perhaps a year or 18 months from seeing economic growth rise above 3% — and stay there.

And people who see this groundswell of growth coming can create a great deal of wealth in the next few years…

Until next time,

Until next time,

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Briton Ryle

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.