Monday, August 25, 2014

Why the 'Made in China' model is weakening

Why the 'Made in China' model is weakening

Why the 'Made in China' model is weakening
Workers in a clothing factory in Bozhou, Anhui province, China.
AFP | Getty Images
 Workers in a clothing factory in Bozhou, Anhui province, China. 
China—a low-cost maker of goods—is falling behind in the global manufacturing race as rising wages and energy costs put pressure on the Asian country, synonymous with making super cheap stuff.
 
China is among several economies whose manufacturing price advantage over the U.S. is eroding, according to new data released Tuesday from The Boston Consulting Group. Other countries that are becoming less cost competitive include Brazil, Russia, the Czech Republic and Poland.
On the flip side, moderate wage growth and lower energy prices are making the U.S. and Mexico more desirable manufacturing destinations. The upshot? More U.S. businesses are likely to produce goods closer to home in the coming years.

"This means companies will start to move manufacturing out of those expensive countries if they can, to cheaper countries like the U.S.," said Hal Sirkin, a senior partner at The Boston Consulting Group.
Recent U.S. government data show similar gains. Industrial production increased 0.4 percent in July for its sixth-consecutive monthly gain, the Federal Reserve reported last week. Manufacturing output advanced 1 percent in July, its largest increase since February.


"It used to be a simple rule: Manufacturing is cheaper in Asia and South America," Sirkin said. "But it's fundamentally changed."

Less 'Made in China'

While thousands of U.S. manufacturing jobs that were lost to overseas production won't be recovered overnight, the landscape is changing. And the manufacturing shifts are especially dramatic in China.
Wages in the most populous nation are soaring. By comparison, Mexican manufacturing labor in 2000 was roughly twice as expensive as in China. But since 2004, Chinese wages have grown nearly five fold, and Mexican wages have risen by only 67 percent—less than 50 percent in dollar terms.
Higher energy costs also are dampening China's manufacturing prowess. The cost of industrial electricity rose by about 66 percent in China and 132 percent in Russia. The cost of natural gas soared by about 138 percent in China and 202 percent in Russia from 2004 to 2014, according to Boston Consulting research.
 
While Russia is a key exporter of natural gas, higher production of U.S. shale gas has pushed U.S. energy prices down sharply. Russia, meanwhile, still relies on conventional natural gas, which has become more expensive.
 
According to Boston Consulting's global manufacturing cost-competitive index—with the U.S. pegged at 100—China came in at 96 this year. In other words, it's 4 percent more expensive to manufacture in America versus China. China's reading used to be lower in the 80s, which means the cost of making goods in the U.S. compared to China has since narrowed.
"We see China as getting much more expensive," said Sirkin, co-author of several reports on the shifting economics of global manufacturing.

The case for American manufacturing

If manufacturing in China is getting dicier, the prospects for the U.S. and Mexico are improving. And cheaper energy prices are a key reason why.
 
Natural gas prices have fallen by 25 to 35 percent since 2004 in North America due to large-scale production of shale. Hydraulic fracturing, or fracking, forces natural gas and crude oil out of shale buried deep below the earth by using highly pressurized and treated water.
U.S. wage growth also has been slow. The current hourly, federal minimum wage is $7.25. Efforts to raise the federal minimum to $10.10 an hour, if passed, would affect the service industry.

Most manufacturing jobs, though, already are in the range of $10 to $15 an hour and would not be impacted by a federal wage change.

Brillo: 'Made in the USA'


Source: Armaly Brands
But as any business owner will explain, wages and energy costs aren't the only factors.
Logistics and the overall ease of doing business can influence potential manufacturing locations. For example, Armaly Brands' Brillo steel wool soap pad has never outsourced production or its labor overseas, and Brillo products are made in Michigan and Ohio. Armaly Brands employs about 125 people at two manufacturing plants, with plans for a third location in Michigan.
While manufacturing costs may have been cheaper in Asia in prior years, duplicating the company's synthetic sponge technology overseas would have been difficult. Keeping manufacturing local also makes inventory management easier and provides flexibility, said John Armaly, chief executive officer of Armaly Brands, based in Walled Lake, Michigan.
And domestic production means better quality control. "The quality of some of the products made overseas is not the same as we produce in the states," Armaly said.

Tipping-point industries

As businesses continue to recalculate the costs of manufacturing in China, some industries are forecast to reach a tipping point in around five years and begin shifting manufacturing to the U.S., according to a Boston Consulting report released in 2012.
Those sectors include computers and electronics; appliances and electrical equipment; furniture; and transportation goods such as truck components and bicycles. These industries have relatively low labor cost components and high transportation related costs so they likely would return to the U.S. first.
By CNBC's Heesun Wee.

Friday, August 22, 2014

Oh, Just a very short list of taxes....

Overall, we are now being taxed at a higher rate than when we threw tea into the harbor, with no end of increases in sight. Now include the understanding of the demographics of our nation, and that light at the end of the tunnel is not a ray of sunshine, but a train coming our way and we’re on the tracks.
  • FEDERAL INCOME TAX
  • SOCIAL SECURITY TAX
  • STATE TAX
  • CITY TAX
  • COUNTY TAX
  • PROPERTY TAX
  • PERSONAL PROPERTY TAX
  • SCHOOL TAX
  • LONG CAPITAL GAINS TAX
  • SHORT CAPITAL GAINS TAX
  • SALES TAX
  • ESTATE TAX
  • GASOLINE TAX
  • WATER TAX
  • SEWER TAX
  • TAX ON ENERGY – GAS, ELECTRIC, HEATING OIL
  • BUSINESS TAX
  • AIRPORT TAX
  • TELEPHONE TAX
  • LICENSE PLATE TAX
  • HOTEL TAX
  • CABLE TV TAX
  • USER TAXES
  • UNEMPLOYMENT TAX
  • WORKERS COMP. TAX
  • 100’S OF REGULATORY FEES
  • CIGARETTE TAX
  • CORPORATE INCOME TAX
  • INHERITANCE TAX
  • ACCOUNTS RECEIVABLE TAX
  • INVENTORY TAX
  • MARRIAGE LICENSE TAX
  • LIQUOR TAX
  • BUILDING PERMIT TAX
  • MEDICARE TAX
  • FISHING LICENSE TAX
  • REAL ESTATE TAX
  • FOOD LICENSE TAX
  • FUEL PERMIT TAX
  • HUNTING LICENSE TAX
  • ROAD USAGE TAX (TRUCKERS)
  • LUXURY TAX
  • RECREATIONAL VEHICLE TAX
  • UTILITY TAX
  • SEPTIC PERMIT TAX
  • WELL PERMIT TAX
  • ROAD TOLL BOOTH TAX
  • VEHICLE SALES TAX WORKERS COMPENSATION TAX
  • TRAILER REGISTRATION TAX
  • WATERCRAFT REGISTRATION TAX
  • LONG TERM CAPITAL GAINS TAX
  • SHORT TERM CAPITAL GAINS TAX
  • TELEPHONE FEDERAL EXCISE TAX
  • TELEPHONE STATE AND LOCAL TAX
  • TELEPHONE USAGE CHARGE TAX
  • TELEPHONE FEDERAL UNIVERSAL SERVICE FEE TAX
 ©2012 Wealth & Wisdom Institute.

Monday, August 18, 2014

Three lessons to teach your kids about money


The shopping spree may start months, weeks or maybe the day before the school year begins.
Buying a dozen pencils and a few Trapper Keepers won't cut it for today's students. The back-to-school buying binge may include trendy new clothes, shoes, sneakers, in addition to hefty expenses for extracurricular activities.

For older kids, a new laptop, tablet or mobile phone may now be essential. It all adds up fast! According to a recent survey by RetailMeNot and The Omnibus Company, parents spend nearly $660 a year on school-related costs for their family.



But spending on your kids can offer some practical lessons that you can use to teach about money.
Only 17 states require students to take a personal finance course before they graduate from high school, according to the Council for Economic Education. The responsibility of teaching kids how to manage, grow and protect their money often falls on parents.
No matter how old your child is, here are three key lessons that you should teach them as they head back to school.


Wait before you buy 


Stress to your kids the value of delayed gratification. My daughter was six when she first started saving regularly in her piggy bank, but even a preschooler can learn to wait until they've saved enough money—in a special "savings" jar or piggy bank—to buy a toy or treat they want.
Also show them how much they could save if they wait until an item goes on sale. You might explain to your child that you only have money to buy essential classroom supplies right now, but by December you'll have enough money to buy him a new laptop after the holidays when they are on sale.

Compare prices before you buy

Jamie Grill | Blend Images | Getty Images
 
Shopping around before you buy is a great way to get the best deal and save money. I'm always comparison shopping—whether it's for groceries or a new refrigerator—and I often bring my kids along on the trip or show them the items that I am thinking of buying online. And it's rubbed off.
Every Christmas, my son and daughter leave a "Wish List" of gifts they'd like from Santa in their stocking at the fireplace. Last year, my son added some extra information about the items on his "Wish List" for Christmas. He included the best price he found online for the tablet, videogames and sneakers and the name of the retailer.

I also showed my 12-year-old son, who loves basketball, how to look on coupon websites to find discounts and deals at retailers for his favorite sneakers or sports gear.


Now, he always tells me how much I'm "saving" if I buy him a discounted pair of shoes or clothing he's selected.

Remember a credit card is like a loan
 
Get out of the habit of pulling out plastic for every purchase. Using cash and figuring out the change is a terrific math lesson for younger kids. Explain to them using a credit card is like taking out a loan to make that purchase, and you need to borrow wisely. You need to make sure you can afford that new pair of jeans or iPhone before you buy it.
Let them know that credit cards can wreck finances. Rates on some store credit cards can top 20 percent, raising the price of that purchase significantly if you don't pay off the entire balance on time.
For your high school student who may want their own credit card, start them off with a debit or prepaid card that you can monitor first. Once you co-sign for them to get a real credit card, remember that if your kid doesn't pay the bill, it will hurt your credit score too.

—By CNBC's Sharon Epperson