Midwest Factories to Rise Again As the Dollar Tumbles

A funny thing is happening as the dollar continues to weaken. Suddenly, there are more jobs in America.

What do I mean?

If you’ve been watching the all-important factory productivity numbers (as I’m sure you have been), you have seen that the numbers have been mysteriously increasing.

But I thought we’ve been shipping all of our manufacturing work overseas for years? Well, we have.

Now that the dollar is weak, however, it suddenly is becoming really expensive to actually import certain goods or items into the United States. For instance, where a bottling manufacturer might have actually imported the bottles from, say, Poland, it now makes more financial sense to make those same bottles in the United States. That’s how much the currency exchange is hurting the bottom line. So many companies are firing up the old shuttered factory and hiring back some workers.

But it goes both ways. European companies are now finding it prohibitive to build on their own shores and export their goods into the United States. In fact, they simply can’t make any money. What some of them are now doing is moving production to the United States. Rolls Royce recently announced it was closing down a factory in Liverpool that employed 220 workers and moving it to Ohio. The British workers are protesting the move. From the Liverpool Daily Post:

Rolls Royce blames the exchange rate and over-capacity for its decision, which will see production move from Liverpool to Ohio.

A spokesman said: “The facility has exchange rate issues. Liverpool operates in UK sterling while most of its business is transacted in dollars.”

As with Airbus, Rolls Royce suffers financially every time the dollar falls against the pound.

“Currently we estimate that a one cent move equates to a £12m impact on our profit,” said Mr Brodie.

To mitigate against currency fluctuations the group uses currency futures, which allow it to fix its exchange rate in advance. In the first half of 2007, the company achieved a futures rate of $1.78, though the company says the rate is sure to deteriorate as the contracts expire and are replaced by more expensive rates.

But in what could be an ominous sign for employees of British exporters to the US, Rolls says it also plans to increasingly “dollarise” its business by moving production either to the US or to countries whose currencies have more favourable exchange rates with the dollar.

The Manufacturing Midwest Has the Most to Gain from the Falling Dollar

The economic outlook doesn’t seem so dire right now in the Midwest. Agriculture is booming. The farmers are making out with grain, soybean and wheat prices at record highs. The big machine and manufacturing companies like Caterpillar and John Deere are seeing big profits as emerging market countries continue to build infrastructure.

It seems that some of the factories are rising again from the ashes. Mittal Steel has come into the Illinois/Indiana steel belt and re-opened big steel factories that were shuttered years ago in response to demand from Russia and Asia. Gary, Indiana still has the infrastruture (and the trained workers.)

European companies are also searching for Midwest factories now. From the Wall Street Journal:

Robert Johnson, chief executive of Craftsman Tools Ltd., a machine-tool equipment maker based outside Leeds, England, is scouring the U.S. Midwest to buy a new factory.

Last year , German tire maker and auto-parts supplier Continental AG expanded its Mount Vernon,Ill., tire factory, spurred by the weakening dollar.

Good for the Midwest, for sure. But in the long run it also promotes inflation (for Americans, it will still be more expensive for us to make these goods.)

It’s all an unintended consequence of the weak dollar. Got an old factory site for sale? It’s time to cash in.