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Manufacturing rally? Not so fast

– One of the hottest trend stories in recent years has been the idea that U.S. manufacturing is on the verge of a sustained, permanent comeback.

The logic goes like this: Labor costs in China are rising. Here in the United States, productivity is soaring while energy costs are dropping. So companies will return home. In an Atlantic magazine cover story, Charles Fishman dubbed this “The Insourcing Boom.”

The only problem? This boom hasn’t shown up in the data – at least not yet. Yes, U.S. manufacturing has expanded, adding half a million jobs since 2009 as the sector recovers from the recession. But that appears to be a cyclical bounce-back, not any sort of long-term shift.

At least, that’s economist Jan Hatzius’s conclusion in a new research note for Goldman Sachs.

“Measured productivity growth has been strong, but U.S. export performance – arguably a more reliable indicator of competitiveness – remains middling at best.”

In his note, Hatzius points out that American exports, a good proxy for manufacturing strength, have risen modestly since 2009 in response to a falling U.S. dollar, as one might expect. But that’s about it. “If anything,” he adds, “U.S. export performance has tended to fall short of what one would have expected based on currency movements.”

There’s little to suggest that America’s newfound glut of cheap natural gas has given U.S. manufacturers an edge.

“We have not yet seen a material pickup in output in the parts of the manufacturing sector that should benefit most from low natural gas prices, such as aluminum, steel, plastics, basic chemicals, and fertilizer and other agricultural products,” Hatzius writes.