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BBA Economic Digest: A More Localized Approach

A More Localized Approach

More reshoring is likely, but it won't come cheap, according to a new report from Bank of America. Foreign firms looking to move their manufacturing processes outside of China in the wake of coronavirus could face $1 trillion in costs over five years. Economic developers take note: Even before the pandemic, BofA’s survey of global analysts found that companies were shifting away from globalization and towards a more localized approach when it came to their supply chains. BofA Head of Global Research Candace Browning said Covid-19 has catalyzed the reversal of a decades-long shift in manufacturing from the U.S. and Europe to China. “While Covid has acted as a catalyst to accelerate this change, the underlying reasons are grounded in a shift to ‘stakeholder capitalism,’ concluding relocation favors a broader community of shareholders, consumers, employees and the state,” Browning said. The analysts observed that portions of supply chains should relocate ideally within national borders, but failing that to countries deemed “allies.”

"I do believe in the long run, companies will gravitate to a regional production strategy so that they will produce products to sell in a region like Asia, North America, Europe, Africa if their product volume and flexible, low cost, manufacturing processes can be found," said BBA Senior Consultant Tim Feemster.

"Restructuring the supply chains for the raw materials will be required as well so it is not just the finished goods production that must shift. That is why it will take some time for this to unfold."

BofA's survey found that 67 percent of participants thought localization or re-shoring of supply chains would be the most dominant structural shift in the post-Covid world.

Wouldn't You Know It

After posting a version of the story above on LinkedIn about the costs to relocating supply chains, I got a lot of comments including this one: "Pozytywne skutki koronawirusowej pandemii: „produkcja wraca na stare śmieci”. W końcu przyszło otrzeźwienie w pogoni za obniżaniem (w wielu przypadkach, bez względu na ryzyko z tym związane, co obnażył bezwzględnie koronawirusowy kryzys) kosztów produkcji i lokowaniem jej tysiące kilometrów od rynków zbytu." Wouldn't you know that it came from a consultant.

More Pain Ahead

While there has been some better news -- the total number of Americans claiming ongoing unemployment fell to a still-breathtaking 14.8 million, there is more pain in the U.S. economy than what is reflected in the stock market’s robust recovery from coronavirus-era lows.

“I’m thinking, wait a second, don’t get too optimistic. I think it’s our nature to be optimistic,” CNBC's Jim Cramer said on “Squawk on the Street.” “We like the fact that the market is going higher because our viewers own stocks. But right now we seem gassed.” Cramer’s comments follow initial jobless claims for last week checking in at 1.106 million, higher than economists had expected. It marked an increase from the prior week’s total of 971,000, which was the first time in 21 weeks that initial claims were under 1 million. “Are these numbers worrisome? Well yes, if you don’t get a stimulus package — and yes, if you don’t get a vaccine,” Cramer said on “Squawk Box.” “I think be prepared for more of these numbers.”

America's stock market has swiftly recovered from the pandemic. Professional investors don't think the real economy will follow the same route. Just 17 percent of them expect a sharp V-shaped economic recovery, according to a Bank of America survey released this week. Far more — 31 percent — anticipate a gradual U-shaped recovery. Worse, 37 percent of fund managers expect a double-dip recession in which the economy tumbles again after an initial recovery phase. Wall Street may have catapulted back to record highs at a rapid clip, but there's no guarantee Main Street is on a similar course.

Thinking About Living Abroad?

My intention is to work until I drop, or at least until I can no longer offer any ideas of substance. (Some of you may think that day has already come.) But the idea of retiring is not something I think about.

That said, I've been to three countries that I find intriguing if I were to work and live abroad and slow down a tad. They are Panama, Costa Rica, and Portugal.

I can essentially publish this newsletter from anywhere so long as that place has robust broadband. That's also important because I am frequently interviewing community stakeholders for SWOT analayses via Zoom.

Note that I am not thinking of leaving anytime soon if ever. Living and working abroad is just an option that I may or may not explore. Not sure.

I'm not alone in the regard. From May to early August, International Living, a website about living and retiring overseas, says its “How to Move Out of the U.S.” information page has seen an increase in traffic of 945 percent from the same period last year.

There are places that are “friendly, safe, welcoming locales where it’s pretty easy to settle in as an expat,” writes Jennifer Stevens, executive editor for International Living.

Almost any country you would want to live in welcomes American retirees, as long as they can prove a source of income. That could be Social Security, a pension or investment income. Countries with a higher cost of living usually require a higher income.

Generally, there’s a three-stage process, from tourist to resident to citizen, and the wait times differ by country. Check out the website of each nation’s U.S. consulate for facts on residency and citizenship requirements.

Living abroad is very different from being a tourist. Try to stay in neighborhoods and areas you are considering to see what it's like to live like a local. And visit in more than one season. Best to rent before buying.

Unless you renounce your U.S. citizenship, thereby giving up Social Security, you will be subject to the same income tax requirements as if you lived back home. You will still have to file an income tax return with the IRS.

Talent and Rooftops and Jobs, Oh My

As far as I know -- which is often not much -- the jury is still out on whether paying certain people bounties or stipends to move to communities achieves economic results or not. The idea of buying talent is an interesting one. Lure enough people to your community and they will eventually change or influence its economic landscape. It's is being tried in a number of places including Tulsa, Okla.; Wichita, Kan., Savannah, Georgia and the entire state of Vermont. Their programs vary somewhat but the bottom line is to bring talented people, typically those with tech skills, who somehow, someway will begat a better local economy. Again, I don't know if this is working or not. The old saying, time will tell, probably pertains here. I bring this up because yesterday I was speaking to a small-town administrator in the Midwest who is considering employing a stipend-paying talent attraction program on the belief that it will be good for business attraction. Here's his problem: Lack of housing. He doesn't have the single family homes or the apartments for people even if they wanted to come to his community. It's a problem all too common in rural America. Which leads me to what I think is a truism -- rooftops follow jobs and jobs follow rooftops.

Corporate Purpose at a Crossroad

When Joe Biden rolled out his economic plan last month, he said the old idea that corporations only exist to deliver profits to shareholders and nothing else is “an absolute farce.”

Companies also have a responsibility to their workers, the communities where they operate and the country as a whole. It’s a signal that the debate over “corporate purpose” is headed toward a crossroads this November.

Writing for Fast Company magazine, Evergreen Strategy Group cofounders Nick Merrill and Dan Schwerin warned CEOs that “the bar for corporate conscience could soon get a whole lot higher.”

“If Biden wins, expectations for what it takes to be a values-driven company will increase and business leaders will have to step it up,” they wrote. “A glossy ad campaign or generous philanthropic commitment won’t be enough. Getting your own house in order—which many companies still fail to do—will be necessary, but not sufficient. Without the foil of President Trump and his antics, CEOs will have to back specific policy proposals, build coalitions, and put real political muscle behind their principles.”

A Nice Win for Georgia

South Korean mattress maker Zinus inc. will invest $108 million and create 840 jobs at a new plant in McDonough, Georgia. It will be the company's first manufacturing plant in North America. Zinus has operations in 20 countries worldwide. Congratulations to F.J. Fenn, executive director of the Henry County Development Authority, and his staff for a job well done.

What We're Reading and Watching

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Chicago's 1855 ‘Beer Riot’ Is a Bridge to the Unrest of 2020 CityLab

Los TexManiacs - Millennium Stage

How a Fake CIA Spy Fooled Everyone Daily Beast

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