By Wall Street Journal
This article was published in Wall Street Journal July 25, 2022.
Top executives at large U.S. companies are increasingly talking up bringing workforces and supply chains back home — known as “re-shoring” — during second quarter earnings calls.
Data from Bank of America shows use of the term has spiked to a record level, even though only about a quarter of S&P 500 companies have reported earnings so far.
“Companies' mentions of re-shoring skyrocketed recently amid supply chain challenges and we believe the 2020s will mark the beginning of de-globalization,” wrote Savita Subramanian, Bank of America equity and quant strategist, in a note to clients Monday.
It’s the latest sign that companies are looking to move away from the globalized supply chains that have boosted profits and productivity for decades as worries about shipping delays and increased costs have changed the equation.
The new focus on reshoring, combined with increased spending on capital expenditures, suggests many companies could be looking to replace overseas workers with technology rather than U.S.-based workers, according to BofA.
Companies in the S&P 500, led by industrial firms, are increasing capital expenditures in the second quarter by 24% from the year prior, up from a 20% annualized jump in the first quarter.
“The tight labor market also points to companies' need to automate,” Subramanian said in the note. “Historically, high wage inflation has led to increased labor productivity (i.e. automation) on a lagged basis.”
The bank joined other Wall Street firms in highlighting how the pandemic and Ukraine war have demonstrated the vulnerabilities of global interdependence.
"Globalization is in retreat," wrote UK-based Barclays economists Christian Keller and Akash Utsav in a special report on July 13. "Governments and firms are examining connections to minimize exposure to possible causes of economic damage and social turmoil."
They also found that large S&P 500 companies are recruiting more in their home countries, and that cross-border M&A activity has been cooling.