U.S. shoppers pay for labor costs in China

U.S. shoppers pay for labor costs in China

U.S. Shoppers Foot Bill for Soaring Pay in China

One of the things that's showing up in Christmas stockings this year: higher prices, courtesy of China.

After decades as America's go-to destination for low-cost consumer goods, China is undergoing a profound shift. Rapid economic development and a smaller supply of young migrant workers are pushing up labor costs. Tack on rising raw-materials prices, driven largely by Chinese demand, and a strengthening currency, and China-made goods aren't the bargains they used to be. 

In the past year, labor costs have risen 15% to 20% at Michaels Stores Inc.'s Chinese suppliers, says John Menzer, chief executive of the arts-and-crafts retailer. He says his company has spent much of the year seeking ways to partly offset those increases, such as by grouping goods from different suppliers into a single container to cut shipping costs.

Still, Michaels has had to raise prices this year on some items, including artificial Christmas trees. And Mr. Menzer expects its battles with rising Chinese costs to continue. "Our suppliers are very nervous about labor costs," he says. "We'll have the same pressures next year."

Last month's prices for Chinese imports were up 3.9% from a year earlier, the Labor Department said Wednesday, matching October's gain, the largest year-to-year monthly rise since 2008.

Wednesday's report showed that prices were up sharply for many kinds of goods for which China is the dominant supplier.

China accounts for about 80% of U.S. shoe imports; imported-footwear prices in November were up 6.1% from a year earlier. It accounts for about 60% of furniture imports; imported-furniture prices also were up 6.1%. About 80% of U.S. luggage imports come from China; prices in the category that includes luggage and similar goods rose 8.3% in November. 

Those higher costs are one reason that U.S consumer prices have risen this year, despite the weak economy. Economists expect Friday's inflation report from the Labor Department to show that, excluding the volatile food and energy categories, November consumer prices were up 2.1% from a year earlier, on par with October's rise.

That's relatively low, historically speaking, and unlikely to give Federal Reserve policy makers pause in their efforts to boost the economy. But it marks the biggest gain since October 2008.

Over the past two years, the cost of furniture that Hooker Furniture Corp. buys from China has risen steadily, says Paul Toms, CEO of the Martinsville, Va., company. In September, Hooker raised prices on two-thirds of its product line–everything it hadn't introduced in the past year–by 5%. 

With the company's Chinese suppliers raising wages to retain employees, Mr. Toms suspects there will be more price increases to come. "We're in a labor-intensive industry, and it's probably not one of the more-desirable industries for folks to work in," he says. "We think our suppliers are seeing labor cost increases in the 20% to 30% range."

According to China's Ministry of Human Resources and Social Security, 21 provinces and municipalities had, on average, instituted annual minimum wage increases of 22% by October. Officials in Shenzhen, in China's southern manufacturing heartland, said last month that they will raise the city's minimum wage by 15% in January, hoping to attract more workers.

 U.S. shoppers pay for labor costs in China