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MAPI's US Manufacturing Outlook

The recent paper presented byDr. Daniel Meckstroft at the Global Economics and Country Risk Conference in Washington, DC pointed out to some key indicators for the opportunity for the US to to regain a greater GDP contribution by the manufacturing sector.

Some of the highlights were:

  • A breakdown of capacity utilization by subsector for September 2014, petroleum and electrical equipment rank highest at 85% and semiconductors trails at the end with 70%. Overall manufacturing capacity utilization was 77% and is just now approaching its previous peak from December 2007

  • Job growth within manufacturing is slower than for the economy as a whole, but unemployment is lower (4.3% vs. 5.8% in October)

  • The number of domestic manufacturing plants is finally starting to level off after a long descent over 15 years. In 2014, manufacturing is projected to be responsible for 12% of GDP, matching the share from 2009

  • One positive finding is how the U.S. stacks up for manufacturing unit labor costs relative to other countries. From 2002 to 2012, the U.S. achieved an 11.6% decrease for these costs, markedly different from the astronomical increases for Australia, Canada, and some major European countries (see the figure below)

  • Several other factors are favoring U.S. production. The value of the dollar is down, natural gas prices are low, domestic customers are demanding just-in-time delivery, and China is facing rapidly rising labor costs

Capacity Utilization - MAPI.JPG

There is still plenty of under utilizatoin in the current manufacturing infrastructure. This chart does not take into consideration additional plant investment possible as corporations still hold tremendous amount of free cash.

In additoin, the demand for a just in time supply chain offers addtional opportunites for growth and investment for TIer 1 and Tier 2 suppliers to these major industires.

The only significant cloud in the horizon is the impact of declining oil world markets and Saudi Arabia's strategic play to regain market share. This may cause a contraction in a very dynamic sector of the Petroleum industry as prices spiral down and make shale oil a less attractive investment.

Source: MAPI DMeckstroph

This is one of most significant positive trends for the US sector as labor costs continue to be extremely competitive vs. similar developed economies. In addtion, productivy contines to improve and a sliding dollar present new opportunites for insourcing value added manufacturing to shorten the supply chain.

Manufactoring labor costs - mapi.JPG

Source: MAPI Dmeckstroph

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