Manufacturing on a Surprising Global Upswing

The manufacturing sector, including sectors like machinery and even fabricated metal, are on a noticeable upswing. The S&P Global PMI has been pointing in a very positive direction from nearly every nation as only six countries (out of 30) are in contraction, and even these are only barely in that category.

What gives? Isn’t the global economy on the precipice of recession? Isn’t the oil crisis fundamentally shifting prospects for growth? Hasn’t the number of people employed in manufacturing dropped rapidly over the last several years and even decades?

Some important trends are affecting manufacturing, especially in the U.S. These have combined to push growth to unexpected heights. Along the way, the growth has managed to baffle political leaders from both the left and right.

Neither of the two political narratives about U.S. manufacturing are supported by real data. Left-leaning analysts have said that U.S. manufacturing is on a downward slide and is likely to worsen to the point that the industrial sector nearly ceases to exist in the U.S. This grim assessment is rooted in the fact that employment in manufacturing is down considerably from past years. An estimated 12.5 million people work directly in manufacturing, down from 19 million about a decade ago. This makes people conclude that U.S. manufacturing is dying.

The reality is that output has been growing, and in some sectors this growth has been nearly exponential. No area of the economy has been quicker to adopt technology and innovation than manufacturing. The spectacular rise of robotics and technology has been necessary because of the acute labor shortages that have plagued the industrial sector for decades, but it has also been motivated by the pace of innovation. Today’s manufacturer is more productive and efficient than ever, but this also means that it is not the employer of low-skilled labor that it was in past years.

The conservative narrative has also been less than accurate. They state that the manufacturing renaissance has been the result of tariff policies and trade agreements that favor the U.S. These have benefited some industries, but they have been damaging to others. More important, the manufacturing surge started long before these changes. Even the reshoring phenomenon has been going on for years, with close to $3 trillion in reshoring every year since 2010.

The political decisions have been a boon to some and damaging to others. The manufacturing community has been asking for government help on issues such as labor force and support for R&D more than with trade relations and tariff protection.

So, if it is not tariffs and trade protection, and the sector is still growing at a very respectable pace, what is behind this expansion? The answer is extremely simple, at least conceptually. It is good old-fashioned demand. The world wants what the U.S. manufacturer produces. Many governments overtly subsidize and manage their manufacturers, and while this can be a significant source of support, it can also ossify the manufacturing sector, as business will continue to do what it has always done.

U.S. manufacturers must adapt to the consumer, and that means constant innovation. They stay on the cutting edge because they have to. This is expensive and creates turmoil, but it also means demand is met. The bottom line is that U.S. manufacturers are giving consumers what they want and need, and that has driven the productivity numbers to their current highs.

What Does This Mean for Manufacturers? There has long been a debate over whether the U.S. should pursue some kind of national industrial policy. Many nations have, with mixed results. The support from government has often been useful to those countries, especially in areas like export promotion or support for research and development. On the negative side, there is the chance for ossification as it becomes harder to deviate from the established path. Generally, U.S. business is more flexible and responsive.