President Joe Biden proudly touts the return of manufacturing jobs to America — but despite the investments and subsidies, it’s an industry in the US that is now languishing after just barely recovering from the Covid-19 pandemic. And it’ll be tough for either Vice President Kamala Harris or former President Donald Trump to turn that around if elected, no matter their grandiose campaign promises.
Under the Biden administration, the US manufacturing industry has been infused by billions of dollars of investments, including $53 billion from the CHIPS and Science Act to boost the semiconductor business and a bipartisan $1.2 trillion infrastructure spending package passed by Congress. Private investment has also ramped up in recent years. Put together, such investments have resulted in a sharp pick-up in construction spending by manufacturers, according to government data.
Once the US economy rose from the ashes after being battered by the Covid-19 pandemic, that stunning momentum was a tide that lifted all boats, including manufacturing. But that impetus didn’t last.
Not only does the industry have a long way to go before employment levels return to where they were before the Great Recession, but total US manufacturing employment in August was only about 1.2% higher than in February 2020. Manufacturers have lost jobs in four of the past eight months through August, according to Labor Department data. Surveys of manufacturers haven’t looked very promising either.
So, while there hasn’t been a manufacturing revitalization under Biden, but rather a steady recovery from the pandemic, it could very well just be a matter of time until the huge investments finally begin to pay off. But with the presidential election less than two months away, that might be hard to sell to voters.
Harris delivered a speech outlining some of her economic policy Wednesday afternoon in Pittsburgh, where she mentioned plans such as cutting taxes for the middle class, sharply increasing a tax deduction for startups and reforming regulations around construction projects.
“We will invest in biomanufacturing and aerospace; remain dominant in AI and quantum computing, blockchain and other emerging technologies; expand our lead in clean energy innovation and manufacturing,” Harris said.
On Tuesday, Trump outlined his own economic vision during a speech in Savannah. He said that if elected he plans to lower the corporate tax rate, beef up tariffs and cut regulations, which he said will lead to “a mass exodus of manufacturing from China to Pennsylvania, from Korea to North Carolina, from Germany to right here in Georgia.”
The industry is dealing with a litany of problems, but most of them are due to the broader economic landscape.
Manufacturing’s main pain points are sluggish demand and elevated interest rates, according to recent manufacturing surveys by the Institute for Supply Management and S&P Global. Not only has that put production companies in wait-and-see mode and but it could also be a worrying sign for the industry’s future.
“The combination of falling orders and rising inventory sends the gloomiest forward-indication of production trends seen for one and a half years, and one of the most worrying signals witnessed since the global financial crisis,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a news release.
And even though manufacturers have received a potent injection of grant funding in recent years, they won’t be in any particular rush to speed up hiring or ramp up production if the outlook for demand is uncertain. Plus, many manufacturers are currently on edge over the upcoming US presidential election and the fate of interest rates, which have led many employers to put their hiring plans on hold.
“Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and election uncertainty,” Timothy Fiore, chair of ISM’s Manufacturing Business Survey Panel, said in a news release.
Manufacturers are also still dealing with persistent price pressures that are now “rising at the fastest pace since April of last year,” according to S&P Global. Those costs could either eat away at employers’ bottom line or get passed on to consumers in the form of higher prices.
And, of course, there are issues specific to certain sectors of the manufacturing industry. For example, Boeing, America’s largest exporter, has its own host of unique problems plunging it into an even deeper financial hole. Meanwhile, US automakers are dealing with stiff competition from Chinese car manufacturer BYD, which has flooded the global market with its electric vehicles.
There’s also the lingering fact that labor remains cheaper in many, many other countries compared to the US, where manufacturers have had to manage demands from labor unions in recent years.
It’s not all doom and gloom for the manufacturing industry. The Federal Reserve this month lowered interest rates for the first time in more than four years and signaled additional rate cuts by year’s end. That stands to greatly benefit companies of all sizes across industries by making it less costly to take out a business loan.
American businesses run on credit because that’s how companies get started, expand and purchase equipment. Lower rates not only take pressure off businesses that have grappled with the toughest borrowing costs in more than two decades, but they could also boost consumer demand, or at least keep it from deteriorating into recession territory.
Still, there’s no sign of manufacturing beginning any kind of recovery just yet, which has been perplexing.
“As the Federal Reserve’s policy rate moves back towards neutral, will the economic dominoes stand back up? We’re not so sure,” Lauren Goodwin, economist and chief market strategist at New York Life Investments, said in a Tuesday note. “The manufacturing sector has been in contraction for more than 20 months now, despite consistent construction related to investment in the semiconductor supply chain.”
She added that “a Federal Reserve that is easing off the brakes is one that may help the economic cycle last longer. But it’s not clear that economic activity will improve.”
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