America’s Manufacturing Sector: Good, Bad or Somewhere in Between?

The manufacturing industry in the US has gotten a bad rep over the last few years.  On and off.  It’s hard to determine where it stands today but in this article we will take a look at some of the more accurate indicators.

From around June 2019, a recessional atmosphere occurred in the industry.  But that turned around in January according to a report from the Institute of Supply Management.  The report showed a jump in purchasing manufacturing index to 50.9 – even higher than predictions of 48.5.  According to NY’s ING’s Chief Economic Strategist, James Knightly:

“It seems likely that the phase one trade deal with China has generated a positive lift for the sector by giving some certainty that there will be no more tariffs, at least in the near term.”

Furthermore, it is believed that 2020 will “likely be a better year for US manufacturers,” due to the stabilization of international growth and the light at the end of the tunnel for domestic economic activity.

On the other hand, Anneken Tappe of CNN Business would have us believe that “America’s manufacturing sector is in a recession.”  But, she adds, “that is only part of the story,” and illustrates how two factors are at play here: the expansion of factories and their recession. In 2008, the manufacturing industry began its road to recovery, adding around 1.4 million jobs. But still, it has been dipping for the last 40 years.  

So that’s the current summary of the good and bad in America’s manufacturing sector.

American Businesses and Local Manufacturing

While the last few years – decades even – have seen manufacturing move away from America and toward Asia, that trend may be changing.  This doesn’t necessarily indicate a complete transformation but there do seem to be additional manufacturing workers in the United States today.

Arizona is a fantastic illustration of this. International companies in the area currently have close to 110,000 locals on their books.  Out of that, 24,300 work in the manufacturing industry which accounts for 22 percent of all globally-created jobs in the region.  This trend has been increasing over the last 5 years as data has shown that there has been a 35 percent increase since 2014 in the number of internationally-created jobs in Arizona.

This trend seems to not be confined to Arizona. According to recent government data over 62 percent of new US manufacturing jobs were created in the last five years. Some examples of these firms are: Anheuser-Busch, BP and DHL.

Ohio is developing a similar reputation.  over 13,000 locals are employed by Honda’s local manufacturing facilities.  Honda is doing amazing things for the local economy with its $10bn annual expenditure in the region.

And then there are the large automakers which manufacture cars in America, specifically Acura, BMW, Honda, Subaru and Toyota.  in addition, Ohio-based gas motorcycle manufacturer Cleveland Cyclewerks, recently announced its entry into the electric motorcycle industry following its production of gas-powered motor vehicles through domestic (and overseas) assembling, manufacturing.

Recent Job Creation

Last month more jobs were created in the nation’s private non-farm sector than economists predicted.  According to the ADP’s National Employment Report the entire private sector added 135,000 jobs in September, 10,000 more than WSJ economists were anticipating.

67,000 of these new positions are in large businesses and medium sized businesses added 39,000 jobs.  Small businesses also did well with an additional 30,000 new jobs.

Despite the fact that there are significant problems within America’s economy, the job market is on solid footing.  Unemployment has remained at the same 3.7 percent and there have been 107 months of continued job growth.  In addition, salaries have gone up by 3.2 percent over the last 12 months and unemployment rate in minority groups has decreased (African-American unemployment dropped .5%, a record low data since 1972.

So if there are issues with the US economy (which there are), as long as job creation continues to rise, so does optimism alongside it.

Growth of US Economy

The US Economy has enjoyed expansion recently in many sectors.  The two we will specifically look at here are: the Internet and beer.

In 2018, approximately 10% of America’s GDP came from the internet.  $2.1 trillion money was made from this sector according to estimates from The Internet Association.  This represents America’s fourth largest economic sector (1-3 being real estate, government, manufacturing).  The Internet provides almost 6 million (direct) jobs – 4 percent of all of America’s jobs and 13 million (indirect) jobs. $64 billion was spent by internet companies in capital expenditures.

In 2018, according to numbers from the Brewers Association approximately $79.1 billion was contributed to the American economy by craft brewers. This translates to around 0.4 percent of America’s GDP.  It is 4 percent higher than the contribution from craft brewery in 2017. The contribution from small and independent brewers was also significant with the provision of 559,545 jobs, 150,055 of which were directly from breweries.

Increase in Retail Spending

May 2019 saw an escalation in spending by US shoppers.  This had provided “critical fuel for the U.S. economy’s continued expansion despite trade tensions and slowing global growth.”  According to the US Commerce Department, the increase in retail stores was 0.5 percent from April to May.  There was an increase in April too which was slightly higher than the department’s estimate.  All of these figures show that household spending is high and on the up.

Other good news is that almost all categories (in particular auto sales at 0.7 percent) showed improvement and real gains.  There were some declines (within the food and beverage industry, as well as apparel, department stores and the like) but overall the message was growth.  Electronic stores possibly had one of the best months with an impressive growth of 1.1 percent in May. Health, wellness and personal care jumped too.  Another high gainer was “nonstore” (online, catalogue, direct) retail sales, with a statistic growth of 1.4 percent for May.

According to a recent Market Watch article, this:

“may allow the Federal Reserve to wait a bit before cutting interest rates. After the weak job report for May, some economists thought the Fed might ease as soon as next week to bolster what was perceived as a slowing economy. The market is now expecting the Fed to cut rates in July. Some prominent economists, like the team at Goldman Sachs, think expectations of a rate cut over overdone and the central bank will remain on hold this year.”

The hope of course was that this trend would continue but earlier this month it seemed that “renewed trade tensions tapered optimism and smaller gains in employment suggested slower economic growth.”

Small Business Week

Small Business Week (held from May 5-May 11 this year) is organized by the US Small Business administration.  established in 1983 as a “national recognition event”, from then until now it is a chance for every American to shop local.

But it is so much  more than that.  this year for example, everyone was invited to participate in a free virtual conference over the first two days. in conjunction with SCORE Association, the SBA gave people the opportunity to network with other business owners, connect with industry experts and be involved in a hands on conference without having to actually leave their homes. Other events included: Small Business Week Hackathon; the National Awards Ceremonies and the NSBW Twitter chat.

During this week individuals are also encouraged to give small businesses attention and respect as well as buying their services/products.  America comprises over 30 million small businesses, providing jobs for 59 million Americans.  This is over a third of the entire workforce in the country and accounts for approximately 44 percent of the US GDP.

And Trump is a big supporter also.  He said his administration is: 

“A strong ally and advocate of small businesses and their ability to help America reach its full economic potential.”

Which is supported by the provision of the Tax Cuts and Jobs Act which lets small business owners deduct 20 percent from their taxable business income. Trump also issued Executive Order 13771 (E.O. 13771): “Reducing Regulation and Controlling Regulatory Costs [requiring] For every new regulation issued, at least two prior regulations be identified for elimination. [In addition] The cost of planned regulations [must] be prudently managed and controlled through a budgeting process.” 

Bolstering America’s Economy Through Technology

Technology is good for the economy

Technology is good for so many aspects of society.  One of them is preservation and growth of an economy.  In a new book written by MIT economists Jonathan Gruber and Simon Johnson entitled, ‘Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream, the two make the case for the benefits of investing in bolstering technology into the economy.

They argue that as well as strengthening growth, supplementing investment in science results in better job opportunities and higher wages.  This is especially useful now when so many Americans believe their salaries are not conducive to their everyday expenses.  Johnson said:

“Good jobs are for MIT graduates, but they’re also for people who don’t finish college. They’re for people who drop out of high school. There’s a tremendous amount of anxiety across the country.”

According to Bloomberg’s US State Innovation Index, California is America’s “most innovative economy” based on the following factors:

  1. STEM jobs
  2. R&D
  3. Firms in technology
  4. Productivity
  5. Individuals who have science/engineering degrees.

Perhaps therefore not surprisingly – supporting Johnson and Gruber’s theory – a CNBC article found that California accounted for almost ¾ of non-farm jobs created in America in February; an additional 14,600 (nonfarm) jobs were added by the state last  month; a report found that nonfarm payrolls in America increased by 20,000 jobs. Furthermore, Forbes contributor Mike Montgomery found that “technology can help prevent future California wildfires.” So there really is a lot to be said in favor of the benefits of technology for a state (and country’s) economic welfare.

Cyber-Enabled Economic Warfare and America’s Private Sector

In this video, presented by Samantha Ravich, Deputy National Security Adviser to Dick Cheney as well as Chair of the Foundation for Defense of Democracies, Transformative Cyber Innovation Lab and Vice Chair of the President’s Intelligence Advisory Board, a discussion is held on cyber-enabled economic warfare. 

US State Expenditure Hike

According to the annual state expenditure report of the National Association of State Budget Officers (NASBO), there was an increase in US state spending – a first for the 2018 fiscal year.  Industries most impacted were health and transport (6.5% possibly due to an increasing focus on infrastructure throughout the nation) but in every category there was growth.   There was a 6.2 percent hike in general fund revenue during the same time frame.

Executive director of NASBO, John Hicks explained:

“The fiscal 2018 data presents a slightly improved fiscal situation than the prior two years. We’re seeing a slight increase in the growth of spending both from total spending and states’ own funds.”

In addition, there was a more substantial increase in federal fund state spending as compared to state generated revenue spending.   And activity within the manufacturing industry did not meet expectations, dropping to its nadir since April 2017.  According to Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee:

Demand remains moderately strong, with the New Orders Index easing to below 60 percent for the first time since April 2017, the Customers’ Inventories Index remaining low but improving, and the Backlog of Orders Index remaining steady. Consumption softened, with production and employment continuing to expand, but at lower levels compared to September.”

US Digital Economy: Women all the Way

It seems like women are leading the way in the US digital revolution.  The yearly 2018 Bank of America Women Business Owner Spotlight showed that there is a lot of optimism among female entrepreneurs with a staggering 49% of them expecting an improvement within their local economies and 48& to expect this from the national economy.

In general the women are confident: about the economy, about their success in the economy and about elevation in future growth within their particular positions.  In addition, 56 percent of women are planning to expand their businesses within the next five years. According to Managing Director and head of Small Business, Bank of America, Sharon Miller:

“When it comes to small business, women entrepreneurs are at the forefront of the digital transformation. It is exciting to see how they are innovating and leveraging mobile tools to help their businesses succeed. Their increased optimism about the future and the potential for hiring and growth is also very encouraging.”

Digitally, half of all SME owners predict a total switch to digital payments within the next five years and the women seem to be in charge of this, with mobile devices processing payments and engaging in transaction management. Indeed only 26 percent of men use mobile devices to process digital fiscal transactions whereas 33 percent of women do.