Overall, the U.S. has several trends in its favor according to the Journal’s Doug Belkin. While wages here are flat, they are soaring in China. U.S. Energy costs have fallen (while fracking and horizontal drilling will ensure they stay there awhile), while stable or often rising elsewhere. And as we’ve noted in prior posts, U.S. companies are reducing their dependence on foreign plants, in order to better control quality and delivery times.
While many manufacturing firms have been extra cautious in light of this year’s Washington gridlock, signs indicate they will grow a bit bolder this year. HIS Global Insight projects spending on equipment will rise by 7% (to $211 billion) in 2014. That’s double the rate of 2013.
Business confidence appears to be growing, according to the Manufacturers Alliance for Productivity and Innovation, and some major investments are being made, particularly in the South.
Still, the U.S. relies heavily on products made overseas. Our nearly $600 billion manufacturing trade deficit (through October, 2013) stayed roughly the same over the prior year. And skills shortages and deteriorating U.S. infrastructure (highways, bridges) combined with overall higher taxes compared to major foreign rivals make for a challenging environment.
Finally, in a separate article the Journal notes that as the year ended, December was a good, but not great, finish to the year. The IMS manufacturing index dipped slightly from the prior month, though we are still in expansion mode. Here in the Midwest, new orders, inventories and employment components “all fell sharply” in December, and employment was the weakest since April.
But a slowdown, the Journal counsels, should not be too alarming. For example, inventories appear to have been elevated going into the final quarter, implying we’re in an adjustment phase. And GDP from the prior quarter was revised upward to the fastest pace in almost two years.
Concludes the Journal’s Spencer Jakab: “Barring a huge negative surprise, weaker national manufacturing indexes probably should be interpreted as a pause that refreshes rather than something more ominous.”
So I guess it’s Keep Calm and Manufacture On in the new year ahead.