The supply-chain catastrophe in 2020-2021, the edgy US-China relationship, and the scary dependence on China triggered a big corporate rethink.
By Wolf Richter for WOLF STREET.
In October, $18.5 billion were plowed into construction of manufacturing plants in the US ($246 billion annualized), up by 73% from a year ago, by 136% from two years ago, and by 166% from October 2019. The relentless pace of the month-to-month increases is what’s amazing – from $12.5 billion spent in January to $18.5 billion in October.
The construction boom started in early to mid-2021, and since then, spending has tripled. About a year later, in July 2022, Congress passed a package of subsidies for select manufacturing industries to build factories, such as semiconductor makers (they’ll get $52 billion) and EV battery makers.
But the wheels of government turn slowly, approvals take their time, disbursements of funds for large projects takes time, so the flow of these government funds would just be the first trickle in 2023. The bulk is still coming.
For the calendar year 2023, spending on factory construction will likely get close to $200 billion. For the first 10 months, the ever-larger monthly amounts already reached $159 billion. If November and December are only flat with October, spending will reach $196 billion by year-end.
The stagnation of factory construction through 2021 is a testimony to corporate chieftains in search of cheap labor.
But the supply-chain and transportation catastrophe they ran into during the pandemic, the edgy relationship between the US and China, and the scary dependence of US companies on Chinese suppliers have triggered a big corporate rethink.
It’s not like the US “isn’t making anything anymore,” but… The US is the second largest manufacturing country by output, behind China and has a greater share of global production than the next three countries combined, Germany, Japan, and India.
But the US, as the largest economy in the world, has fallen far behind China in manufacturing and many sectors have become brutally dependent on China – and the shortages and supply-chain chaos of 2020-2021 were a wakeup call.
Manufacturing’s share of GDP had been on a long downward trend in the US. The data by the Bureau of Economic Analysis only goes back to 2006. Back then, manufacturing accounted for over 13% of GDP. By early 2020, manufacturing was down to 10.5% of GDP. Since then, the share has been wobbling higher.
This year’s construction spending boom will add to manufacturing’s share of GDP in the future when the plants are up and running and producing at scale, which takes time. In other words, this is a slow process, and it has a long way to go:
Manufacturing has a large-scale impact on the economy, for decades to come, with its secondary and tertiary effects. Construction spending is just the one-time activity to get the building and infrastructure in place. What comes afterwards – actual production with its secondary and tertiary effects on the local economy – is far more important.
Companies invest in factories in the US to make high-value technologically advanced products such as semiconductors and motor vehicles. Makers of computer, electronic, and electrical equipment are big drivers behind the surge of factory construction, according to an analysis by the Treasury Department.
Industrial robots reduce China’s cost advantages. Automation and industrial robots – key in mass production – cost roughly the same in the US as in China. US labor costs are far higher, but other costs are reduced by bringing manufacturing onshore: Transportation costs are lower, lead times are shorter, there is less geopolitical uncertainty, less risk of losing or having to surrender the IP via technology transfer, etc.
Construction cost inflation is not the driver – it has ended this year. The Producer Price Index for construction of nonresidential buildings hit a peak in January. Since then, prices declined by 1.4%. So construction cost inflation was not a factor in the 2023 surge of construction spending, though it was in 2022. This makes the boom in factory construction spending in 2023 that much more amazing.
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I talk to a guy online that is involved in this, streets are paved with gold as far as he’s concerned. All of this is happening in flyover, where land and labor is cheap (or was, now homes in formerly nowhereville go for 1M+) so that’s good but my sense is they may be overestimating demand as we slowly trudge towards recession.
“Happening in flyover.” Yes! And it’s good to see. Happening in my former hometown Tulsa. Cheap labor and cheap land. Plus local subsidies. It’s good to see that the formerly booming oil town (former “Oil Capital of the World”), which then went into a downward spiral that lasted decades, is getting some new economic activity. This is happening around the country.
What I don’t understand about this article, is that Industrial Production in the U.S. has gone sideways since the big gains starting right after the early 2020 covid collapse.
So apparently we have an unbelievable boom lately in factory CONSTRUCTION, but our industrial PRODUCTION has seemingly topped out. What in the heck does this divergence between factory construction and industrial production suggest?
Patience dude, as I pointed out in the article. A plant where construction started in 2022 or 2023 will not mass-produce anything in 2023. It takes a long time to plan and build a plant, install all the equipment, work out the kinks, and then gradually ramp up production. It takes years.
For example, Tesla’s Texas factory: Construction began in July 2020. Initial deliveries of Model Ys built at the factory, so the first few vehicle sold to the public, was in April, 2022. And that was just the slow beginning. Production was gradually ramped up. By December 2022, it reached a run rate of 3,000 vehicles a week. In May 2023, it reached 5,000 vehicles per week. And they continued to ramp up production.
Because they have to be constructed first
LAG. Having worked in the Biotech manufacturing, producing enzymes for all of the Johnson & Johnson products (think tide detergent etc.), I can tell you first hand that there can be years between the time of construction and when the product actually starts coming out the door. I have said this before and I will say it again. At least in Biotech, which is really the only area I have experience, we are seeing manufacturing (pharmaceuticals in particular) move to the southeast (research triangle in particular) and flyover because of the inexpensive land and labor, AS WELL AS “easier” environmental regulations. Manufacturing in California, where even your waste water is scrutinized on a daily basis is a very different situation then North and South Carolina. Not to mention access to the port of savanna and major airports in Charlotte and Atlanta. If California and boston want to price themselves out of the business, I say, LET THEM.
Like TSMC: they built the factories but is having a very hard time finding the skilled workers.
Having lead procurement for multiple Greenfield manufacturing plants in my life, production generally starts 1-3 years after initial construction on small scale, sometimes up to 5+. I don’t have enough fingers and toes to count the companies I currently work with that are in the process of moving manufacturing back to the US. The infrastructure bills passed the past few years along with the common sense learned from covid will do more for the economy of this country than virtually anything I can think of in my lifetime. Good times and great to see.
In response to Wolf’s Tesla point, also personnel. I live 20 mins from the Austin factory and the interest in jobs there went from hesitance, to novelty, acceptance, then pride. They’re partnering with the local high school for a jobs program and charter busing workers from other towns daily. It was a training issue and also a cultural issue. This happened over the past few years.
Great article. Thank you!!
and the Inflation PRODUCTION Act is helping to spend spend spend fiat $dollars MERIKA doesn’t have
therefore debt to moon which cannot be repaid
I’d like to see breakdown of how much govt $$ are in each plant
I know TSMC got like $18Billion for $50 billion plant
nice for 1%
rest not so much
Government is SLOW MOVING. Dispersing funds takes a very long time. Whatever funds they got already, if any, didn’t just suddenly get spent on construction from one month to the next.
But those funds will come. They will show up. That’ll ad to the future spike.
arbitrage is happening around the country, wolf. When I talk to the realtors it’s always ‘out of state money’. You are out of touch.
“Realtors?” “Out of state money?” Do you even know what we’re talking about here? Not home sales, that’s for sure. Factories, dude. Maybe you got into the wrong article? Maybe you didn’t even read the headline?
Industrial real estate is overbuilt because distributors moved away from JIT during the pandemic to holding more inventory. That drove further investment into developing even more industrial projects. Government subsidies further drove the “irrational exuberance” of industrial space inventories to peak in 2022. Now there will be a reckoning as the market corrects itself as it works its way back to equilibrium.
Former manufacturer and real estate investor,
You’re talking about a category of CRE “industrial” and not manufacturing. Not the same thing.
What is categorized as “industrial” in CRE is generic warehouse space, though it might be leased to some companies that do some light manufacturing or fabrication. And yes, that was overbuilt, but it’s still one of the few CRE spaces that is doing reasonably well.
Manufacturing plants here in this data are NOT in this “industrial” category. This data here are purpose-built manufacturing plants, meaning the plans and permits call for the construction of specific manufacturing plants to manufacture specific products.
The big plants are generally not owned by CRE investors, but by the manufacturers themselves, such as Tesla’s plant in Texas, built and owned by Tesla specifically to manufacture the Model Y and Cybertruck, or the chip plants that are now starting to get built.
YES, and it really and truly “SHOULD” be ”around the country” Wolf to make up for the destruction of communities then .
As one who worked in non residential construction for most of the last 40 years prior to final retirement in mid 2019, I was really discouraged by the incredible decrease in manufacturing and the ”construction/REHAB/remodeling” of those facilities in the 1992-2000 era. Of course we eventually found out why that was,,, and it was NOT because of lack of productivity improvements by USA Labor as has been claimed,,,
Suggest/hope you can find out or figure out decreasing manufacturing going back to at least end of Bush Sr’s presidency to show the real degradation that took place right after that.
And, if at all possible, show the ”net worth” of SO many political puppets — on both sides of the aisles to be very clear — that happened while the transfer out of USA was happening.
to bad you didn’t mention REAL reason
NAFTA and WTO – so Billy Jack Clinton signed them
so 1% corporates could use CHEAP LABOR in Mexico and China and India, etc.
leaving 40,000,000+++ former living wage workers with squat
now the 2 parent WORKER family is norm
retirement(pensions) got raked in by corporate raiders and replaced with 201k plans were WORKERS funded them out of their NON-LIVING WAGES
and executives REJOICED
But who lives in flyover land?
Walter white’s old customers, that’s who.
Maybe look at some data.
Lots of national maps of drug use rates, and attitudes towards drugs, can be found at www dit samhsa dit gov.
Google drug use rates by state.
Wolf, any evidence that the deindustrialization of Germany is impacting the purpose-built manufacturing numbers in your article?
Any evidence outside of ZH that there is “deindustrialization of Germany”?
New orders are up 25% from the same month in 2019, though they have eased off the pandemic frenzy in 2022
Here’s the chart from the German statistical agency:
https://www.destatis.de/EN/Press/2023/11/PE23_446_421.html
Good.
But not in Illinois.. where property taxes are exceedingly high, infrastructure dicey and kick-backs expected.
And supported by the populace…..since they pay for it!
Steel mill in Granite City, IL closing down over a thousand jobs won’t help the Metro East economy. An indication recession is on it’s way here?
Not necessarily. The mill might be obsolete.
El Katz, or adjusting to diminished demand, over the many plants operated by the company.
@Softail Rider,
Did the steel mill give a reason for the closing?
Softail Rider
A lot of old steel mills are very inefficient. When they cost too much to operate, and cost too much to upgrade, it’s lights out.
So I checked.
This is an ancient steel mill. The company already shut down a blast furnace last year, and now is shutting down the second blast furnace. So it won’t make any more crude steel.
But the thing is the steel rolling and finishing operations at the site will continue, using crude steel from other facilities.
So it’s not a demand issue. It will still roll the steel there for its customers, but just won’t produce crude steel there and instead get the slabs more cheaply from another place. No company can afford to operate old inefficient factories. They have to go and make room for modern efficient factories.
Wolf, thanks for the additional information!
I think some Brazil Billionaire is trying to buy up all the US steel companies. He already owns Cleveland Cliffs and just made an offer for US steel.
Nucor is the biggest steel company in the US. It’s also a relatively young and modern company, compared to US Steel. I bought a little bit of it a few years after its IPO and obviously sold too soon. US Steel is an ancient company saddled with ancient steel plants.
Somewhat related and curious:
Old West Virginia Steel Mill Becomes a Green-Energy Powerhouse – WSJ
USA can export to Canada n Latin America. Trans-Pacific shipment cost is high. Recession will be over when the factories are ready.
Yes, North American economic region is consolidating as the result of Covid-induced transportation friction and worker demographics.
Wolf,
Thanks for the info on Granite City steel plant. I’m like an old bear in the winter and don’t move far. And don’t have access to the information you have. One of the reasons I don’t begrudge rewarding someone who must spend a small fortune every year to have the access.
I have known several generations working at the mill and am glad it will still be operating.
Why do you think “we slowly trudge towards recession”? That’s not supported by data… U.S. GDP grew at a 5.2% rate in the third quarter AND inflation came down.
Of course it is a good thing to have capitalists reinvesting in US manufacturing after decades of divestiture. Let’s hope it continues, but let’s realize it can take many years for a factory to be planned, built and then to finally produce products. We are five decades into massive closures, how many decades will it take to turn the boat around? My condolences to the tens of millions of Americans who have had their lives upended by an unfathomable level of greed and ignorance on the part of our elite.
Lucky for america and unlucky for Germany and europe that the Nord stream pipeline rusted apart. Many German and EU business’ can’t compete with the high cost of nat gasd and have and are moving to America and China!
That and the subsidies that are on the table, European countries can’t offer nearly enough to compete. Here in Canada we’ve had to up the subsidies to get at least some of the manufacturing action this side of the border. In Germany the term Industry 4.0 by now is familiar to most everyone I’d imagine, they’ve been talking about it for years, but with the situation as is I wonder if it will accelerate the transition or slow it way down. For once I feel like maybe they’ve tripped up and circumstance might be beating them down at the same time.
GringoGreg,
Not sure what rusted means for the NORDSTREM but you might find some deep research on how it was blown up interesting.
Economic prospects for Germany don’t appear too good either.
I think “rusted” was sarcasm without the requisite /s to alert people who are too literal.
I thought it was “rapid unscheduled disassembly”, a la Elon Mask’s Mars rocket.
As far as factories.. Anyone seen “Made in America” sticker yet?
The way Europe is willingly paying for its own deindustrialization and transfer to the US really shows how successful the USA has been in coopting EU ‘elites’. We are run by traitors.
LOL. Europe has had a HUGE trade surplus with the US for decades. The EU, with its industrial policy, has abused US openness to European products while protecting its own markets. Time to slow down this trend a little.
Skeptical about the future, but glad indeed that U.S. manufacturing is getting badly needed investment.
I just rebuilt a few U.S. made Baldor electric motors.
Can’t find U.S. made ball bearings.
I won’t buy Chinese (Ringball.RBS) so when my bearings arrived from SKF and FAG? Korea, India and Bulgaria.
I cannot believe high quality bearings cannot be made competitively in the USA. Even Japan and Germany are farming stuff out.
kam – has been going on for some time, now (New Departure’s failure, for instance). Have had to work longer and harder at obtaining high-quality bearings for the racers for the last decade.
Difficult to believe in this light that so many were committed and fell in WWII’s Schweinfurt raid (among myriad others) in the effort to destroy Germany’s ball-bearing producing capabilities. Silicon chips may be among the newest, but not the only, vital manufacture for national defense…
may we all find a better day.
Hilarious that Germany is importing Russian gas via the Turkish/Black Sea line and LNG through 3rd parties. At horrific prices.
Chasing the trend rarely turns out well.
Wont the problem end up being the failure of the US to produce enough engineers. Russia is less than 1/2 the population of the US and produces 25% more engineers annually than the US. China, of course produces 10x the number of engineers.
Modern “factories”, robots, numerically controlled machines etc, require technical skills that are no longer taught in HS. Much of US higher education seems to see it’s purpose as discouraging any but the brightest from math or engineering programs.
What is needed perhaps is a community college level 2 year program ending in a industrial-mechanics degree. Todays version of yesterdays shop class. Focus math instruction on application and we might find that American’s have more interest and talent for these things than university STEM snobs want to admit.
I’ll just pick apart a couple of points, all I have time for.
1. “…than University STEM snobs want to admit.”
From the Census Bureau, 2019 study: “About one in 10 or 15.6 million, U.S. workers 16 and over, worked in the manufacturing sector in 2017. About 2 million of these workers were in STEM occupations.”
You see, manufacturing has changed over the decades. For 2023, the number of STEM workers in manufacturing would be quite a bit higher.
2. “Wont the problem end up being the failure of the US to produce enough engineers.”
The US produces some of the best engineers in the world. In addition, the US has long been importing engineers, including some of the best in the world. The US will never have a shortage of engineers. Nation of immigrants, remember, for better or worse. Some companies are staffed to a large extent with foreign-born engineers. Some older engineers who’d like to work cannot find work because they got aged out – and that’s a homemade problem. Some of those aged-out engineers are commenters here.
Some of the best engineers come from diploma mills in South Asia. We get a third of S&P 500 CEOs this way.
LOL @ “aged-out engineers” being commenters here. I hope being grumpy isn’t a foregone consequence of aging, because I can’t imagine being that negative or miserable.
JD – hang on tight to that as you age (…time doesn’t necessarily heal as much as it inclines to forgetting some things and remembering others, often with varying degrees of accuracy…).
may we all find a better day.
Easy to solve. Takes only 2 years. Most robots do not need humans except for repairs. USA will thrive.
Lurked long enough. I was a technical manager for over 30 years managing a global group. While many of my best engineers were US based, a larger number came from locations such as Venezuela, India, China and Korea. I personally fund engineering education in the USA. The challenge is interested, qualified candidates (especially female and minorities). I have also convinced many of my best candidates to move from engineering/STEM to management as this provides greater returns to both the individual and the company. I had a global pool of resources to develop. Build those physical assets in the USA, and I will be thrilled to develop and provide the technical resources, our government policy willing. Make my day :-)
My personal experience has always been engineers with practical hands-on knowledge were always in short supply.
That’s because they are always employed.
Brother I grew up in Russia. Half of those engineering degrees are bought (literally!) not earned, so those numbers aren’t reflective of reality
Any good manager can tell the difference who is worth hiring compared to resume fluff. It is not Russia specific. About 80% of India interviews can’t answer basic technical questions. If those folk get jobs good for them, as their bosses are idiots. A number of Russian candidates are excellent.
When a particular ethnic group gets a reputation for being good in a field, dumb managers will hire the unqualified ones. I saw this in the early 80s – Russian emigres came to the US, and many of them made excellent programmers and were willing to take low wages to get started. Word got around, and pretty soon any Russian who took a six-week training course could get a good job. Many of them were terrible.
“What is needed perhaps is a community college level 2 year program ending in a industrial-mechanics degree.”
They definitely exist. My son will start this exact program here in Tennessee in four weeks. He’s still a senior in high school and it’s a five trimester program (20 months). His first two semesters are paid for as a Dual Enrollment high school student and the the last three are also paid for by the state (Tennessee Promise program). He will graduate at age 19, no debt, and will have multiple job offers potentially in the six-figure range.
That’s Great!!!!
Father of the Year, well done Dad!
In Ontario we had a teachers’ protest because the government wanted to implement testing of teachers for Grade 9 math competence.
No final outcome yet.
Good news for now for sure. Long term, I wonder.
After WW2 the U.S. had a large percentage of the world’s intact factories and experienced a multiple decade boom. Then the U.S. factories got old and overseas labor was much cheaper and the Nifty 50 of the sixties died.
Where will this factory boom lead? Certainly the stock market is going to like it. Near term labor will benefit but I wonder about long term. How much higher will ‘unit of production/unit of labor’ be?
Roubini’s latest missive threw this out as one of the many many risks going forward, “The risks associated with AI are also becoming clear. Many worry about permanent technological unemployment – not just among low-skilled blue-collar workers, but also across creative professions. In an extreme scenario, the economy two decades from now could be growing at a rate of 10% per year, but with unemployment at 80%. A related risk, then, is that AI will be another winner-takes-all industry that turbocharges income and wealth inequality.”
I doubt U.S. voters would allow anything as extreme as even 10% standard unemployment but if the ‘dole’ was large enough, who knows?
More homeless and more on welfare seems certain with the rise of AI.
I am setting in a fastfood place as I type this and looking at a young man I have gotten to know, 30ish, strongly muscled, heavily boned, and quite quick who would have done well on a family farm plowing 40 acres/day behind a mule with a father and grandfather to guide him but today this world has little for him.
The world will have to change because our genetics will not and certainly our parentage isn’t great.
@Thomas Curtis,
“Good news for now for sure. Long term, I wonder.”
I think it is good news… period.
Every ERA has it’s Boogie Man, right now it’s AI.
We all remember wind power, waterpower, steam power and stemcells and how all those worked out. Those ended up as not the wave of the future. AI is just another passing fad no one will remember.
Yes, clearly wind and hydroelectric power accounting for about 35% of electricity generation is almost going away. Stem cell market is about 11 billion and expected to go to 30 billion by 2030. Can’t wait for ATMs to go away and tellers to make a comeback along with cash. AI is already everywhere and will continue to grow.
We have been experiencing AI in different forms for years. Oilfield has had automation and ai that I used 15 years ago though today easier to implement .
Glen, you are a few years premature on the Wind and Hydro percentage (Now around 16%), and total renewable power (Now around 27%)(on a rolling 12 months).
Source: eia gov
DawnsEarlyLight
Good catch. I was using worldwide numbers but still overshot. Mixed in percent of renewable versus overall. World combined from those sources is 23+%. 16 from hydro and 7 from wind. Hydro obviously has some risks with climate change.
AI may not be as advertised. I remember a site a while back that sported artificial learning. It was shut down due to the language acquired by the machine.
Kind of reminded me of new immigrants learning all the swear words in a new language.
SR – …hilariously experienced by Bill Murray’s novice ESL-teacher’s character in the opening scenes of ‘Stripes’…
may we all find a better day.
@Softail Rider,
“Kind of reminded me of new immigrants learning all the swear words in a new language.”
Hah! so true. Back in 1974/1975 I was in the 6th grade. A 12 year old South Vietnamese refuge joined my class. He didn’t know any English accept for the F-word, and a few other cuss words.
AI is really only a problem because of our economic system. Eliminating redundant jobs and even jobs like long haul truckers has significant societal benefits. Admittedly the US is addicted to the idea that wealth accumulation by the few is the best system and if you can’t be part of the wealthy it is your fault. French enlightment was an interesting time and in some ways still locked into the concept of individualism way too much. What happened to increased productivity would lead to happier and healthier people and societies?
Glen – …and with the advent of ‘slaughterbots’, even the age-old compact of the powers-that-be keeping things generally-prosperous enough in exchange for a population’s willingness to soldier for them may be dissolving…
may we all find a better day.
Manufacturing brought back to the US along with jobs, a win. The hysteria from the climate warriors about the additional pollution, a loss.
We can either have a vibrant, modern economy and lifestyle, or we can appease the chicken Littles and go back to living in caves.
Mike – would ask that you consider that ‘pollution’ has been one of the U.S.’ biggest exports since the first Earth Day, and that we’ve patted ourselves on the back about how ‘clean’ we’ve been while taking the easy way out and ravaging a great deal of our mundane workforce while not seriously buckling down to actually solve those issues (…and truly lead the world in the good ol’ ‘Murican way we like to think ourselves as doing).
Would also ask you consider ‘climate warrioring’ not in terms of ‘tree-hugging’, but that of industrial-plant maintenance, i.e.: maintaining an environment (sufficient freshwater, productive ag areas, and healthy air-all things that don’t just ‘happen’) conducive to the ‘production’ of survival of our species in a time when it’s population has more than doubled in the very-few years since WWII, with a concomitant, voraciously-increasing natural-resource appetite.
‘Saving the planet’ is a null term, it doesn’t care what, or if, anything walks it-that table having been run at least four times now that we can determine. Believing and acting as if this spaceship we ride is an inexhaustible larder may certainly lead to much short-term profit for (some) of our kind, but without performing our own, proactive management, little chance of future sustenance, even in caves…
may we all find a better day.
“Many worry about permanent technological unemployment”
Depends on your job. Just about every physical job that can be automated has been automated. I don’t see AI becoming a further existential threat on the factory floor or in other complex physical processes, certainly not for a long time. But analysts, programmers, data entry, maybe even a lot… Those jobs are going to see carnage in the next 10-20 years, and the humans that remain in them will be leaning very hard on AI as a tool. Trucking could be profoundly changed by self-driving, but given the difficulties in manuevering around town and performing functions like loading and unloading, I’m skeptical that self driving trucks will become more than advanced driving aids for humans. Drivers make up such a giant portion of the workforce that it wouldn’t surprise me to see legislation limiting self driving to preserve jobs in the next decade. I can definitelty see future trucks attended by humans using near-FSD functions as an advanced form of cruise control.
My reference point on technological underemployment is John Henry, the “steel drivin’ man”. Sweeping aside the historical uncertainties, no doubt such a man was rare and valuable in that time and place. Me, I have multiple STEM degrees, and if my job called for heavy manual labor I’d be out of work (just age). But there is a loss when a man can’t excel at something.
“Just about every physical job that can be automated has been automated”
Our town has a street sweeper truck driven by a human. Seems like a self driving Street Roomba has to be close.
AI is the Future. Even long abandoned factories can be re-used. Structures last 100 years or more. Robots are small, fussed on single tasks, can be replaced quickly. USA will thrive.
In my day when you graduate high school, if you didn’t have a job, it was because you didn’t want one. Factories were everywhere. No degree required. They train you. I started at Black & Decker, moved on to Aerospace, CNC machining, then programming. Today there are no factories, nothing made in USA. Nothing available without multiple degrees hence student loan debt. Our kids are in debt for life and still no jobs. I’m glad I’m an old man.
Jerry Harmon
1. “Today there are no factories, nothing made in USA.”
BS. The US is the second largest manufacturing country by production, behind China, but larger than the next three — Germany, Japan, and India — COMBINED.
2. “Nothing available without multiple degrees hence student loan debt.”
That’s not entirely true, but the kernel of truth is that manufacturing today requires lots of people with STEM degrees, in addition to people who work on the assembly line, etc.
In 1977 out of college for my first job in Baltimore at a Seagram bottling plant. A few blocks away Federal Yeast made yeast for baking and in a few miles was Leaver Brothers making soap, Western Electric made phone equipment next to a General Motors plant making cars. All of this in the shadow of 20,000 people working at the Bethlehem Steel plant. Today none of those factories exist, they have been replaced by Amazon and FedEx distribution centers.
Ervin,
Old inefficient plants must die and be replaced when they become to costly to operate. It’s all part of the normal renewal process. Go to a place where they make cars in modern plants, such as in Alabama or Texas. You’ll see manufacturing at a very large scale in very modern plants. Go to the Tesla plant in California — the building is older but the inside is 100% modern, industrial robots all over the place.
The old Del Monte Cannery down the street from us in San Francisco was shut down long ago and has been converted into a large boutique hotel and restaurant and retail space with more restaurants and bars. Del Monte cans its stuff in modern efficient plants somewhere else. Life moves on. And people who expect permanent stasis will get run over by life.
Today 2/3 of jobs are in the “service industry” yes some things are still made here but most arent unless youre counting starbucks
Bruce,
Sheesh. Good grief. I cannot believe that people here still spout off this nonsense. Do you ever read ANY articles here?
65% of consumer spending goes into services. If you equate services and services jobs with Starbucks, you don’t know what services are. And you don’t need to be commenting here.
Spending on goods is only 35% of total spending.
Goods include food, gasoline, beer, wine, bourbon, soft drinks, etc. etc., most of which are all-American products. That’s a big part of daily spending by Americans on goods, and much of it goes into all-American products. And America is a HUGE exporter of these products too, including gasoline.
Goods include cars, a big part of which are made in the US. All Teslas sold in the US are made in the US and have the most US-content of any vehicles sold in the US. Some are exported too. Hondas sold in the US are made in the US and among ICE vehicles have the most US-made content. ALL major foreign automakers make vehicles at factories in the US, including the German luxury vehicle makers. Vehicles are made in a bunch of states around the country. From Alabama to California, with lots of states in between including Kansas, Michigan, and Texas. The US has the largest petrochemical industry in the world, and exports much of its products, though they’re not sold directly to consumers but are used in construction (your house, LOL), materials, plastics, components, your truck, fertilizers, etc. The US builds aircraft of all kinds (Boeing is huge), and when you sit in a Boeing, you’re paying for a service provided by your airline, LOL
AI. Another Marketing Term.
Computers have been programmed to make decisions from the very beginning.
Banner had “teach” mode in their optics 10 years ago. Nothing special.
At least 50% of coders and 80% of marketing and other BS report writing jobs can be *easily* replaced by something as dumb as chatGPT. You need one human to verify the outputs from 5-10 bots.
This is not speculation, I’m doing it right now. Technological displacement in the laptop class will be massive, and abrupt.
TC – can remember when the prior ownership of the WSJ was quite-publically in favor of “10% standard unemployment”…
may we all find a better day.
Let’s hope that the jobs inflating California and West coast home prices also move to these flyover places far far away, the sooner the better.
Robot and ai isn’t the same. Every company so focused on the computer but how many are building vessels to put them in. Where’s the robot to unload the semis, what robots are going to frame houses, change your oil, clean your gutters, paint your house. Right now the only Jobs in trouble are ones that spend the entire day on a computer. If you do any sort of labor your job is pretty safe for decades I would say.
I saw a graph recently comparing AI job loss to income. The bulk of the job loss occurs above the $100K earnings level, with below $50K barely affected at all. I suspect this is because of the massive increase in efficiency AI can bring to knowledge based workers. AI doesn’t have to “think”, it just has to be able to farm relevant data at a higher level of “understanding” than previous techologies, and present better summaries of results. Current AI technologies are being designed to do just that.
“a package of subsidies for select manufacturing industries”
Isn’t this the technique that fueled the “Japanese miracle” and subsequent bust a few decades ago?
No, but Japan had a property bubble and a stock market bubble back in the 1980s, like ours today, and they both imploded spectacularly and stayed imploded for a very long time. Meanwhile, manufacturing in Japan kept doing just fine and is doing fine to this day (struggling with labor shortages). Japan today is still a manufacturing powerhouse.
Once Japan figured out quality in the 1950’s they developed a solid and deserved excellent reputation.
But Japan is farming out stuff. To China and elsewhere and it is diminishing Japanese brands. IMO.
You bet that high-end manufacturing countries farm out low-value manufacturing. There is nothing wrong with that. It’s silly to make T-shirts in the US.
kam – the Japanese have farmed out some of their manufacturing to the ‘tiger’ nations for many years, as products packaged in, and shipped from, Japan can be labeled as such under Japanese law. Japanese corps. protected their brand integrity by rigorous QA/QC of their offshore plant production…
may we all find a better day.
The everything bubble that is going on right now is, IMO, something never before seen or experienced on planet earth. It is the by-product of the most grotesque display of monetary malfeasance and fiscal irresponsibility and recklessness in human history.
I don’t believe the Japanese bubble even comes close to scratching the surface of the current situation, and the long-term ramifications of this period will not be known for some time. But they will not be positive. Speculative bubbles never end well, and I do not expect any different this time.
Who are they going to get to take all the new jobs they are going to be creating?
For many of the jobs it will be young Americans. And 4-year colleges should not be a barrier. Lots of the jobs will be for people trained in vocational schools.
Knowledge workers, displaced by AI created job losses. It will be as much as a decade from now, but it will happen. It’s one of the few things in life I have ever felt certain about, and I doubt there are few people in the world more skeptical than me. I was paid big bucks to be skeptical before I retired.
It’s going to be interesting how future workers get the funds to purchase the goods produced by plants with fewer workers. I suppose more services may develop or maybe a universal income will need to be considered.
Covid was a horrible thing but it may have reminded some folks of the advantage to producing in the good old USA. Of course the Congress goosed the movement.
Either way…..as usual Wolfe lays it out like no other……how do we get a serious recession with all of this construction……and he states its just starting……his chart shows almost 3x what was going on just a few years ago prior to covid under construction now. We could have a slowdown but serious recession…..how.
Folks wonder why the markets are jumping…..if the fed does not put some power behind its rate hikes……we’ll have a booming economy….how horrible…..will inflation develop with oil down……maybe but that is a hard pull. If oil jumps, the fed may need to reevaluate. Either way, debt holders now earn more than inflation so who is complaining.
30 years ago I lived in a smaller town in northern Illinois. That town lost a major auto assembly plant in February 2023. Went from 5500 workers to zip. Other plants nearby that supplied parts closed. Another 2-3m out of work.
In the past few weeks Stellantis has announced the plant will reopen with a new electric vehicle requiring billions in new tooling……..they will spend 2 plus billion on a new battery plant next door to the assembly plant and consolidate national mopar parts distribution to this site. Not a home run but definitely a double. Even the states everybody thinks are not competitive are getting some of the goose.
Energy is the key to factories along with robotic manufacturing and apparently, it’s available in the U.S. Pulling production from overseas with fewer workers needed is still a plus for the U.S.
It seems it is also in the interest of national security to get the Hell out of China. They circle Taiwan with warships and bully everyone in the South China Sea, Say DUH if you don’t know what they are up to. Xi is a grinning despot wanting absolute power for himself. Remember that when the product says Made in China.
@Brant Lee,
“Xi is a grinning despot wanting absolute power for himself.”
He has it, and he’s driving China into the ground.
Agreed. Any society ruled by the ideas of one man will always be limited to the ideas of one man.
You simply have swallowed the narrative provided. If you are on this web site it must have dawned on you that Wall Street isn’t the only one pushing a false narrative. One might say American Exceptionalism is basically that but of course that expression has one meaning here and another in the rest of the world. I’m actually rooting for BRICS to eliminate the hegemony of the US dollar. Will take a few decades but writing is already on the wall.
Why would you root for the demise of the dollar? Do you not live in this country?
@Glen,
” I’m actually rooting for BRICS to eliminate the hegemony of the US dollar.”
If there is a false narrative, it is this.
Because I believe in the solidarity of the working class wherever they live. Not unlike on a smaller scale Fred Hampton embracing other exploited classes. Chasing low cost labor and natural resources always has a consequence, although it has done very well for a segment of Americans.
One thing I agree with Glen. If you totally believe the media/gov, then you might as well stick your head in the sand.
DawnsEarlyLight
Truth and discourse, not agreement, is the goal!
Glen, your comment: “Because I believe in the solidarity of the working class wherever they live.” is truly wishful thinking. Those working class members will jump ship as soon as they get one rung up on the proverbial ladder. It’s called the human condition.
I wish it were otherwise, but that’s just wishful.
The fall of the US dollar will not help the working class. They’re going to be the most brutally affected. Remember that you were rooting for it when inflation spirals and it takes wheel barrels to buy loaves of bread. The rich will still be the “wealth” holders, even if their wealth isn’t in the form of the dollar.
Striving for a classless system has been a struggle for a long time. Money and power have won for a long time just like they did with slavery and feudalism. Capitalism is essentially just modern feudalism. There is no utopia but it is a worthwhile struggle. When the 3 richest people own the same as the bottom 50%, healthcare is massively expensive and homeless people are everywhere one has to question whether there is a better way. The US of course doesn’t understand it because allegories like Animal Farm were funded by the US to print in all languages and of course the CIA purchased the movie rights and changed the ending. My goal is simple transparency and truth and have the curtain pulled back wherever they exist. Right now it is stepping on the person below to climb the ladder but missing the idea that most people are in that position at some point except mostly in the cases of inherited wealth and of course the exceptions that people like to point to trying to point out the American Dream is possible if only you sacrifice and work hard enough. A real positive of the Internet, with all its downsides is recognizing the shared struggles of the working class. Some really great and educational podcasts and forums.
Wow…rooting for the BRICS because you believe in the solidarity of the working class wherever they live
Brazil, Russia, India, China, and South Africa
Do you recognize the extreme concentrations of power and wealth in these countries?
The weight of institutionalized privilege that a few enjoy, and most not?
In which of these countries would you like to be a worker bee?
The US ain’t perfect, but it ain’t a commoner’s life in the BRICS
Brant Lee,
“Pulling production from overseas with fewer workers needed is still a plus for the U.S.”
It’s not “still a plus.” It’s a “HUGE PLUS” for the US economy. These are great jobs, many of them STEM jobs.
You oversimplify, don’t dictate. If I have a choice of partners, let my business choose from a point of strength (multiple vendors). I need to have multiple options, but if China is cheapest for a fraction of my allocation I should have that as an option. As currency and other prices change let me make my choices.
You have set out out a reasonable set of hurtles to clear for my business planning group.
Brant Lee
Have you forgotten American Industry, Capital, including the U.S. Government built the China.
What a disaster for American jobs and families.
That’s great for the whole area. Don’t know what replaced GM Janesville WI after it was demoed a few years ago.
To put the “boom” in perspective from my perspective as an engineer involved with the construction of modern manufacturing eco-systems;
18.7 billion dollars is, at most, nine replacement facilities. Seems like piss in the sea.
PER MONTH.
Not 10% higher than a couple of years ago, but 3x higher.
Your assumption of $2 billion per average plant seems to include not just the building, but the robotics and equipment inside. This data here is only costs of construction, not the equipment. So you might want to revisit your numbers.
This government sponsored mini-boom will totally not be inflationary and willbenefit from the efficiency that our federal government is famous for. And the debt will totally not be monetized by Jerome ‘higher for longer’ Powell. /s
Better than being spent on bombs and social programs for people with four dads.
We waste TRILLIONS in this country. Nice that a few billion are finally resulting in productive capacity being built.
The industrial park in my town in the last 2 years has built a distillery, aluminum foil plant, cardboard box plant, and a factory building semi trailers for less than a billion.
Definitely going to lead to less globalization. EVs, if they have a certain percent made in China with batteries or minerals won’t get full rebate. Not a big fan of labeling China as FEOC but protectionism is hardly new. Certainly is going to help the US but will have to have solid rebates as well as other tax payer support. Telsa might have the formula but the rest are way behind so seems like protectionism might be more important than emissions reductions.
Mining is an essential industry. We may oppose the establishment of a proposed mine as not necessary to attain our societal requirements and forestall the opening of the mine. However, that mine will open as soon as it is needed and the technology favors the exploitation of the ore body.
Government will ensure that the metals we need will be produced.
On Tuesday, 28 November 2023, Minnesota State Administrative Law Judge James LaFavre ruled in favor of Minnesota Department of Natural Resources and denied PolyMet Mining a permit for their proposed open-pit copper-nickel project. This would be near Babbitt, MN.
The Iron Range of northeast Minnesota has been mined for iron (hence the name) for quite a long time. There is copper, nickel and and other minerals there too. But the Judge ruled that the use of bentonite clay at the old LTV Steel site to to process and store ore and waste rock would risk contaminating water from acid mine drainage.
The Boundary Waters to the north and the Lake Superior watershed flowing east are what’s potentially at stake here. From the Judge’s ruling, “The bentonite amendment is not a practical and workable reclamation technique.”
So yes, we have copper and nickel underground in the Iron Range. It looks like that’s where it is going to stay — underground. For now, anyway.
As a now ”elderly” FL native vgv, I can only suggest that it IS possible to extract ”needed for eventual total renewables” similar to how it WAS possible to stop the incredible increase in modern chemicals that absolutely killed the ”reefs” south of Siesta Key that I free dived as a kid.
Those beautiful reefs, FULL of native corals and fish are now only slabs, barren of any life, visible on Google sats.etc.
I can only hope and pray for the areas you mention,,, just like I hope and pray for all the rich folks in Sarasota County, FL to at least ”start” to clean up the dumping that has killed their natural coastal beauty(s).
I don’t think so, it’s really China that is getting it’s role reduced. To fill the void the US, Mexico and India are getting an increased share. Probably others too, but those are the ones I know about.
Also, check out the andertons videos touring the Gibson guitar factory which I think is in Tennessee. It’s an interesting mix of human and machine work. This is for their top of the line guitars. 2nd tier get made in Mexico, Japan, Korea of Indonesia. China is usually considered to lowest tier and serves as the maker of entry level guitars for brands. This is true for fender, Ibanez, etc. Plenty of other industries have similar characteristics.
Most of these manufacturing “wonder jobs” will be low paid. Even those that require some reasonable skills such as machining.
That said, it’s better to be making it in this country; especially if the product is important and necessary.
I wonder how much of this manufacturing construction it funded by Uncle Joe’s “Inflation Reduction Act?” In which case, the piper will be paid, but later and down the road.
“much of this manufacturing construction it funded by Uncle Joe’s “Inflation Reduction Act?” ”
That’s still ahead. I explained it in the article.
I posted a comment asking if Biden policy was the main reason for manufacturing construction? I saw my comment was in moderation but never saw it posted. Was there a reason it could not be posted?
RTGDFA.
You asked because you didn’t read the article, because the article dispelled this myth.
Commenting guideline #1: Comments about the article that show that the commenter didn’t read the article will be deleted or will be treated with a RTGDFA.
And NO, the subtitle and the first paragraph are NOT “the article.” You need to read the whole thing before commenting on the article. If you don’t, you run into the fate that you ran into.
here are the commenting guidelines:
https://wolfstreet.com/2022/08/27/updated-guidelines-for-commenting-on-wolf-street/
Machinists are in demand. I don’t know machinists that are making less than 70K and up to six figures with OT. With the loss of the boomers and so few Xers/Millennials being interested in non-office jobs, there are tens of thousands of unfilled machinist positions across the country.
I wonder whether the US is ready to return to the industrial society we all cherish, throwing off the financial economy we have become.
Which I propose is the incongruity that winds it’s way through most of the comments I read.
Does the King deserve it. I don’t think so.
As always, well said, Dang. But the king’s deserving it… There is no king, just a bunch of serfs, all pulling the economy in their own direction which makes it so complex and robust.
The financial piece will probably wither due to AI advancements. Some service industries will completely evaporate.
A highly industrial economy requires fundamental government support. From infrastructure to training and education to directed support for technology research, a modern industrial economy is a government program. As one finds in China, Japan and Germany, the countries that are good at it. The American people have shown repeatedly that they really value a free market economy with minimal government. The Biden administration may be trying to revive the American industrial spirit, but, IMHO, the American people will reject it over the long term.
America doesn’t deserve anything. We’ve become lazy, spoiled, entitled, and have been mooching off the rest of the world because of our reserve currency for too long. Not to mention that our legal system is well on its way to becoming a banana republic.
Before I say what I’m about too say, I would like to wish everyone peace and good will, the best Christmas gift.
The worst would be given a billion dollars !
It is positive to see this happening. But I wonder if this (investment in local manufacturing) would be temporary only (COVID, China fear, all the CHIPS act and other freebees and of course, ZIRP) as the business community is hoping Indian manufacturing would replace the Chinese (I would say in vein, knowing the differences between the Chinese Vs Indian culture). Also there seems to be the revival of unionization and its impact.
As much as we are witnessing the increased activities in our manufacturing sector in the US, I for one thing felt what we have seen might be just a knee jerk reaction to the geopolitical concern rather than a rational business decision out of the invisible hand that impacts the free capitalistic market. Even if we can successfully pull out of China, I just can’t figure how we can compete with India, Vietnam or Mexico etc.
A “knee-jerk reaction”? That’s funny. These things are complex — you gotta have a plan, get the robotics lined up, plan the supply chain in advance, etc. They’re being planned for a long time, funding takes time to obtain, and the whole thing takes years to implement, and costs billions of dollars. Those are very carefully thought-out processes. Not knee-jerk reactions.
…the extension of belief in widespread instant gratification, taught by access to the light switch on the wall, hot or cold running water at the tap, or healthy air when taking a breath…
may we all find a better day.
Certainly, Wolf, I saw your points regarding the planning aspect. However, execution presents an entirely distinct challenge. In the contemporary sense, manufacturing in the 21st century lacks the allure it once held in the mid-20th century. It frequently demands a high level of commitment, discipline, and, at times, sacrifices from employees. Acquiring these qualities in the current U.S. scenario might not be a straightforward task. The sluggish progress and diminished productivity evident at TSMC’s new Phoenix Fab during its preparation serve as a notable illustration. My contention is that irrespective of the location of factories, the key lies in enhancing productivity and competitiveness and how we make it come true.
Tony Washington,
Those are defeatists’ arguments. Just because it isn’t easy and smooth, it cannot be done?
Manufacturing is hard and complex. You hire the best people to sort through these issues. BTW, the Phoenix plant ran into shortages of construction workers. So things take a little longer than planned. That’s standard in huge complex projects. But they’ll get done successfully anyway. Don’t worry about it; let them worry about it; they’re the experts, and they get paid to worry about it.
As someone who works in $BIG_FACTORY:
TSMC’s trouble in phoenix is a bad example to support Tony
Washington’s argument. Numerous massive semiconductor and semiconductor-adjacent companies are building in Arizona. TSMC is about only one having issues to such an extreme, and their explanation is “America’s Workers Are Bad At Work.” That falls under “not a real explanation” in my book.
This is just hearsay, but my understanding is that TSMC’s relationships with builders has been just short of abyssmal. True or not, there are lots of angry finger pointing going on while the piles of money burn. The situation is being badly handled by TSMC’s executive team; good public optics while handling public money is fundamental.
Last, Americans don’t want to work grueling manual factory jobs you cite because (1) they suck and (2) have largely gone the way of the dodo. The days of sweating day and night to bang out wigits with by pulling a lever are over, and no one in their right mind should want to do a job that could be done by a robot unless they were compltely desperate. America has 100% figured out that people’s talents are far better spent elsewhere. Modern factories are palaces of automation with far more output per unit of investment than ever before, and while they aren’t pleasant places, they are not the inefficient deathtraps of yesteryear. Businesses try not to junk factories because they are so expensive, but it should never surprise anyone when a relic of the late industrial age is finally retired because core functions run on computer tech older than MS-DOS v1.0; that’s no way to compete in the modern economy.
Exactly FR!
Remember distinctly the day, about 20 years ago, when I realized that I, alone with my state of the art computer at that time, was actually doing MORE work than the team of 10 or so I had been working in 20 years earlier…
And more successfully in terms of the analyses completed and work obtained for the client.
Yes much positive news about bringing production back some of it will be done by Robots and some will be for people reducing unemployment mostly in the Blue collar industry…white collar jobs added but not as much as Blue collar….but the fear is the consumer will be paying higher prices.,,,any thoughts!!
Consumers will always pay the highest price that the market will bear. That’s a fundamental economic principle. The question is the profit margin of the manufacturer.
…raising the question of public perception of a crossover of certain market products to that of public utilities (…the ‘price stability’ conundrum so commonly discussed in this fine establishment…).
may we all find a better day.
A lot to unpack here…
AI isn’t where many think. It’s another pony trick and will take a lot of time to really shine despite it being so popular currently.
Most technology today doesn’t work half the time unfortunately. Self checkout always has at least one machine that isn’t working but somehow these robots are going to be produced and programmed in the US and maintained and reprogrammed etc. for the great productivity leap. I don’t understand how the US is one of the highest productivity countries for workers because everywhere I see and experience it’s a complete cluster for everything. Nothing is efficient or correct.
Further more although we should have diversified our supply chain years ago and kept more manufacturing in the states… Mexico and India which have obviously cheaper labor amongst other things do not have the same infrastructure that China does so it will take awhile to shift more and more manufacturing.
Don’t confuse AI and automation with self-checkout.
Self-checkout isn’t automation, it’s manual labor that the store shifted from 2 employees (cashier and bagger) to its customers. It’s just a shift in labor costs from the store to the customer, where the customer provides the labor for free. The cashier has nearly the same equipment, including the scanners and the machine that gives change. So self-checkout is no more automated than a regular cashier.
Amazon is experimenting with automated checkout with RFIDs on products, for customers with preapproved accounts (I think you need to have a pre-approved account to even get into the store). You just walk out with the stuff in your cart, and the RFIDs in each product and devices at the shelves transmit the data, put it into a receipt, send the receipt to your smartphone, and charge your credit card account. That’s my understanding how it works; I’ve not been in such a store. If that takes off, it would be automation.
Interestingly the self checkouts cost stores more than labor does because of maintaining machines and increased theft. People, including myself, wouldn’t want those to disappear. Still find it amusing I can’t pump my own gas in parts of Oregon when I visit.
Engineers age out…ouch.
Huge problem in tech and social media.
…the true demands of only being as good as your last act are merciless (…despite a really good act fostering beliefs in its ‘exceptionalism’…).
may we all find a better day.
Understanding the difference between a pothole and a gutter never ages out. It’s amazing how many young engineers can’t discern the difference, wasting sometimes massive amounts of time and money. I also think this is why so much technology out there is frustrating/”broken”.
@JeffD,
I know there is some truth to what you are saying.
Here is something I have seen in my career. Engineers design a good product, that meets the design specification. Then, later on after a couple of years, the company wants to cut costs on the product to increase profits, and they start making changes to the product that ultimately reduces quality and reliability. The cost cutting measures are being pushed by non technical managers. In the short run, profits go up. In the long run those profits are eaten up by warranty costs, and the company gets a bad reputation.
VERY good summary/concise review HM! Thanks.
Seen this very thing over and over over the last 60+ years as carpenter, from apprentice to team leader to general superintendent to contractor…
Time and enough for all USA folks to get behind and support ”OJT” for everyone who asks for it.
After teaching ”construction technology” classes for a couple of years in mid to late 1980s era, I saw first hand both the lack of basic maths of the students craving reality from their schools as well as many folks coming back to basic skills teaching after years of ”paper chasing” leaving many very frustrated…
The promised anti inflation act might deflate. If we enter a recession demand will be falling. Gov promises usually fail.
A rise in prices, if not too rapid and extreme, has a stimulating effect on business profit expectations.
Acting under the impulse that wider profit margins are in the offing, businesses will go into debt, hire workers, buy additional inventory, expand their rate of operations, [and if their optimistic anticipations cover a long enough period], decide to expand their plant capacity, and develop new outlets for their products.
It seems the government realizes that the Taiwan issue may come to a head sooner than later……imo Taiwan is Chinese…..sooner or later.
Since they make quite a large share of the semi conductors the US uses…..this recent boom in domestic semi plant building is somewhat based on getting ready for the issue to manifest.
They should have realized this years ago. You never throughout history or common sense rely on one country or countries for everything. You always keep at least some production of everything in your own country no matter what.
Either the printing press or just deficit spending.
Reading the comments about new facilities in flyover land made me wonder if a decent rail system will be built to accommodate logistics? And will passenger rail be rediscovered along the way?
As for blue collar jobs/training for new employees, I had several careers over my work life. As a carpenter we had to actually work around engineering “inputs” to build as newbie engineering grads were the ones who visited the jobsites. It was always a stand back and let us work conflict when they made suggestions. Just give us the blueprints and leave us alone. Moved to a career in aviation and finally taught electronics, construction, CAD and discovered a general truth as I got to know the families. I have yet to meet one set of parents who did not want their kids to go to university and get a white collar job upon graduation. In fact, one day I got called onto the carpet because I spoke to a class of ‘high end’ french immersion students and suggested they go to work and learn a trade/skill before attending uni, and that university was no place to ‘find oneself’. “Did you really tell them to get a job before going to university”? Yup. Work and knowing how to work is a priority. Okay, there are focused hardworking academics out there headed for the moon and I get that. But as my engineer nephew would say when he hired new engineers for an auto parts supplier company (huge multi national), “I want to see some grease under the fingernails when we shake hands”.
One other thing, as for the future workforce I have concluded that in general today’s kids are at least 10 years behind in maturity and outlook. I left home by age 17 and worked full time as an apprentice. My wife left home by age 18. Both of us earned advanced degrees by age forty while working, buying a home, raising kids, etc etc. But when I was teaching it was always ‘the school’s fault’, those bad teachers, and what will you do to help ______ catch up after our trip to Maui? Seriously, some parents actually expected that schools would/could adjust lessons to accommodate a family vacation during the semester. (Johnny is just one of thirty, not the one and only.) Teaching, I took cell phones away at the beginning of class and it was a frigging battle some days. It was dealing with total entitlement at every step. My best friend taught calculus. He grew up in a logging family and set chokers to get through uni. I stole his often used reply when kids would ask if they could redo the exams they did not prepare for. “Absolutely, same time next year”.
IMHO, these new factories will be employing displaced mature workers or immigrants who will recognise the value of a good job opportunity and know how to work. It sure as h___ won’t be new grads as first choice. They will also have to implement a rigid no cell phone policy except at breaks. And no calls from parents. Yes, it happens. My sister in law runs a big grocery store and has received calls from parents telling her why their child (18 year old child) needs a shift off. She now tries to hire seniors whenever possible. Or immigrants, but they are difficult to schedule as they often work at several jobs.
Immigrants can be hit or miss too.
I have a lot of experience through my work with call centers and data scientists who are H1Bs.
For some reason, nearly all of them feel the need to spend hours on the phone with hundreds of aunt, uncles, cousins, etc.
I’ve never seen anything like it.
“a decent rail system will be built to accommodate logistics?” The media has gotten to you, the US (and Canada) have the best freight railroads in the world. They have massive over-capacity and are incredibly well-run. With the Norfolk derailment, the media and politicians forgot to tell you that ’22 was the safest year for freight railroads (’23 could beat it) and have a much better track record than highway trucks (do you really want chemicals on truck?) and are one of the best (and proven) carbon reduction tools we have.
Paul S,
You mentioned railroads. We could certainly use a ‘trunk line’, two good tracks, running North from El Paso and Mexico, up the Rio Grande to Albuquerque and on to the Front Range of Colorado and into Southern WY and probably on up to Montana and Canada eventually.
There is a lame low speed track meandering along that route but it is not what is needed. There are not any good North/South trunk lines in the center of the West and there is a need for one now.
El Paso has become a monster because of Mexican labor and manufacturing and the Front Range (Denver, Colorado Springs, Boulder, and many smaller towns) is a very busy place, and Wyoming is loaded with natural resources.
I think building a nice line here would yield a lot of growth.
Paul,
From my own experience, high school was a total waste of time, nothing but a 4 year student torture make work project for teachers. By 8th grade they had already taught me whatever they were required to teach, high school was a worthless repeat.
I totally understand why the kids don’t care, they would be better off working or just talking to teachers about things that interest them instead. I think all kids would be better off learning any trade as a high school requirement before university.
Totally agree as a BA holder in Business. Most of what I have learned in life has not been in a classroom. Much of school in general from start up to university is stuff you will never use or remember again. Total waste of time, money, and lost earnings.
While most of the money is still to be released it clearly will be a lot of new jobs and economic activity. Seems like one more thing that will put pressure on inflation.
Maybe. But if the money is being put towards the production of “useful and needed stuff” – that can be dis-inflationary in the long run.
Manufacturing as a % of the economy is falling across the globe, not the just in the US. In fact, it is falling faster in China than in the US, it is down 5 points over the last decades (32% to 27%). Manufacturing in the new farming, which is now only 0.7% of US GDP, and US farmers are arguably the best in the World (certainly on profits and productivity) and we are a large ag exporter. The we don’t make anything chat is silly, US industrial production is at all-time highs, and 2x what it was up Reagen. And I believe our industrial strategy is working quite well, like in farming we are taking the most profitable and value-add part of the job, and sending the low-value stuff (plastics toys and garments) which will get automated anyhow. The US industrial base is the envy of the world despite the nay-sayers, we have incredibly innovative and efficient firms such as Danaher, Roper, Rockwell, ITW, Honeywell, Boeing, GE Aerospace (near monopoly on airplane engines), Lockheed, Graco, Nordson, the list goes on and on but the media doesn’t look at what these companies are doing and frankly have no clue on the industrial economy. We have the best industrial freight infrastructure in the world (rails/highways) which is a way more important the Europe’s people freight network (don’t get me wrong still envious of their high-speed trains, but ultimately the US has a better network). The US is a technology leader in every sub-sector from Oil & Gas to Industrial software. People need to start thinking about the industrial base like the 1950s car factories and realize the industrial world has changed dramatically (more software, less people) and the U.S. is leading the way by a wide mile (only Switzerland and Sweden are even close, on a per capita basis Sweden is crushing everyone). Sure our supply chains could use some well-needed diversification from China’s janky factories (I challenge you to name one important Chinese (not Tawain), industrial firm).
Manufacturing as % of GDP is falling in China because China made its huge growth for decades by pushing manufacturing for exports, and that eventually hits a ceiling, and so the economy stalls and must switch to consumer spending and services, and that has been happening in China for a decade. It has been happening in the US for many decades, as manufacturing was more and more replaced by imports. And it has gone too far in the US over the past 2-3 decades. And it’s time to revive manufacturing as a bigger contributor to the economy and cut down on imports.
And don’t forget all the US companies that were bought by japan after they rebuilt and boomed. They bought them when our currency was deflated and closed down the US operations then sold the products to the world while producing them in places like China etc.
JS – …U.S. population wealth-disparity levels ’50’s vs. now, though? (…U.S. passenger rail had a much-higher average speed in the ’30’s than today, but of course, passenger profitability vs. cargo density rates currently doesn’t pencil without subsidization…).
“…one man’s ceiling is another man’s floor…”. -P. Simon
may we all find a better day.
John Stotes,
Wow, and I get the sense that you know what you are talking about, that you are in the thick of it and not just talking from dry statistics.
There is certainly nothing that I really know that could argue with anything you said. Looks like a good time to be a bull like the 50’s? Wouldn’t that be nice!
We make high value goods, but don’t make near the volume of medium and lower skilled goods.
China is good at stealing our engineering, intellectual property, R&D, and trade secrets while implementing protectionist policies and deflating their currency and overworking their workforce in order to create an economic vaccum as the world factory and finally we are wising up as they have been taking market share from the rest of the world for decades while no one seemed to care or do anything.
Howdy Folks. USA should be able to do great things. Small Businesses were the norm for US old folk. Self Employed since the age of 20 has me scratching my bald head as to what the hell happened to US………I saw it happening and still do not believe it…………..
Chasing low cost labor is certainly an aspect. I recently had two trees taken out as too close to house for me to do safely. Neighbor across the street was paying thousands for tree work. I just approached the workers and negotiated $250 for both since once down I would take care of. They made $50 each for 10 minutes of work and I saved likely well over $1000. Made 5 workers day for putting 2 hours pay or so in pocket for very little effort. My 6” chainsaw took care of the rest! Workers had no ownership in business so just wage labor instead of sharing in the profits. Win/win. And yes, I get owners have overhead and need to make a living, but these backdoor deals happen all the time and avoidable almost completely.
If it had gone sideways, were you taking the hit, the employees,
or were you sending the bill to their boss?
On me but worst would have been a few broken roof tiles and the odds were 1 in 1000 as only 50 or 60″ trees if that since these were underpaid professionals. If they had to climb and take down piece by piece I would have been in different territory. Material circumstances are always relevant. Why anyone would plant an Italian Cypress right next to a house and not account for growth is beyond me. For example, I buy flood insurance despite not being required and no probability but the $50/month is piece of mind. It ultimately pays for floods that are very unlikely where I am at and all too common elsewhere.
Feet not inches! I can take down a 5 foot tree!
Glen – 6″ chainsaw another typo, yes?
may we all find a better day.
Glad you found someone to do it.
Had a client years ago decide he could do some of the
clearing for the project. One of the trees went the wrong way
and he was killed.
Wow. Unfortunate. Small trees, even 40 or 50 feet can easily weigh several hundred pounds and you have to be careful. For some that were away from the house I watched a YouTube video on making the initial, wedge and back cut. Lot of fun given I am a software engineer for income. I admire those with physical skills. We need computer people but wish I would have learned some basic electrical and plumbing more along the way, or even wood work. Very satisfying to create or fix something with my hands.
Howdy Glen. Your tale tells the story. It is your money to spend how you decide, you earned it. How we earn our money changed. For me, Govern ment picking winners and losers changed the USA forever.
Just an old fools perspective…..
The wisdom of older generations is often lost in our culture. Can never be taken as the only source but should always be part of the conversation.
So how do we play this? What should we buy? Engineering/Construction? Heavy Equipment manufacturers? Equipment rental companies? Or are we already late to the party?
Wolf & I have disagreed on this topic before. But here I go again:
I don’t think there’s any broad-based significant re-industrialization underway in the USA. I think the growth is confined to a few very capital-intensive sectors – some of which are tightly-coupled to IRA-related subsidies the Fed Government is providing. And I’m not all that sure those subsidies would survive a change in administration.
One also needs to realize that the bottom fell out of CapEx during the pandemic and some of the growth was simply pandemic-deferred spending.
I absolutely cannot see overall factory spending increasing when PMI has been in contraction for more than a year. The latest backlog component of PMI was awful and even the employment indicator has turned negative.
1. These plants are built to replace imports, not current US manufacturing.
2. The PMI is month to month. Executives get a survey that asks: Is production in the current month higher, the same, or lower than last month. Higher = 1; same = 0; and lower = -1. So if 30 respondents say higher (+30); and 35 say same (0); and 35 say lower (-35), the total is -5 off neutral.
The PMI neutral = 50%, means same number higher as lower. So for example, neutral would be if 35 say higher and 35 say lower, the PMI score would be “50.” In the above example, the number would be 45 (-5 off 50).
This is a sentiment survey. It doesn’t involve dollars or units or actual output figures.
3. NO ONE in the industry makes decisions that take years to implement and require lots of money based on this type of month-to-month sentiment survey. These surveys are used for short-term indications, meaning month to month.
4. Some manufacturing sectors are still running hot, others have slowed from their huge pandemic spike. That’s also what the PMI says.
5. But none of this has anything to do with building a new chip plant to replace imported chips, or building electrical equipment plants, auto plants, and battery plants to replace imported electrical equipment, autos, and batteries. These are long-term strategic decisions.
Battery plants make good sense here given the massive amount of minerals. Will be interesting how that relates to get the price of EVs down. Chip plants seem likely political as Taiwan makes 60% of worlds chip and 90% of most advanced ones. US is already restricting the use of ‘AI’ chips which nvidia uses TSMC for manufacturing. I worked at Folsom back in the day and that facility was built out for that although never happened. Underground tunnel tours were fascinating though and plants in the late 80s certainly are different than today.
Given Taiwan is a complex geopolitical topic from all angles don’t want that to be any more difficult than it is already.
Ensuring employee living wage, safety, materials, environmental impact concerns will keep prices above those of other countries with more lax concern for people now and the future. So higher tariffs on imported goods to keep prices competitive? How about labor pool…people looking for work, willing to take on jobs? Could this be an opportunity for sane immigration policies versus extreme stances of let everyone in all the time vs keep everyone out? I fervently hope the new factories will work out all around. Basic issues that drove manufacturing overseas need addressing. Small window on common sense challenge: salmon commercial farming in UK, salmon flash frozen and shipped to China to be processed, to then be sent back for sale in the UK. That sort of system the US is enmeshed with to this layperson is daft.
I think combining sane policies and immigration is funny but not in a humorous way, if you look across most of the world it is now a hot topic. Last time sanity existed here was Gang of Eight a decade ago and it went almost nowhere. It completely makes logical sense for many industries whether it be construction, factory work or given the aging population, healthcare workers. I watched the latest special South Park had and funny how so many workers became irrelevant unless they had a concrete skill. Perhaps we move back in that direction where those jobs are as valued as knowledge workers.
My mom was a professor at UW/Stevens Point Wi. One of her duties was advisor for foreign students. They were a laid back easy going group typically 1 or 2 years ahead of their American counterparts.
Within six weeks of entering grad school they would go to see my mom almost in tears. They were struggling. They wondered how their American counterparts had learned so much in one summer. Makes me stop and wonder what happened here.
1. A difference in cultures.
I think American culture believes in extended childhood. Undergrad is
considered part of childhood. Therefore American undergrad students
are basically being sent to daycare. But grad school is the real thing.
It’s for motivated adults. Foreign students seem to be pressured to
succeed from kindergarten onwards.
2. A numbers thing
The vast majority of American undergrads have no intention of going
to grad school. Those that enter grad school are the creme de la
creme. They have probably been learning on their own, tutored by
family and friends, etc. Undergrad is just something they have to go
through first. Who knows? Maybe they actually pick up a few tips as
undergrads. Foreign students will, of course, look better compared
against American undergrads than grads.
Will American grads rejuvenate USA? Not in a year or two. But how about 20 years? I think so. And this 74 year old might actually live to see it. And if there’s a shortage of American grad students? The creme de la
creme of foreign students will be more than happy to move to USA the great melting pot of the world.
That assumes that anyone but those from wealth can afford the educational system. That hasn’t always been the case as education even when adjusted for inflation has skyrocketed. For more advanced public medical school is 53K per year with private 12k more than that. There are plenty of countries where that type of training is either free or very limited cost and of course equivalent health outcomes for a fraction of the cost. Americans probably accept the concept of calling an Uber to get to the hospital in an emergency just because of cost of ambulance. I did it when I broke my leg( short version).
We are very lucky so many trained people overseas in IT and healthcare want to come here to make money and send home but would be nice if we built those capabilities ourselves.
UWSP grad here.
The undergrad program I went through no longer exists.
Gone are the upper level physics & chemistry requirements.
It is now a program I could have easily done in junior high.
So now we are asking students to pay for grad school.
One possible problem, education (see page 2 graph).
https://cset.georgetown.edu/wp-content/uploads/China-is-Fast-Outpacing-U.S.-STEM-PhD-Growth.pdf
Based on current enrollment patterns, we project that by 2025 China’s yearly STEM PhD graduates will nearly double those in the United States. If compared to domestic U.S. students only, the number of STEM PhD graduates in China will be more than three times as high.
If China has no use for them or doesn’t pay them enough, they’ll apply in the US, and the US can pick the best and brightest without having paid for their education.
So I’ll just repeat this from above:
The US produces some of the best engineers in the world. In addition, the US has long been importing engineers, including some of the best in the world. The US will never have a shortage of engineers. Nation of immigrants, remember, for better or worse. Some companies are staffed to a large extent with foreign-born engineers. Some older engineers who’d like to work cannot find work because they got aged out – and that’s a homemade problem. Some of those aged-out engineers are commenters here.
Except for the hostile sentiment (not to mention the extreme cases of espionnage witch hunt) right now about China. Just to give an example, according to a report by a team at Princeton, Harvard and MIT, 20,000 scientists of Chinese descent left the US between 2010 and 2021. The migration has been accelerating.
Not only that, there is also strong political resistance against “importing foreign workers”. Ask TSMC about their difficulty bringing over Taiwanese skilled workers.
Totally agree… Some companies prefer overseas engineers over American ones not because of knowledge but because of incentives and culture. If someone is not from here and is going to work har to support family here and abroad and come with incentives and perceived humility and work ethic then they will probably look to overseas talent.
Thank you for some good news.
1) In the next year and a half corp debt maturity will rise to 3T, mostly
junk and gov debt maturity will reach 7T. That 10T will choke the private market.
2) Less money for mortgages, businesses, the stock markets, shingle mums, restaurants, or ppp loans. The good old days are gone !
3) The Fed might raid bank accounts to support the gov, to control the
long duration. QT will flip to QE to serve gov needs, nothing else.
4) The lowest rate might shift from the 10Y to the left. The spread
between the 3M the middle and the long duration will grow.
5) The liquidity tsunami will be drained. Recession will vacuum the
zombies and dump fragile businesses to the garbage bin.
6) Nov 2023 to remember. Wall street sent the markets up to take profit
to dump stocks at high prices.
So when you do predict the massive sell off and how much correction will we see?
(1) $10T matures and $10T + ~$400B gets reinvested. That’s only about $400B of new investment money that has to appear.
This is what industrial policy looks like, and it is good for America and its people.
It is a DISASTER as it is all funded by debt and deficit spending.
This one here — subject of this article — is funded mostly by private capital.
and if china invaded taiwan and the world went into a depression would you still be averse to reshoring critical supplies(chips)sometimes debt is a great investment
Your article’s and the commentary you provide on comments is intellectually rigorous and outstanding Wolf. Always enjoy reading your fact based inferences. Thanks again for everything you do.
Macro economic policy of the United States of America Commanders in Chief. Since the meltdown of 2008 2009 the U.S.of A. has been on the right side of economic policy history. I have no crystal ball though the 2Q of 2025 will indicate if it was time well spent. With the economic chieftains looking back and our industrial corporate captains looking forward where’s we as a collective group (the US of A electoral) Musk decide whom to endorse for sponsorship of the helm. May I say Donald j Trump’s 2016 campaign platform was viewed as an isolationist strategy go look at us now with President Biden talking financing and implementing reassuring efforts for America first in the name of National Security. I have learned when handing off a baton it’s with hopes your track coach didn’t run your hind end into the ground. Thanks to y’all for allowing me to digress. HLK Jr.
Wolf, what do you think of money supply estimate?
https://centerforfinancialstability.org/amfm/Charts3_amfm1B.gif
Forget YoY, which is what you linked. Look at a dollar chart, and you will see that money supply has fallen from the peak in July 2022 (when QT began) by about $1 trillion, a little less than QT ($1.2 trillion).
What did people expect QT would do??? Create money, LOL??? The drop in money supply is a consequence of QT, just like the huge surge in money supply starting in March 2020 was a result of QE. No miracles here.
These goofballs out there with all their handwringing about the YoY drop in money supply should look at a dollar chart of money supply and then at my monthly Fed balance sheet articles. That’s where the action is. My next one is coming on Thursday evening on the balance sheet that includes the Nov 30 roll-off. Make sure you don’t miss it.
Bitcoin and gold are exploding. Powell has completely failed in his obligation to rein in the animal spirits on Wall Street, and consequently, inflation.
He had a great opportunity to hammer the pivot mongers, and instead made stupid comments about possibly lowering rates later.
Home builder stocks are jumping to ATHs on housing while we have historically low sales. Housing prices have plateaued or have drifted lower. This does not make sense. LOL
I have a friend who works for a big construction engineering firm in this companies government division. The are very busy. The Government is spending money like crazy for construction projects. You name it. It is amazing some of the projects that are getting funding. Small rural projects like airports that are not growing are getting complete makeovers thanks to the government. etc. The list goes on an on.
Another friend who works for the government in handing out grant money or low interest loans for rural projects says they usually average giving out 10 to 16 million per year. He said it is over 140 to 160 million this year. 10x.
There will be a lot of waste, but the construction boom may help the economy to continue to grow as other areas like tech slow down.
Excellent article – probably the best news the economy has delivered in the last year. The dependence on China was scary and the supply chain issues exposed it in full. Also a rare case of policy agreement and consistency across the political spectrum.
Lets hope it continues and that your point on automation eroding Chinese cost advantages prove true.
Hey, this is great news. Thanks for sharing!
Sure, it is the realization by corporate America that China is our enemy, it is not our friend. Nobody wants to invest substantial sums in a country that could be a battleground (note the Taiwan situation, which gets more dangerous day-by-day) or have to rely on an enemy to supply necessary goods. Frankly, I am glad we are on-shoring against China, even if the products cost a bit more. There is still plenty of off-shoring, but places like India, Mexico, Southeast Asia, are not exactly stable. Even Europe is looking more dangerous with Russia on the warpath again. The US is the safest place to invest in manufacturing infrastructure nowadays, so we see a big increase in factory construction here.
In other words: taxpayer subsidized factories and higher prices for consumers under the auspice of fragile supply lines. Golden.
It’s tough to get too excited because one has to wonder if the demand will be there to support all this new production. Are we heading into a period of oversupply? Especially if the construction is being financed at the recently elevated rates.
As a small manufacturer, this has been a record year for us, particularly in the year’s second half, as the phones are still ringing like crazy. I will build another facility sooner rather than later, but it will be with cash. If all goes well, late-2025 is when things could start happening.
As all the new factories come online it will be interesting to see the impact on the jobs market.
I wonder how much of this $246BB is gov money?? Not saying its still not worthwhile. Ive read some reports this will add close to 300k manufacturing jobs
Wolf, I wonder how these new insights could improve a current investment strategy. Invest in “factory builders”?