www.advisorhub.com/resources/american-factories-are-making-s…
The construction of new manufacturing facilities in the US has soared 116% over the past year, dwarfing the 10% gain on all building projects combined, according to Dodge Construction Network.
There are massive chip factories going up in Phoenix: Intel is building two just outside the city; Taiwan Semiconductor Manufacturing is constructing one in it. And aluminum and steel plants that are being erected all across the south: in Bay Minette, Alabama (Novelis); in Osceola, Arkansas (US Steel); and in Brandenburg, Kentucky (Nucor). Up near Buffalo, all this new semiconductor and steel output is fueling orders for air compressors that will be cranked out at an Ingersoll Rand plant that had been shuttered for years.
Scores of smaller companies are making similar moves, according to Richard Branch, the chief economist at Dodge. Not all are examples of reshoring. Some are designed to expand capacity.
If the U.S. Is in a Recession, It’s a Very Strange One
Economic output is down but the job market is strong, unlike in previous recessions
The U.S. economy has experienced 12 recessions since World War II, and each one included two features: Economic output contracted and unemployment rose.
Today, something highly unusual is happening. Economic output fell in the first quarter and signs suggest it did so again in the second. Yet the job market showed little sign of faltering during the first half of the year. The jobless rate fell from 4% last December to 3.6% in May.
It is the latest strange twist in the odd trajectory of the pandemic economy, and a riddle for those contemplating a recession. If the U.S. is in or near one, it doesn’t yet look like any other on record. https://www.wsj.com/articles/recession-economy-unemployment-…
I have to admit I’ve never been through a recession where there’s a “Help Wanted” sign in the window of every third store and fast food place.
I sincerely hope that the new factories and good employment levels are indicators of a lasting strong economy. But factory investment is a multi-year project. And unemployment is a lagging indicator. It’s possible for a recession to develop even while these hopeful signals are around us.
All the supply chain issues and JIT delivery issues happened to just tip the scales towards building a few factories closer to where the products are consumed? So total world-wide factory construction and upgrades are about the same (or even less), but more is in the US.
Of course the big chip FABs get a lot of press, but there must be hundreds of smaller operations that individually aren’t a big deal, but together add up.
I have to admit I’ve never been through a recession where there’s a “Help Wanted” sign in the window of every third store and fast food place.
In our little tourist town almost every business has a help wanted sign in their window. Housing is ridiculously expensive and wages, though improving, are still very low compared to the cost of living here. Many businesses have cut back hours of operation or number of days a week they are open.
big chip FABs get a lot of press, but there must be hundreds of smaller operations that individually aren’t a big deal, but together add up.
Yes. However, a lot of what already quietly exists and that will be built are not big employment centers, but instead more outfits that require only a very few very specialized type of worker.
Los Angeles remains one of the main manufacturing centers in the world, but it is hard to keep track of what they are manufacturing because huge parts of it are extremely volatile small scale specialized operations that e.g.
– make prototypes of “proof of concept” electronic game gizmos from early iteration designs to use for tests,
– build five units exactly to a spec for testing before the spec is used to make an initial 100,000 units in Vietnam, or
– cut and sew in 8 hours 10 copies of this “knock off fashion from Milan” item for my chain of high end midwest fashion shops.
This type of manufacturing is baffling and does not match older understandings of manufacturing.
The old Los Angeles Uniroyal Tire Plant was converted into a huge collection of rented out machine shops to do this sort of work in the 70’s and I loved to go and visit and blab with all the amazingly weird proprietors. Now I do not even know if the place still exists.
The number of job titles has grown. Not enough younger people for the trades. Many younger people marketing and building businesses online. Not enough immigrants for basic labor. Trading of jobs for better pay means there is more demand in the economy. This last point is a hallmark of a demand side economy. The recessions in the 50s and into the mid 60s often very shallow.
There is fallout. There can be less income if you own your own business currently. There can be lower profits in corporate America than in 2021.
The real problem again is what I am speculate for the financials if China has a Lehman Brothers moment of their own. At any time the apple cart in finance can get flipped over.
My estimation the recession and any resultant unemployment will be shallow or marginal.
The SPY can actually see a down turn in profits after 2021 and still be hugely profitable.
BTW there are plenty of headlines talking about tech layoffs. Tech is often ubiquitous. Poorer places are possibly using less tech. Also sales of tech are down over 2021 because people already upgraded their computers and cellphones etc…
– make prototypes of “proof of concept” electronic game gizmos from early iteration designs to use for tests, – build five units exactly to a spec for testing before the spec is used to make an initial 100,000 units in Vietnam, or – cut and sew in 8 hours 10 copies of this “knock off fashion from Milan” item for my chain of high end midwest fashion shops.
All those things you list are probably true.
However, they don’t meet the criteria I suggested. And that is retailers or bigger manufacturers that need local suppliers to rid themselves of being dependent on JIT delivery, etc.
I’m sure there are a number of companies that have said, who cares if we save $1.79 per unit if all of a sudden all our orders are stuck in a port for a month or two…or never show up. And we have no visibility into when it will arrive, if ever. Especially if you use that component in a much larger product. A good example is car manufacturing being held up for some low end chips. But imagine the thousands of lesser known products that are waiting on semi-custom components…maybe they use US made prototypes like you say but have asked those manufacturers to ramp up to supply a few hundred or thousand per month.
"I’m sure there are a number of companies that have said, who cares if we save $1.79 per unit if all of a sudden all our orders are stuck in a port for a month or two…or never show up. And we have no visibility into when it will arrive, if ever. Especially if you use that component in a much larger product. A good example is car manufacturing being held up for some low end chips. "
Maybe.
I’m sure there a plenty of larger companies that are just prepared to wait it out. Layoff people, cut production expenses and raise prices because ‘scarcity’. The prices will stick (mostly) when supply returns. Profits ensue…
The downside of capitalism on a large scale. Capitalism (like socialism) works best at a small scale.
I’m sure there a plenty of larger companies that are just prepared to wait it out.
I’m sure those exist. But if they re just waiting it out they are neither contributing for or against the new factory construction.
98.6% of manufacturing companies are small businesses. A much lower than that number of jobs. But here is a link that shows the percentage of jobs with very small companies (< 20 people).
Small manufacturing businesses (with fewer than 20 employees) comprise these percentages of total employment for the following products: 22.9% of apparel 18.4% of furniture and related products 16.4% of fabricated metal products 15.2% of wood products 11.5% of beverage and tobacco products 8.6% of machinery 6.3% of food …
Aren’t some of those FABs going in to Arizona or New Mexico, at the same time that we are seeing stories about “water shortage” in the same area?
Especially interesting because chip demand is softening a little at the moment. The crypto crash has taken the demand away for those giant servers that sit there eating electrons, PC sales are slowing because everyone who needed a new one for WFH already has one, Videogame console sales are slowing because people are getting out of the house more, and smartphone sales are softening just because they do that sometimes.
That doesn’t mean there’s about to be a glut, but it appears that the overarching demand of the last couple years may come into balance with supply, and car makers and others who have been starved may be able to get the product they’ve been rationing so carefully.
This is good news for some industries, obviously, and not so good for chip makers like Intel and Nvidia. But fab builds take a long time, so maybe (if the predicted recession isn’t too deep) this would be a good time to put up a couple closer to home. Of course I’d put them where there’s water, but that’s just me, maybe.