One of the more difficult tasks economists have to face in their careers is gauging how much politicians are overpromising before underdelivering. Nearly every major election comes with promises of boosting jobs. The politicians particularly like to talk about manufacturing jobs because they appear to be looking out for some combination of middle and lower class workers. The magnanimity of those promises, however, rarely result in actual action. It has been especially difficult to create manufacturing jobs over the last decade because it has been far cheaper and less capital intensive to outsource manufacturing to India or China. Thankfully for economists, politicians and the US economy alike, a combination of tension with China and increased wages for manufacturing jobs overseas have finally resulted in something more closely resembling cost parity and a reason to invest in US manufacturing.
Certainly, the pandemic boosted this activity, but as the economy started to recover, the supply chain problems that plagued the recovery clearly made businesses nervous about their reliance on overseas manufacturing. The result? Businesses have finally started investing in manufacturing here in the US.
The chart above shows a generally flat period for investment in manufacturing until 2022 when companies started looking for areas where government incentives would help them achieve both cost parity AND a greater supply chain resiliency. 2022 was a big year, and obviously there is some question as to whether or not this is an outlier or the new normal. The beauty of investing in manufacturing though is that there is a set of manufacturing assets that have been built and that’s a one time investment. The requirement for workers to fill those plants and manufacturing facilities, however, are ongoing. The areas that get these investments will see long tails of economic uplift and a need for population growth in both the short and long term.
Many of these investments have been made in the Midwest where there is already population that can Work in a factory, but on top of this, these Midwestern cities also share the appropriate mix of education and tax incentives to bring in the investment dollars from reshoring. Add significant asset builds by the major logistics players like Amazon, UPS, FedEx and XPO, and the Midwest looks ripe for growth. Clearly there will be some investment in the Sunbelt and Mid-Atlantic as well, but it’s tough not to be incrementally excited about the Mid-west as companies bring manufacturing back onshore.
Source: Wall Street Journal, Wall Street Journal