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US manufacturing sector is watchful and poignant

US manufacturing sector is watchful and poignant

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The United State is counted in one of the top two manufacturing countries in the world and it is the largest and important driver of the US economy which is moving at the watchful rate. The manufacturing sector generates products from raw materials with power machines and equipment. It includes factories, mills, and plants that take the contract to make goods. According to 2016 Global Manufacturing Competitiveness Index, China is leading as the most competitive manufacturing nation.

Manufacturing sectors generate $1.40 in economic activity for every dollar put in, according to the U.S. Bureau of Economic Analysis, far greater than the multiplier generated by business services, information, retail trade or finance.

Real Value Added by business -USA

The country is going through the fourth industrial revolution pumped with integrated smart processes, products, generating big data that is accelerating the manufacturing and the marketplace.

The study by MAPI, expect U.S. manufacturing sector growth to be an average of 2.8% between 2018 and 2021, which is nearly double of the 1.5% average growth rate.

The formation of the “Advanced Manufacturing Partnership (AMP), announced by President Obama,  a national effort bringing together industry, universities, and the federal government to invest in the emerging technologies that will create high quality manufacturing jobs and enhance our global competitiveness” is also helping the industry to look at multiple helping factors.

The report entitled “Accelerating US Advanced Manufacturing,” which was adopted by President’s Council of Advisors on Science and Technology (PCAST) and transmitted to President Obama. It presented a number of additional steps the Federal government can take to further US advanced manufacturing capabilities.

“With the Manufacturing Innovation Institutes as a cornerstone of the Nation’s investment, implementing a Federal strategic plan in advanced manufacturing across all federal activities from the Institutes to individual agency program areas is one important step.” -PCAST

Two others important points for industry 4.0 are:

(1) Ensuring that advanced manufacturing research addresses questions along the pipeline of technology maturity, and

(2) leveraging federal organizations to improve information flow to manufacturers.”

Where is it heading?

The study by MAPI Foundation evaluate that, between 2018 and 2021 average annual U.S. GDP growth will be 2.5%, a significant improvement over the 2.1% average growth in  November 2017 report.

The strong forecast for overall growth has been sustained by the stronger outlook for capital equipment investment, a GDP component of importance to manufacturing prospects given rise in the number of machinery and machine parts producers in the domestic U.S. manufacturing base.

This forecast shows that capital equipment spending growth between 2018 and 2021 will average 6.8%. This is a measurable acceleration from the 3.7% average.

The Organisation for Economic Co-operation and Development (OECD) said that worldwide real GDP growth should rise from 3.7 percent in 2017 to 3.9 percent in both 2018 and 2019.

Sneak Peak: The U.S.-manufactured goods exports totaled $175.22 billion in January and February of this year, up 4.99 percent from the year-to-date total of $166.89 billion in 2017. Also, manufactured goods also improved through with Canada (up from $42.01 billion to $46.10 billion) and Mexico (up from $37.68 billion to $42.03 billion).

According to the Institute for Supply Management, the manufacturing expanded in December at the fastest pace in three months, as gains in orders and production capped the strongest year for factories since 2004.

Challenges Ahead:

China surpassed the US in 2010 as the largest manufacturing country due to an appreciation of currency; employment rate has also fallen gradually than other economies shown concern to the government policies.

“To take advantage of digitization, industrial manufacturers need new operating models, aggressive hiring, smart partnerships, and targeted investments,” says 2017 PwC Industrial Manufacturing Trends,

The report also stated global demand for manufactured products is growing at a snail’s pace. The Output is expected to increase just 3.1 percent in 2016 and 3.4 percent in 2017, the matter of concern for the manufacturing sector.

The manufacturers cannot compete with other economies in the area of labor cost, it is 20% higher even labor cost is not included. Average compensation per employee in U.S. manufacturing, measured on an internationally comparable basis, was $39.01 per hour in 2016.

The tax rate in 2011 was 37.65 percent, it is higher than France 34.1, China at 16.6 percent and Taiwan at 10.1 percent with the lowest tax rate.

In terms of workers, hour declined in the United States over the period of 1990-2016, while this was severed in France, Japan, and U.K., from the year 2002 to 2016 manufacturing labor productivity rises, that shows output per worker hour increase.

The other economies are negotiating bilateral free trade agreements, lower tariffs and export fees that push down their cost of manufacturing less expensive.

According to the study by MAPI, what prosper for U.S. manufacturing prospects,

“Now expect the pace of annual export growth to average 6% between 2018 and 2021, still modest by historical standards but nearly double the 3.2% average that we projected in November.” -MAPI

If the dollar continues its persistent fall, export growth will likely accelerate further. For most of the forecast period, however, the pace of import growth is expected to exceed the pace of export growth. Thus, trade pressures will remain an issue for the manufacturing sector even as economic conditions improve.

The global manufacturing data also shows up and down in other economies too. The Global Manufacturing PMI by JP Morgan and IHS Markit,” the global manufacturing sector eased to a five-month low in March, as companies reported slow growth of output, new orders, and employment.”

The report also stated that manufacturing increased at the slowest pace in eight-month during March, as the growth of order and new export business both eased further, shows how global market is in slowdown stage that is impacted the national manufacturing sector vice versa.

Sneak Peak: trade volumes have risen significantly over the past year as the overall health of the global economy has strengthened. Goods exports have increased from $127.63 billion in February 2017 to $137.18 billion in the latest figures, up 7.5 percent over the past 12 months. Goods imports jumped 11.0 percent year-over-year, up from $192.94 billion to $214.19 billion. Nonetheless, the U.S. trade deficit rose from $56.67 billion in January to $57.59 billion in February, the highest level since October 2008, as the gain in goods imports outstripped the increase in goods exports.

Final thoughts:

The dampening manufacturing rate globally, the market is going through testing times, whereas, the enormous opportunities in manufacturing sector hopeful to restore jobs back in the US to catch up growth rate with the China. It is essential to recover with the trade deficit and overcome challenges by introducing national economic policies.

But experts predict it could be top position in coming years. In tightening conditions, stronger capital formation, rebound in global economic conditions with the manufacturing growth to 2.8 % in coming years pertains to the economic growth with the slow correction rate. Contemporary President Donald Trump aiming to bring back 25 million jobs in manufacturing with the new reforms and steps to ensure tax exemption for manufacturers.  This strategy will also support the infrastructure to bring free trade agreements and improvement in overall manufacturing rate and labor force.

The industries reporting expectations of growth in revenue for 2018 — listed in order are: Fabricated Metal Products, Transportation Equipment, Plastics & Rubber Products, Petroleum & Coal Products, Electrical Equipment, Appliances & Components, Machinery; Chemical Products; Paper Products; Furniture & Related Products; Food, Beverage & Tobacco Products; and Nonmetallic Mineral Products.

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