The Economist March 27th, 2021 |Business|Manufacturing in America|”Firing on all cylinders” “After years of stagnation, industrial companies look poised for a boom”.
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Institute for Supply Management (ISM). Figure from reuters.com not presented in the summarize article from The Economist
Summary of the article
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With January 4th 2021 as 100, since early in February the S&P500 Industrials have outpaced the full S&P 5000 112 to 106. Underlying this rise is an expanding United States, manufacturing purchasing managers’ index. The index fell to a nadir of 37, early in the pandemic, then crossed over the dividing line between expanding and contracting at 50 to reach 60 now. Last year, according to S&P Global, producer “revenues fell by 8-10%” but now executives are worrying about “supply bottlenecks” brought on by increased demand, the blockage at the Suez canal and back-ups at ports in America’s west coast. S&P global also “expects American light-vehicle sales to rebound from 14.5m in 2020 to 16.6m this year” even in light of chip shortages. “Order books are sold out well into next year” says Justin Rose (BCG). “Two thirds [of National Association of Manufacturing members] foresee revenues returning to pre-pandemic levels by the end of the year, as new orders, production and employment pick up.” “Goldman Sachs…forecasts that [capital spending at S&P 500 companies] “will reach $740b this year” higher than the pre-pandemic level of $731b.
What’s driving demand?
Increased demand is attributed to the effect of vaccines “boosting consumer confidence”…,”Joe Bidens $1.9trn stimulus”…[and]…”record household savings.” Other forces are at work as well. New Biden policy especially the proposed “$3trn infrastructure splurge…may be more helpful” than the Trump’s action that “waged trade wars that disrupted supply chains, raised costs for American manufacturers and estranged the foreign partners on whom they depend.” Policy changes may also help longer-term with supply chain worries.
How are companies responding?
Companies, in the wake of “geopolitical tensions with China” “are thinking more seriously about building networks that can withstand such shocks” and taking “short term” actions like stockpiling needed components and “in the longer run…[bringing] production closer to home.” As examples, GM may be partnering with LG Chem of South Korea to build “a second battery factory in America”, Intel’s plan for more fabs based in Arizona and lastly a plan by Canadian Pacific, if approved by antitrust authorities” would with a $25bn purchase of Kansas City Southern, link Canada, America and Mexico by rail.