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Talent Talk: What Could Derail the Coming US Manufacturing Boom

Inflation has doubled CapEx financing costs for most businesses, productivity has been in steady decline, and the skilled labor shortage is not going away.

Paul Sturgeon

July 31, 2023

2 Min Read
businessmen clearing hurdles
George Shelley/The Image Bank via Getty Images

“And I wondered if hurdlers ever thought, you know, this would go faster if we just got rid of the hurdles.” ― John Green, The Fault in Our Stars

In previous Talent Talk columns we explored what appears to be a coming renaissance in US manufacturing, driven by new technologies, reshoring, and government initiatives. We cannot write history until after it happens, but this has an historical feel to it. The first part of this is in the books, as we saw spending on new factories double over the past year.

The hurdles

Sir Isaac Newton's third law of motion states that “every action has an equal and opposite reaction.” The actions that brought us to this point also contributed to high inflation, which led to the Federal Reserve raising interest rates 11 times. This means the real cost of financing capital expenditures has doubled for most businesses.

The continued availability of capital will be a headwind. Much of the construction spending we continue to see on new manufacturing facilities comes from federal funds. The full resurgence to a new golden age of manufacturing will require continued investment from the private sector. Future investment will be dependent on seeing a return on that money.

Finding talent

The skilled labor shortage is not going away any time soon. It is true that manufacturing has not participated in overall job growth this year. The Institute for Supply Management (ISM) purchasing managers’ index (PMI) contracted in June for the eighth consecutive month. This follows a 28-month period of growth.

I am coming to believe that the term recession, as we commonly use it, is virtually meaningless. In my judgement, manufacturing is in a recession right now, but poised to come out of it. If that is correct, we are arguably at the softest point for labor availability we will see during this cycle.

Productivity

Since 1947 the US has averaged 2.1% annual productivity growth. However, in the last 20 years that growth has fallen to around 1.4%. There is debate over exactly why this has occurred, and no one points to a single factor, but an increase in productivity is urgently needed. The good news is that there are several reasons for optimism. For example, all the new factories being built will certainly be “smarter” with state-of-the-art equipment and technology.

 

paul-sturgeon-150.jpgAbout the author

Paul Sturgeon is CEO of KLA Industries, a national search firm specializing in plastics, packaging, and polymer technology. If you have a topic you would like to see discussed, a company that is growing, or other ideas for this blog, e-mail Sturgeon at [email protected].

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