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The Wall Street Journal’s Scott Davis explains some of the tailwinds that will propel U.S. manufacturing into 2021. He writes:
The U.S. manufacturing industry has experienced a lifetime of trauma over the past two decades—but we believe 2020 marks the bottom of that long and high-profile decline.
This past year has been particularly traumatic, as the pandemic brought with it the largest cut in industrial earnings on record in the second quarter, driven by the global shutdown that started in January in China and still exists in some form in many countries today.
However, as we look out to 2021 and beyond, there is more reason for hope in manufacturing than at any time since the 1990s. Three major themes are beginning to gain traction that will not only carry manufacturing out of the current doldrums but to new prosperity: a quick recovery from the recession; localization of supply chains, or onshoring; and technological advancements that level the playing field between the U.S. and countries with lower labor costs.
To back up a bit, U.S. manufacturing lost its mojo some time ago. Lack of sustained investment, noncompetitive labor rates and degrading infrastructure opened the door for low-cost countries, notably China, to take the lead as manufacturers shifted production overseas. The end result was an industrial sector that leaked jobs, fell behind in technology and lost investor support. In 2000, U.S. industrial companies were 15% of the S&P 500 index by market capitalization. That number has fallen to less than 9%, with the massive U.S. aerospace industry leading a two-point drop in the past year alone.
So, why do we believe things are about to turn around?
For one thing, the industry is poised to emerge from the Covid-19 recession much more quickly and robustly than it usually does from downturns. That’s because the market for certain goods has stayed strong during the pandemic—which has allowed manufacturers, on average, to remain far more stable than in past recessions. And the sharp hit to earnings experienced from March to July is quickly reversing.
Read more here.
