By Summit Art Creations @Adobe Stock

David Harrison of The Wall Street Journal is reporting that government incentives are driving factory construction as rates and inventories are weighing on sales and employment. He writes:

U.S. manufacturing is entering a golden age, with government subsidies sparking a boom in factory construction.

Yet the industry is also mired in the longest slump in more than two decades. Activity has weakened for 13 straight months, the longest stretch since 2002, according to surveys of purchasing managers by the Institute for Supply Management.

Behind that split-screen image: U.S. manufacturing is large and varied. Investment in factories has occurred in the most high-tech sliver of the sector while other industries struggle with a pandemic-induced inventory overhang and higher interest rates.

This divergence won’t last forever, economists say. They expect factory output to pick up as the Federal Reserve cuts rates and the lagged effects from the inventory buildup of 2022 and early 2023 fade. Bringing the new factories online would further support the sector’s growth.

As President Biden gears up for his re-election campaign, he points to manufacturing’s future as a vindication of his economic plan.[…]

The factory-construction boom could also provide a long-term boost. Jared Bernstein, chairman of the White House Council of Economic Advisers, estimates that it will take about two years from new investment in factories for manufacturing employment to start growing. That points to a pickup around next summer as the first of the factories now under construction begin to increase production.

“We know that we’re seeing increased investment in the sector and we’re optimistic about where that’s going to take us,” he said.

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