Why U.S. Manufacturing Is Revving Up & Ready to Go

Three Reasons Why 2018 Looks Bright for Manufacturers

Analysts predict the 2018 U.S. manufacturing sector will include plenty of sunshine because of recent developments in economic growth rates, tax rates and regulation — and good news for manufacturing means good news for the entire economy.

The recent reduction in the U.S. corporate tax rate from 35 percent, one of the highest rates in the world, to 21 percent starting earlier this year is being touted as one of the main reasons for optimism.

The National Association of Manufacturers (NAM), the largest manufacturing trade organization in the U.S., says the tax cuts will help American businesses compete more effectively in the global marketplace.

According to the NAM and other proponents, resources that had previously gone to paying taxes can now go toward growing businesses, leading to more investment in the U.S. and higher wages for American manufacturing employees.

The tax cuts’ package also lets businesses deduct more of the cost of capital investments such as land, machinery and buildings, providing more incentive for expansion.

“By providing relief to small businesses especially, Congress has strengthened the heart of the modern manufacturing economy,” NAM President and CEO Jay Timmons wrote in an opinion piece in January. Manufacturers themselves have high hopes for positive effects from lower taxes. In the NAM’s latest polling of its members, 63 percent said tax reform would encourage them to spend more on facilities and equipment; 58 percent said they would expand their businesses; and 54 percent said they would hire more workers. Companies are already responding to tax reform by acting in these very responsible measures that will boost the economy.

Timmons noted that President Trump described tax cuts as “rocket fuel” for the economy.

“We’ve been given the fuel. Now we will put it to work,” Timmons wrote.

Even before the tax cuts package had been approved, attention at the national level had turned toward reducing regulation. While the U.S. remains among the top 10 easiest places in the world to do business, the Council on Competitiveness notes “that rank is declining.”

“A better balance is needed to enable the development and commercialization of new technologies and services in the U.S. and to upgrade infrastructure,” the council said in its December 2017 Clarion Call report.

The Trump administration is requiring that, for every new regulation, two prior regulations be identified for elimination.

The Brookings Institution concluded that another possible result might be the removal of layers of outdated rules and the “freeing of Americans’ energies for productive purposes and unleashing economic growth.”

If reducing reduction and cutting taxes helps manufacturers, they will be able to build on a recent history of U.S. economic expansion.

The nation’s Gross Domestic Product (GDP) grew by more than 3 percent in the second and third quarters of 2017 — the first time growth above 3 percent occurred in two consecutive quarters since 2014.

Manufacturing GDP rose from $5.05 trillion to $5.71 trillion over the last decade. Employment in the sector has risen steadily since 2010, and there are even more signs of momentum going forward.

The national Institute for Supply Management (ISM), the largest supply management association in the world who produces one of the most reliable economic indicators available, said that its manufacturing index was 59.1 in January — down slightly from 59.3 in December after increasing from 58.2 in November. Any reading higher than 50 indicates increased factory activity.

“With a report like this, I can’t do anything but smile,” Tim Fiore, chair of the ISM manufacturing business survey committee, told the Associated Press.

In addition to developments at the national level, recent local indicators are showing growth.

For example, Marquette University and the Institute for Supply Management-Milwaukee reported that manufacturing in the upper Midwest is continuing to expand. The researchers’ index of factory activity in the region reached 65.57 in December. It was the highest level recorded since November 2014.

“Fundamentally, I cannot think of a better time to be in business, or in the case of our students, going into business,” said Douglas Fisher, director of Marquette’s Center for Supply Chain Management. “The economy is strong, and the strength does not appear to be fragile.”

Nearby, the Chicago Business Barometer — an economic index based on data from local membership of the Institute for Supply Management in that city — also showed strength in December. The measurement of production, new orders, order backlogs, employment and supplier deliveries rose to 67.6 in December, the highest level since March 2011.

In both the Milwaukee and Chicago reports, as in the national ISM report, a measurement of 50 or higher indicates expansion from the previous month.

This kind of good news for manufacturing is excellent news for the American economy overall. Manufacturing’s growth remains vitally important due to its multiplier effect: each manufacturing job creates 4.6 additional jobs, and manufacturing in high-tech industries creates 16 additional jobs for every job in those industries, pointed out Deborah Wince-Smith, president and CEO of the Council on Competitiveness.

“It has a tremendous spillover effect,” Wince-Smith said.

With lower tax rates and the prospect of fewer regulations in a positive economic climate, manufacturers — and the rest of us — have good reasons to anticipate a prosperous 2018.