The U.S. manufacturing sector is a critical aspect of our nation’s economy. Historically, it accounts for 12% of America’s total economic growth. And, like most sectors, it continues to be refined and shaped by the global pandemic.
In March and April 2020, the manufacturing sector lost 1.4 million jobs — roughly 11% of its pre-pandemic workforce. Government-imposed lockdowns and business closures sent consumer spending plummeting. Monthly retail sales fell a massive 22%.
After the initial blast of the pandemic fallout, demand for manufactured goods quickly rebounded. Fueled by $5 trillion in government stimulus money, fattened consumer wallets shifted their spending from services to physical goods. By June 2020, monthly retail sales exceeded their pre-pandemic level. By December 2021, monthly retail sales were 19% above their pre-pandemic level. Today, industrial production is at an all-time high.
Unfortunately, the manufacturing sector’s progress has been capped by some highly unique challenges. Disruptions to global supply chains continue to hinder the delivery of raw materials and component parts. Shipping costs have also soared. According to the Freightos Baltic Global Index, the cost of shipping a 40-foot container from China to New York has risen from $2,609 to $17,488 over the past two years. To ship the container to America’s west coast has risen from $1,359 to $14,637. Likewise, it currently takes about 80 days for that container to be shipped from China to the U.S. — an 85% increase from November 2019.
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The U.S. is also facing the most severe labor shortage in history. Despite having recovered more than a million lost jobs, two years into the pandemic, manufacturing has yet to recapture its full pre-pandemic labor force. The labor shortage also extends to numerous industries with substantial ties to manufacturing, including shipping, warehousing and transportation.
For the remainder of 2022, there is tremendous opportunity for America’s manufacturing sector. Industrial production has a lot of growth to make up to satisfy current demand. Demand for goods is far outpacing supply. Manufacturers continue to face a high backlog of unfilled orders. Business inventories remain sparse, as merchants scramble to restock their shelves and add to available goods on hand.
On the labor front, the number of job openings in manufacturing has soared by more than 100% since February 2020. This is by far the largest growth rate among the major economic sectors. The broader global economy — which has lagged the U.S. recovery — should continue to improve, further boosting demand for U.S. manufactured goods. Global supply chains should also gradually improve, freeing up unused capacity for manufacturing output.
All things considered, the U.S. manufacturing sector has done as well as can be expected over the past two years. Provided a strong economic landscape, there’s optimism it should make up for some lost ground.
Mark Grywacheski is an expert in financial markets and economic analysis and is an investment adviser with Quad-Cities Investment Group, Davenport.
Disclaimer: Opinions expressed herein are subject to change without notice. Any prices or quotations contained herein are indicative only and do not constitute an offer to buy or sell any securities at any given price. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. Quad-Cities Investment Group LLC is a registered investment adviser with the U.S. Securities Exchange Commission.
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