What is the outlook of manufacturing in the US over the next five years?

Answered September 04 2019

According to the MAPI Foundation, manufacturing output growth is looking strong. The industry forecast projects an average of 2.8% growth over the next three years. Starting with a strong forecast of 3.9% growth in 2019, the rate then tapers to 2.4% in 2020 and 1.9% in 2021.

Factors affecting the outlook of the manufacturing industry both positive and negative influences. The current outlook suggests that the industry may grow at a relatively high rate. However, industry uncertainties are simultaneously challenging how long this is the case.

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What are the positive signs of growth in the manufacturing industry?

The 2019 industry outlook from Deloitte confirms strong signs of growth in the manufacturing industry. Deloitte notes that growth expectations are likely to be surpassed for two consecutive years in a row - from 2017 to 2018, and 2018 to 2019. Further, manufacturing GDP numbers are expected to go up 3% over 2017 – the highest growth levels since 2010.

Tax cuts help to boost growth in manufacturing. Lower taxes mean businesses have more room to increase investments in equipment that supports manufacturing demands. By increasing capital equipment spending, manufacturing profitability correlates positively.

Other short-term developments are also adding on to the forecasted growth of the industry. One example is a noticeable increase in productivity due to new innovations in automation and 3-D printing. In relation to productivity, production costs are also lower than they have been in recent years. This is due to relatively low oil and gas prices that are extensively used in the manufacturing process.

Regaining the attractiveness of local production is reinforcing these boosts in manufacturing growth. The American market responds positively toward American-made products. This is compelling manufacturers to invest more and produce high-quality products within the US.

What are the uncertainties in the manufacturing industry in the US?

All the figures seem to be tipping the scales in the right direction, but the big question remains – how long are the trends going to last?

For starters, Deloitte notes that there are more than 400,000 job openings since January 2018. At the same time, unemployment rates comparatively low, versus recent years. A closer look at the employment statistics shows that manufacturing processes are changing workers' expectations. Reports show that 89% of manufacturing executives are leaving jobs unfilled because of a shortage of skilled talent. In other words, a skills gap is emerging.

Note: Another potential source of disruption to the growth of manufacturing are uncertainties from volatile trade agreements and tariffs with other countries. These could lead to rising material costs, where the increase in costs could be greater than the incentives being received. Read more here.