Economist Predicts Largest US Manufacturing Growth Since 90s

Economist Philip Powell believes that the US economy is on the verge of a boom driven by the largest surge in productivity since the 1990s. 

This US economic “supercycle” will be especially felt in manufacturing, Powell, executive director of the Indiana Business Research Centre, told viewers of a Chief Executive/Indiana Economic Development Corporation webinar.

The coming boom will partly be driven by artificial intelligence already being embedded in existing software companies' use, and partly by America’s bringing manufacturing back home, known as “reshoring”.

Powell believes that American CEOs should make productivity growth their north star, rather than increased revenue or profit. For too long, he says, America’s CEOs have been yoked to quarterly earnings statements, driven by Wall Street. 

“If you talk to a CEO in the Pacific Rim, they don’t think about quarterly statements, they think in terms of five-year plans,” he told webinar participants. “You should not be making decisions on a quarterly basis, you are thinking about the long arc. All I am asking CEOs to do is increase their risk tolerance.”

Nascent productivity boom

Powell believes that we are already seeing a nascent productivity boom, which will be unlike any other in recent memory.

US manufacturing rose to 11.1% of US GDP in 2022 from 10.5% in 2020, which may sound much but adds trillions of dollars to the economy. 

The number of employees in manufacturing also rose to 13m in 2023.

Real productivity gains - the value of GDP divided by the number of employees - increased by 11% between 2012 and 2022, while by comparison GDP only rose by 9.4% across the board.

Powell said: “You should be preparing your organisation for a mindset of continuous growth … we’re due for a nice, stable ride with low inflation". 

And, even better, this boom will have nothing to do with who is elected into the White House in November.

Powell said: “The key question is, are your workers productive enough? Your bottom line strategy should not be profit or revenue but productivity. 

“This is an unprecedented boom in manufacturing. Have you positioned your organisation to ride this wave? Many CEOs don’t make productivity central to their business strategy. Covid is over, and the last echoes of Covid is inflation and that’s coming down.”

However, there is a downside to this coming upswing in US manufacturing.

It will be parochial as US business moves away from globalisation. Concentrating on the US market means less potential for profits overseas.

5 ways to prepare for the coming US manufacturing boom

#1 - Better technology

Automation and especially artificial intelligence is going to make your workers more productive, so invest to the point where you feel uncomfortable in state-of-the-art equipment and technology.

“The way that AI is going to add value is in the software updates. Look for platforms that are more quickly embedding AI. The fact that you can make decisions quicker also improves productivity,” said Powell.

AI also undercuts the attractiveness of cheap overseas labour and reduces supply chain risk due to political instability. Think of the freight shipping problems created by the Israeli invasion of Gaza in the Red Sea.  

#2 - Better management

Have you made your manufacturing environment the best place to work in the world? Employee morale is one of the key boosters of productivity.

#3 - Keep it local

Use the energy you would have spent on international markets on negotiating with state and federal authorities when it comes to subsidies and tax benefits

#4 - Continual training

A key difference between old-style manufacturing and today is that workers in 2024 are highly skilled. Have you instilled a culture of continual training and learning? Do your workers have the qualifications they need?

#5 - Create your own talent pipeline

Low US population growth means that its workers who now have the leverage and not employers when it comes to hiring staff. 

Encourage apprenticeships for teenagers. US firms are now adopting Swiss-style apprenticeship schemes for young people. Employers stateside have noticed Swiss productivity is 10% higher than at home.

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