Harris and Trump want to do things in America again. It's really hard to do

Washington CNN —

President Joe Biden proudly touts the return of manufacturing jobs to America, but despite investments and subsidies, it is a US industry that is now languishing after barely recovering from the Covid-19 pandemic. And it will be difficult for Vice President Kamala Harris or former President Donald Trump to turn things around if they are elected, regardless of their grandiose campaign promises.

Under the Biden administration, U.S. manufacturing has benefited from billions of dollars in investment, including $53 billion from the CHIPS and Science Act to boost the semiconductor sector and a bipartisan spending package. $1.2 trillion infrastructure package passed by Congress. Private investment has also intensified in recent years. Together, these investments have led to a strong recovery in construction spending by manufacturers, according to government data.

Once the U.S. economy rose from the ashes after being hit by the Covid-19 pandemic, that stunning momentum was a tide that lifted all boats, including the manufacturing sector. But this momentum did not last.

Not only does the industry still have a long way to go before employment levels return to pre-Great Recession levels, but total U.S. manufacturing employment in August was only about 1 .2% higher than February 2020. Manufacturers lost jobs in four of four countries. last eight months through August, according to Labor Department data. Surveys of manufacturers don't look very promising either.

So even if there has been no revitalization of the manufacturing sector under Biden, but rather a steady recovery from the pandemic, it may only be a matter of time before the huge investments finally begin to bear fruit. But with less than two months until the presidential election, this could be difficult to convince voters.

Harris delivered a speech outlining part of her economic policy Wednesday afternoon in Pittsburgh, where she mentioned plans such as cutting taxes for the middle class, dramatically expanding the tax deduction for startups and reforming regulations around construction projects.

We will invest in biomanufacturing and aerospace; remain dominant in AI and quantum computing, blockchain and other emerging technologies; increasing our lead in clean energy innovation and manufacturing, Harris said.

On Tuesday, Trump laid out his own economic vision during a speech in Savannah. He said that if elected, he planned to cut the corporate tax rate, increase tariffs and reduce regulations, which he said would lead to a mass exodus of manufacturing from China to Pennsylvania, Korea to North Carolina, Germany to right here in Georgia. .

The industry faces a litany of problems, but most of them are due to the broader economic landscape.

The main problems in the manufacturing sector are sluggish demand and high interest rates, according to recent manufacturing surveys by the Institute for Supply Management and S&P Global. Not only has this put production companies in wait-and-see mode, but it could also be a worrying sign for the future of the industry.

The combination of falling orders and rising inventories sends the darkest forward indication of production trends seen in a year and a half, and one of the most worrying signals seen since the global financial crisis, Chris Williamson, chief business economist at S&P Global Market Intelligence. , said in a statement.

And even though manufacturers have received a big infusion of subsidies in recent years, they won't be particularly eager to ramp up hiring or increase production if the demand outlook is uncertain. Additionally, many manufacturers are currently worried about the upcoming U.S. presidential election and the fate of interest rates, which has led many employers to pause their hiring plans.

Demand remains subdued as businesses are reluctant to invest in capital and inventory due to current federal monetary policy and election uncertainty, said Timothy Fiore, chairman of the Manufacturing Business Survey Panel. of the ISM, in a press release.

Manufacturers also still face persistent price pressures, which are now rising at the fastest pace since April last year, according to S&P Global. These costs could either eat into employers' bottom lines or be passed on to consumers in the form of higher prices.

And of course, there are issues specific to certain sectors of the manufacturing industry. For example, Boeing, America's largest exporter, is facing a series of unique problems that are plunging it into an even deeper financial hole. Meanwhile, U.S. automakers face fierce competition from Chinese automaker BYD, which has flooded the global market with its electric vehicles.

There is also the persistent fact that labor remains cheaper in many, many other countries than in the United States, where manufacturers have had to deal with union demands in recent years.

It's not all doom and gloom for the manufacturing industry. The Federal Reserve this month lowered interest rates for the first time in more than four years and announced further rate cuts by the end of the year. This will greatly benefit businesses of all sizes and across all sectors, by making it less expensive to take out a business loan.

American businesses operate on credit because that's how they start, grow, and purchase equipment. Lower interest rates not only relieve pressure on businesses that are grappling with the highest borrowing costs in more than two decades, but they could also boost consumer demand, or at least prevent it to deteriorate into recession territory.

However, there are no signs of recovery in the manufacturing sector yet, which is puzzling.

As the Federal Reserve's key rate moves back toward neutrality, will the economic dominoes rise? We're not so sure, Lauren Goodwin, economist and chief market strategist at New York Life Investments, said in a Tuesday note. The manufacturing sector has been in contraction for over 20 months now, despite steady construction related to investments in the semiconductor supply chain.

She added that a Federal Reserve that lifts the brakes could help the economic cycle last longer. But it is not certain that economic activity will improve.

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