American manufacturing has enjoyed a renaissance over the past five years, but recently we have seen a few factors that suggest very real threats to its continued growth.
…Louis, after a decade of almost no growth in manufacturing (0.18% for the period 2000-2010), manufacturing grew nearly 4% annually from 2010 through today. Part of this growth was a result of a relatively weak US dollar, which allowed large US manufacturers to become internationally competitive with China, Japan, and Europe. Part was a consequence of the US economy pulling out of the most recent recession that tarnished the last few years of the decade.
…Since the collapse of oil prices in October 2014, XLI, an industrials exchange-traded fund, has tracked broader market performance, even outperforming the S&P Index for most of that period, before a late March convergence.
…It is reasonable to speculate that last year’s collapse in oil prices (which many argued would be a net positive for the American consumer) might also have some negative effects.
At recent lows when oil prices were down nearly half from their levels one year ago, many oil and natural gas companies were dramatically reducing their capex spending. This potentially hurts manufacturers of pipes, drill bits, larger equipment, cleaning supplies (including chemicals), tools, maintenance, levers, metals – pretty much any supplier involved in the process of drilling for, storing, and possibly transporting energy resources.
…We’re seeing exploration and production companies reducing capex by at least 20-30% on average, with no replacement expansion on the horizon elsewhere in the economy.
…As of this writing, that cost has fallen to just $1.12, a 19% decline (earlier this year it was as low as $1.04-1.05).