If you build it, they will come

In October, the US manufacturing sector contracted after exhibiting signs of improvement in recent months. The Institute for Supply Management (ISM) reported this week that the Purchasing Manager Index (PMI) slipped to 46.7 in October, from 49 in September, partially reflecting auto worker strikes. The October reading marked the 12th consecutive month with the PMI below 50; the longest stretch since the 2007-2008 recession. The negative PMI stands in sharp contrast to the continued strength of manufacturing sector construction. This week the US Census Bureau reported that manufacturing sector construction rose 62% year-on-year to USD 198.9 billion, bringing the year-to-date figure to USD 1.7 trillion, an increase of 89% versus the same period last year. According to analysis by UBS, the delta between strong manufacturing construction and currently weaker capital goods investment is a function of lead times – new plants under construction today will not be fully operational for a couple of years. Supported by public programs like the Infrastructure Investment and Jobs Act, the Chips Act, and the Inflation Reduction Act, there is support for a long runway of capital spending ahead.  

Source: US Census Bureau, November 2023