The All-American Comeback

There’s a long-running narrative that ours is an empire in decline …

That America is the embodiment of “Late Stage Capitalism,” teetering on the brink of failure.

It’s a compelling story, sure.

But it’s not a story that lines up with the facts on hand.

Instead, despite the doom & gloom, American businesses are staging a widespread comeback on a scale we’ve never seen before. And that’s going to have massive implications for your portfolio.

Get the facts (and the full story) in today’s episode of Moneyball Economics:

Video transcript:

Hello, fellow Moneyball economists!

I’m Andrew Zatlin and today let’s talk all the good news coming out of the manufacturing space…

I believe that we are entering a golden era for US-based manufacturing, a renaissance, if you will. I know that the good news for manufacturing is great news for the US economy and for the stock market. So today I want to walk through what’s going on in the manufacturing sector.

We’re going to focus on two data points.

We’re going to focus on manufacturing output. How much stuff is getting made? And we’re going to focus on capacity utilization. Essentially, how busy are factories?

But first, let’s start with a recap of the importance of US manufacturing because you don’t really hear about this in mainstream media. You don’t hear that when it comes to manufacturing. The US is a powerhouse. No, excuse me, let me change that.

The US is the powerhouse.

You’re used to hearing about China and how they are just the huge player in manufacturing and they’re big, right? They do about four and a half trillion dollars of manufacturing a year. That’s a big number, especially considering that China not too long ago was very poor and underdeveloped. Well, four and a half trillion dollars. The US does $7.3 trillion.

We’re close to lapping them because we’re expanding while they’re shrinking. But that’s key when I say we are expanding because that’s a new development.

Over the past five years, for all intents and purposes, under the Biden administration, US manufacturing peaked at about 7.2 trillion and then every quarter shrank until it was barely $7 trillion. In other words, during the Biden administration post- COVID, which turbo charged the economy, we saw US manufacturing lose 100 to $150 billion a year, not so good.

But then starting in 2025, that trend shifted.

That multi-year trend suddenly shifted and we have seen nothing but expansion every quarter in the manufacturing space. We’ve gone from 7.1 to 7.3 trillion of growth, a new high level. What’s driving this is, well, an industrial policy that has several different layers. Obviously, we’ve got the tariffs that kicked in last year. Tariffs changed the cost of imports and made it much more enticing to manufacturing over here.

We also had Trump vocally encouraging manufacturing in the US, but he didn’t just go broadly. He went very narrowly. He started talking to companies specifically to Lilly, to Intel, to everybody and said, “We expect you to manufacture here.”

So a lot of political pressure was brought to bear. Now, whether it’s tariffs, direct political pressure, doesn’t matter. The results are very clear. We have an expanding manufacturing base and I believe it has legs.

Let’s talk about the capacity utilization.

Let’s shift gears here a little bit. Our factory is busy because I can make a number go up simply by inflating it or charging more. The real secret to manufacturing strength is factory utilization. Think of this as like a hotel. If a hotel’s busy, they don’t have a lot of vacancies.

So we always want to look at capacity utilization. We’re never going to be at 100% because there’s kind of busy seasons and slower seasons.

Companies need factories that are built to handle the busy season. But that means when they’re not busy, there’s going to be some slack, some utilization of the factory equipment that’s kind of idle and that’s okay. That’s what we want to see so that when demand kicks in, companies can meet it not by having to buy new equipment, install it and all the delays that come with that.

But by just flipping on the switch, we can make more widgets, no problem.

Historically, in a good period when we are expanding our economy, that utilization rate is 77%.

That’s when we’re humming along. In the first administration for the first time, Donald Trump moved it to 80%. His industrial policies were such that American manufacturing factory capacity utilization. The amount that factories were humming along surged. 80% was huge. We haven’t seen that.

And then we get to COVID and wow, all right, things slow down. Post- COVID, we returned to sort of a 77-ish level, that historical number, but it drifts down. In fact, again, just like our manufacturing output drifted down, so did our utilization rate, just followed it down.

And then a funny thing happens again starting in 2025 last year when Donald Trump came in, the utilization reversed and the trend has been steadily moving up.

We hit, before Trump came in, 74% utilization. So we went from Donald Trump era 80% to Biden era, slow decline to 74. And by the way, that 74% utilization rate is not seen historically unless we are either in a recession or just coming out of a recession. That’s how weak the conditions were. That’s where industrial policy was under Biden.

Now, as I’ve said, we have a new industrial policy under Trump and that has taken that 74% up to 76% in just a year. I mean, we’re talking steady multi-year drift down, both in terms of factor utilization and output suddenly reversed when Trump comes to town. I believe though that that is going to be sustainable because we’re only in one year so far and we still have a few more years of this industrial policy to take hold.

The advantage of manufacturing in the US is multiple…

From a balance of trade, we like to sell, not import. That makes the dollar stronger. That’s one thing to consider because the name of the game is also interest rate cuts. It’s hard to cut rates when your economy’s expanding and the dollar’s more valuable because you’re exporting a lot more.

So couple of challenges here going forward that suggests we’re going to see rate hikes. That’s always a concern for the stock market. That is an end of the year thing. A lot of the data needs to come together to make that happen, but you do want to consider that the stock market will take a couple body blows when rate hikes go up. Unless the market decides it’s okay to have rate hikes as long as the economy is expanding and can absorb them. That’s one way that manufacturing can play a role in the stock market and the economy.

Another way is hiring. If we’re expanding factories, that means we’re hiring more and that is also starting to show up in manufacturing payroll numbers. More people added to the economy. Well, let’s face it, it’s got that multiplier effect. More people then are going to go out, they’re going to drink, they’re going to buy cars, whatever, you’ve got more spending going into the broader economy as well.

A third way that this manufacturing is sending out positive signals and how it’s going to affect the economy overall is it’s sentiment based. The US as not a slowly fading power but as a growing rising economic power creates more and more. It’s like a magnet. It attracts more investment, not less. So that adds even more bodies and so on and so forth.

We need to continue to check in on this expansion. We need to understand if it’s short-lived, a response, for example, to the Biden years, it was just time for a reversal to the cycle, or as I believe institutional changes in the industrial policy will continue to drive this going forward and we’ll see it grow and grow and grow.

And so what we’re going to do is we’re going to continue to check in on this capacity utilization data point, because it’s the cleanest way to tell if factories are humming along, if demand is booming, if we are expanding.

We’re in it to win it, folks.

Zatlin out.