United States: Bifurcated revival with advanced sectors – ING

ING’s James Knightley and Coco Zhang argue that US manufacturing is finally reviving after years of stagnation, helped by reshoring narratives, AI-driven investment and defence spending. They forecast US manufacturing volume growth of 1.5–2% per year over the next three years, but stress a growing split: advanced, highly automated sectors expand, while traditional, labour‑intensive industries continue to shrink.

Advanced sectors drive uneven recovery

"Nonetheless, the sector has shown genuine signs of a revival over the past year. The ISM production index has moved from sub-50 contraction territory to signalling robust growth ahead. Below, we look at what is driving this turnaround and how it could evolve."

"Business surveys point to strong order books, and we see this supporting manufacturing’s ongoing revival. Our volume growth forecast for US manufacturing of 1.5-2% per year over the next three years may not seem like much, but it should be seen in the context of the sluggish activity experienced over the past 20 years. This headline forecast also masks increased bifurcation, with advanced manufacturing growing rapidly while more traditional sectors look set to retrench further."

"Highly automated, high-value-added sectors at the forefront of the AI/technology revolution are seen as national champions by the government and are able to absorb the relatively high wages on offer in the US. The desire to incorporate AI advances should, in theory, drive advances in productivity-enhancing initiatives that further support innovation. As such, pharma, tech, transport & aerospace, electrical and power-related sectors should continue to grow robustly."

"Lower value-added production, where labour costs make up a greater share of the overall cost base of production, will continue to struggle unless it can garner a 'made in America' premium. Heavy industry, such as steel, is likely to be somewhere in the middle. While costs have risen, they have risen more elsewhere."

"Tariffs and energy security do boost the attractiveness of manufacturing in the US. But so does US economic growth continuing to outperform other key markets. Between 2023 and 2026, the US economy has grown an average of 2.5% year-on-year in volume terms versus 0.9% in Europe."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)