Welcome back. We survived 2020. 2021 looks to be a year of change. The new Administration takes over this month. We will see what becomes of a new normal as the vaccine is distributed. We will get a clearer picture of exactly what the damage that Covid did to our economy over the next few months. We will also find out just how much of what occurred in 2020 in terms of business adaptation will be maintained and which adjustments will be reversed. On a personal basis, here is hoping that the New Year’s resolutions that you made last week hold up and produce a better life overall.
The ISM manufacturing report will be out later today. I will update what the report says next week. There was actually nothing in the month of December that appears to have moved manufacturing much in either direction. My estimate is it will be slightly down from the 56.7 figure of November. This is based on a bit slower auto sales, the weather impact of several storms that crossed the mid section of the US as well as typical year end shutdowns.
On the bright side, Boeing is building back after two horrifying years. The 737 Max is back in the air. While Boeing is still struggling to get orders restored for the plane, they are reving up the production line and placing new orders for parts. This will boost manufacturing significantly over the coming months, likely offsetting any dip in the auto industry as they sort of sucked their forward pipeline with some pretty aggressive incentives in 2020. Many dealers are short on inventory so in the best of all worlds the next three months might be much stronger than expected for manufacturing if the auto makers decide inventory levels are too low.
A big question mark on manufacturing is the Chinese Tariffs. President Elect Biden has indicated he would roll back the tariffs placed over the past couple of years by President Trump. This roll back may not have the negative impact on manufacturing as you might expect. First, China manipulated their currency early on in the process to offset most of the tariff price increases. Non-essential products continued to be manufactured in China. Second, many companies were frustrated with the intellectual theft that was occurring with Chinese companies when they sent designs over for production. Most of those who were burned by this moved production back to the US a while ago and are highly reluctant to be taken advantage of again. Third, those products most hit by the tariffs were re-sourced to other countries such as India where labor is just as cheap. Fourth, the Chinese picked the highest margin manufacturing products, targeting them for protection by funneling them through countries that were not tariff targets, this essentially skirted the tariff program altogether as long as they were not caught. Lastly, there were many products that were exempt from the tariffs. Companies that met certain requirements were able to avoid the 7.5 to 25% tax through a waiver process. Items like electric motors, bearings, salad spinners, thermostats, breast pumps, fork lift trucks, textiles, industrial components of many ilks and numerous other items were deemed exempt from the tariffs. Therefore, the actual impact on US Manufacturing by the removal of the tariffs will likely be muted in the macro sense.
Have a great week.
