Despite Record Investment Last Year... US Manufacturing Faces Headwinds This Year

Last Year Manufacturing Investment Surged 63%
Impact of Economic Growth Slowdown, Weak Demand, and Uncertainty

Although U.S. manufacturing companies made record-scale capital investments last year, there are forecasts that this momentum will slow down this year.

On the 28th (local time), Bloomberg reported that capital expenditures by U.S. manufacturers are expected to cool down this year due to borrowing costs and demand concerns, unlike last year.

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According to the Gross Domestic Product (GDP) report recently released by the U.S. government, investment by manufacturers in factories and other production facilities in the U.S. increased by about 63% last year. This is the largest annual increase since 1951. Bloomberg analyzed that this growth was influenced by companies utilizing government incentives and expanding expenditures that were postponed during the COVID-19 pandemic. Timothy Fiore, chairman of the ISM Manufacturing Survey Committee, said, "Producers are resuming production, upgrading technology, and pursuing productivity-enhancing technologies such as automation and artificial intelligence (AI)."

However, the situation is different this year. Economists expect overall U.S. economic growth to slow down this year. A Bloomberg monthly survey showed that the economic growth rate, which was 2.5% last year, is expected to slow to 1.5% this year. According to the semiannual economic outlook survey by the Institute for Supply Management (ISM), purchasing and supply executives expect investment spending to increase by 12% this year following a 15% increase last year. Bloomberg analyzed, "The pace of capital expenditure growth this year will not catch up to last year's speed," adding, "Overseas demand is sluggish, and domestic consumption has shifted toward services. Manufacturing is struggling to gain traction."

According to a report from the Federal Reserve Bank of New York, factory activity in New York State fell to its lowest level since May 2020 in early 2024. The ISM manufacturing index across the U.S. shows the industry has been contracting for more than a year. Bloomberg economist Eliza Winger stated, "Companies have been very cautious this year. They are worried about the possibility of tighter credit conditions in the future."

According to a survey conducted by the National Association of Manufacturers (NAM) among its members in the fourth quarter, capital expenditures are expected to increase by 0.6% over the next 12 months. This is the lowest forecast since the second quarter of 2016, excluding the impact of COVID-19. Chad Moutray, NAM’s chief economist, said, "Due to uncertainty, I believe caution is necessary regarding overall spending and capital investment plans this year."

However, Bloomberg forecasts that investment will not be completely restrained due to the U.S. government's reshoring strategy for key national security industries and the Federal Reserve's outlook for interest rate cuts. The U.S. government is providing benefits such as subsidies and tax credits to promote domestic production of semiconductors, electric vehicles, batteries, and components. According to UBS analysis, the U.S. has attracted 24% of global foreign direct investment over the past two years.

Investment in new technologies is also expected to continue. John Coykendall, vice chairman of Deloitte LLP, said, "The Fed is expected to cut interest rates this year after an aggressive tightening cycle, which will help stimulate investment," adding, "Significant amounts are being invested to streamline existing factories through new equipment and technology." According to a survey conducted last year by Deloitte and the Manufacturing Leadership Council, 92% of respondents are experimenting with or implementing investments in industrial metaverse or artificial intelligence (AI).

This content was produced with the assistance of AI translation services.