Moody's Talks - Inside Economics - Manufacturing and Mark on Fire

Episode Date: January 28, 2022

Chad Moutray, Chief Economist of National Association of Manufacturers, joins the podcast to discuss manufacturing, supply chains, and labor market shortages. Mark is on a hot streak in the stats game. Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined as per usual by my two co-hosts. Ryan, Ryan Sweet, Director of Real Time Economics. Hi, Ryan. Hey, Mark. How are you? Good, good. Ryan's a little perturbed because he couldn't get his mic to work.

I'm not sure what that's all about. Me and technology just never works. Yeah. But that's okay. You're coming through fine. I think no big deal. So good to have you. And of course, Chris, Chris, Chris is the Deputy Chief Economist.

Hi, Chris. How are you? Doing well. Snowing here in Westchester. I heard. How much snow are you going to get? I think the estimate is anywhere from four inches to a foot. Ooh.

That's a big range. That sounds like Ryan's forecast. Yeah, exactly. You know? Only kidding. Ryan nailed it. No, dude. Yes.

You got the Q4 GDP pretty close, I thought, didn't you? You were like in 6.4%. It came in at 6.9, right? Yeah. And I'm sure it's going to be revised down to 6-4. So, you know. That's where I tell everybody. Yeah.

Yeah, well, we'll come back to that. I want to understand that report a little bit more. I've got my own views, but I'm curious about how you're thinking about that. And we have a guest, Chad, Chad, Chad, Chad Moutre. Chad is the chief economist. That's right, Chad. Aren't you, you're the chief economist at the National Association of Manufacturers? Yeah, very good.

And how long have you been chief economist? I've been chief economist for almost 11 years. And so I'm chief economist at the NAM, but I also straddle over into the Manufacturing Institute, where I am a center of one. I'm the Center for Manufacturing Research. Oh, I'm sorry. What is the Center for Manufacturing? So the Manufacturing Institute works on the workforce issues.

It's more of the thought leader, non-advocacy type of stuff. And it really kind of stays in that workforce lane. And so doing research and thought leadership in that space. Great. Is that part of NAM or is that a totally different thing? It's a separate legal entity, although obviously I have both hats, so I'm on both sides of the shop. Great. Tell us, I'm really curious, how does one become the chief economist of the National Association of Manufacturers? What's your path to fame and glory? So I have kind of this circuitous route to the current role. I actually started my career almost 20-something years ago as the dean of business.

at Robert Morris College. I was a business school dean at 28 years old. Robert Morris, if you are not familiar with it, it used to be a secretarial school way back in the day, and I was one of the first PhDs hired. So that was my first job out of getting my PhD at Southern Illinois University in Carbondale. And lo and behold, I became dean after a year. And I was dean for five years. And my claim to fame is I created the MBA program. it is now fast forward is now part of

Roosevelt University so some M&A happening in in Chicago and then from there I went on as you know Mark

I went on to be chief economist at the SBA so I was at the U.S. Small Business Administration's Office of Advocacy for eight years

from 2002 to 2010 I think they put out 200 studies during that time and I was a talking head essentially on small business and entrepreneurship

my time came to an end. They had a new person that came in, and I was like, as it always happens in politics, I was said, you can stay to the end of the year, and then you're out of here. And I landed at the NAM, which is where I've been now for 11 years. Well, Chad, just a deep, dark secret,

they do the same thing in the private sector too. Yeah. So, you know, but you, that's political wins. And that's just what happens. That's just what happens. That's just what happens. So there is, I think, a pretty good nexus between small business and manufacturing, right? I mean, manufacturing has, you know, you've got obviously big multinationals, but you've got a lot of small manufacturers as well.

So, yeah, over 90% of our members are smaller medium-sized manufacturers. So while you can think of all of the big names that we would have in our membership, many of the smaller ones you probably haven't, right? And yet they're the suppliers to those large OEMs, right? And so we have to pay attention to those pass-through issues as much as we do kind of the multinational and corporate issues. Yeah. Hey, just while you mention that, I have noticed in the employment data, the ADP employment data, we get this data from the human resource company and we can aggregate it up by company size. and it looks like that small businesses, those defined to be with fewer than 500 employees, in terms of jobs, they kind of held up better than the big guys.

Is that your what you've observed in the manufacturing sector? That tends to be true. I tend to find it a little bit more for the medium-sized manufacturers. They tend to be the most upbeat in my own survey that we do, the smallest ones with less than 50 employees have tended to struggle a little bit more. And you've heard they don't have the scale that some of the larger counterparts do. But yeah, I definitely think it's true for the medium size. Yeah, very interesting.

Although there was a couple months there I saw in your study where large manufacturers actually had more job creation than the smaller medium. So that was a bit of an aberration there for a couple months. Yeah, interestingly, and it may go back to the paycheck protection program. That's the program that was put in place with the care. Act early on in the pandemic to help out companies with fewer than 500 employees, you know, they'd get cash, or they'd get money that turned into a grant if they used it to pay, to hold onto their payrolls. And that seemed to have worked pretty well. And then, you know,

after that program expired, which I believe was last summer, we did start to see some weakness there relative in small business employment relative to the big guys. The big guys started to catch up. So, yeah. Yeah. Yeah. Yeah. Anyway, great. So you've been at, I didn't realize, you've been at NAM now for 11 years. So you, you have seen a lot of manufacturing history here, a lot of, a lot of business cycles. When I began, we were talking a lot about the manufacturing Renaissance. I think we got tired of using that word. Just like we get tired of using the word uncertainty now, right? I think every year I've been at the NAM, we've talked about uncertainty. And now, obviously, the skills gap and all the other uncertainty. issues that are out there, the trade war, all right, at 2018 and 2019, and then obviously the supply chain stuff now. So, yeah, just lots of change over that time period. Yeah, well, we'll come back to all of that. That's the, you know, obviously we want to dig deep into what's

going on in the manufacturing base and obviously no better person than you to do that with. But before we get there, you know, Chad, and I know you're, you've listened into a couple of these podcasts, we talk about the statistics and the way we do this just to make it a little bit more digestible to the average person is to have a game, play a game. We each name a statistic. The other folks try to figure out what that is by questioning that person. The best statistic is one that is released recently for Ryan, Chris and I, it has to be this past week.

For you can be anything, Chad. And you don't even have to play the game if you don't want to. I have a number. Okay, fantastic. I've been thinking about this. Oh, okay, great. Yeah. Fantastic.

I knew I could count on you for a first, for a statistic. Well, we also, it also would be nice if the statistic is not too hard that, you know, there's like no way to get it, but not too easy that it's a slam dunk. And if it's bonus, if it's relevant to the topic at hand, which is manufacturing, that's even better. So I've gotten into the habit of starting with Ryan, because Ryan's so good at this. Let's stay with tradition. Ryan, what's your statistic?

All right. There was a lot. Yeah, this is a very active week. This was a great week. Yeah. But I'm going to go with 10.6% annualized. 10.6% annualized. Is that in the GDP report?

It is. Is it investment? It's spending. Is it intellectual property investment? Yeah. Ding, ding, ding. Okay. Get that.

Come on. That was impressive. That was good. That is like, that's impressive. That's impressive. All right. That is Ryan Sweet.

Wait, wait, wait, wait, wait, Chad. What do you think? That was impressive. That's what I'm going for.

I was thinking it had to be a year of a year number or whatever. You went right to it, Mark. I was good. I'm a, I'm a, a, a Brian sweet whisperer.

I know. You know what's in his head. I'm getting into his mind. Yeah. You are. You're starting. Yeah. Yeah.

You can't get into my mind. That's like, you know, we'll see if he could, we'll give him, I'm going to give him a good shot at that. Okay. Ryan, why did you pick that number? I'm just curious. Well, first, this is the fourth time in the past five quarters. It's been double-digit growth in intellectual property. And this relates to future productivity growth.

So investment in intellectual property today will affect productivity growth down the road, which we know is the firewall. between wages and inflation. So, you know, this above-trend productivity growth that we're seeing is probably here to stay for some time. So what is intellectual property investment? What kinds of things go into that? Yeah, a good chunk of it is R&D.

And then there's, I believe there's software. Mm-hmm. So it's been really, really strong. Right. And do you think it's because businesses are focused on the need to, right? labor productivity. Is that what's going on here? Yep. Okay. Anything else driving that train? Is it maybe supply investments in supply chain, software related? Yeah, maybe. Work from home. So. Oh, work from home. Okay. That might be in there as well. And is there a strong relationship

between investment in IP, intellectual property, and future productivity gains? It's decent. I wouldn't say it's like, you know, slam dunk, but it's, historically, it's been pretty, pretty solid. Okay. Well, now that I have you, give us a general sense of that GDP number. So GDP for Q4, 2021 came out this week. Big number, 6.9%. For the year, big number, 5.7%. So what's your take on the number and, you know, what it's saying about the economy? Well, Q4 wasn't great. Like that 6.9% is really distorted because inventories, I don't want to give too many numbers. I'm looking at Chris. I think I'm going to steal his number.

Okay. But if you strip out inventories, the economy grew only 1.9%. So it's a little bit misleading. I mean, 1.9 is, you know, it's okay, but it's not, you know, we weren't booming, like, close to 7% GDP growth as it looks like. I'm getting worried for the first. quarter because that inventory build was massive. And it's unlikely that we're going to be able to duplicate that. So we could get a little bit of a hangover in the first quarter of this year.

But all in all, I mean, consumer spending was solid in the fourth quarter. But other than that, a lot of the details were kind of kind of weak. So you got this big, you know, grandstanding close to 7% GDP number. But when you kind of dig down into the bowels of the report, it looked worse and worse, the more you dug. Yeah. I mean, so you're saying that obviously the top, number was gangbuster, 6.9% annualized, but that a big chunk of that, I think it was 4.9 percentage points of the 6.9, was just the swing in inventory that, you know, of course, we need inventories because they got depleted. And I think in Chad, correct me if I'm wrong, in manufacturing, they're still very, very lean in the manufacturing base. They are. And the numbers

on good spending was not great. So the consumer spending was great for services, but for durable and non-durable goods, it was pretty, pretty weak. Overall, business spending was pretty tepid as well, right, outside of intellectual property. So a lot of Omicron and supply chain worries there, I think, kind of drug that figure down. Yeah, we got the monthly details today with the personal consumption data. In real spending is not on a great trajectory heading into the to the first quarter. So you had that inventory is unlikely going to match what we got in the fourth quarter. And, you know, our forecast, we have 2% GDP growth in the first quarter, I think that might be a little optimistic. Well, let me ask you this, because I was tweeting today.

Oh, by the way, at Mark Zandi, Mark Zandi. Oh, and welcome, Ryan. I think you had your inaugural tweet this week. Did you not? Yeah. And now you're going to tell us what your Twitter handle is a Twitter handle is. Twitter, Twitter. Twitter.

Twitter. At real time underscore econ. Oh, okay. At what is it again? Real time underscore econ. Okay. Great. Hey, Chad, do you have a Twitter handle?

I do. It's at Chad Mutre. So pretty simple. That's much easier. I like that one. Yeah, that was better. That's actually a little bit better. Yeah.

Do you tweet a lot? I do tweet a lot. I try to tweet. You know, I do a Monday economic report. that goes out every week. It goes out to our members, but I also put up pretty widely on social. And during the week, I tend to tweet out some of those blurbs as well, including today. This morning, I don't know if I follow you. I got to follow you. Okay, all right. Now I need to follow Ryan, though. Yeah. Are you following me, Chad? I do. And I don't know,

Chris, I might follow you as well. I don't know. But are you actually tweet. Chris doesn't lead, so I don't know what you're following exactly. Oh, wow. I know. Actually, that is a ground characteristic of me. Yeah. LinkedIn. Oh, LinkedIn. LinkedIn, Chris is like, I'm all over it.

He runs the show there on LinkedIn. Yeah. Okay. Well, that's great. So you said you tweeted today? I missed that. I did. The GDP and PCE and all that fun stuff.

Oh, right. Play the cost index, et cetera. Yep. Right. Good. Hey, okay. It feels like to me that Q1 could actually turn out to be negative. GDP. I mean, the Amacron is doing some damage. December was a really bad month, right?

All the data seemed to suggest it was a bad month. Retail sales, unemployment insurance claims, you know, the consumer spending data we got today, the income data we got today. And it feels like January employment, which we're going to get next week, Friday, is jobs day, next Friday. good chance that's negative. You know, we actually lost jobs in January. It's a very good chance. Yeah, very good chance. So, you know, what are the odds that we're actually going to get a negative Q1 GDP number?

Do you think, Ryan? Remember, you asked me about Q4 GDP. What are the odds that been following? And I said zero. Well, that was like three months ago. Yeah. Kevin Hassett, former CEO, it was a great interview. He's such a great guy, but he got that wrong, obviously.

He was thinking. It was going to be a negative Q4. I think he was off by one quarter. So I think the odds are... I think it's off by one quarter. Yeah, I think odds are pretty high that we see a decline. Because that 5%, or 4.9 percentage point contribution to GDP growth in inventories is among the highest since the early 1980s.

That's going to be really, really difficult to... I mean, we need inventories, but, you know, with Omicron supply chain issues, not really getting resolved too quickly. Yeah, I'd probably say it's... Yeah, I'd say probably better than even odds that it falls. Better than even odds that it falls. Okay. We still got February and March, you know?

Yeah. Game's not over. Yeah. It has to bounce back pretty strong, though. I mean, we dug ourselves a deep hole in January, though. I agree. I agree. Hey, Chad, do you do explicit GDP forecasts in your work?

Is that part of what you do? I do. And we subscribe to Moody's analytics. And so I'm looking at what you're doing a lot as well. But yes, I do. And do you have a sense or do you have any views yet? Have you thought about Q1 at all, whether that's going to be possibly negative? I haven't been as negative as Ryan, but you guys are depressed on me here.

Yeah. I mean, I suspect that you're starting to see Omicron waning a little bit here, and I think you're going to start seeing a bit of a return in February and March, whether that's enough to overcome the weakness that you're seeing in January or the weakness in the inventories. I don't know. I don't actually don't think it's going to be negative for the first quarter, but maybe that's just the cautious optimism in me. Yeah, I mean, if it's not negative, it's going to be weak. It's going to be south of one.

Sure. Yeah. Yeah. Well, because the other thing that's happening now is financial conditions are tightening, right? I mean, the equity market decline. We're down. I don't know what's going on today, but it feels like we're about down, down 10% on the S&P, aren't we? Something like that. So. Close to that. Of course, that's after 30% percent. gain last year so but still bond yields are up that's hitting refinancing activity and kind of starting to feel it in the housing market if you're you know paying attention the pending home sales I kind of think so right yeah but I guess what we're saying here is you know that's not great nobody likes to see a negative print on GDP but don't get overly concerned right because as the I'm-a-con process through we if you know history's any guide here we come right

back you know very quickly Okay. And we're still, I feel like we're still pretty optimistic about what's going to happen in 2022 in terms of growth. Yeah. Yeah, we might get a first or a weak first quarter, but then the second quarter would be very, very strong. Right. So just like Delta. Like crushed us in Q3 and then look at Q4. Okay. All right. Let's, Chris, you want to go next? What's your statistic? I'm going to give you a two-fer. They're related for a twofer for housing. 17% and five days. Ooh, that's interesting. 17% housing related?

No. No, not housing. I follow the rules here. You know, it's related to our topic of the day. Oh, related to manufacturing. Related to manufacturing, absolutely. Okay. And a report came out this week.

A report that came out this week. Is it good sterling year over here? Nope. Is this in durable goods? Nope. Ooh. It was a report. It was a report.

So it's not a regular statistic. Oh, it's not a statistic. It's not a economic statistic. It is. But yeah, yeah, yeah. Right. It's not a monthly release. Okay.

It has something to do with. Department of Commerce report. Chips. Chips. And it's the number of day supply of chips. Five days is the. number of day supply of chips down from 40 days prior to the pandemic. So we are on.

Wait, before you explain anything, Ryan, get the Cal Bell out, my friend. What about the 17%? Oh. I think you guys are in cahoots because there is no way. How did you know that? I know stuff, Ryan. I just know stuff. That is outrageous.

What about the 17%? The 17% is, actually, I don't know what the 17% is. That is the increase in demand. semiconductors from 2019 to today. No, no, can I ask, well, I didn't hear the cowbell. Where the hell is the cowbell? I just did it. Chad, did he do the cowbell?

All right. I am on a roll. I am on a roll, baby. That was very good. Okay. Now, because I didn't read the report. I read of the report. The 17% increase over what period is that?

That is. I have the report right here. 2019 to 2021. Calendar year? Well, is that calendar year, 2021? Well, that's only because you see what I'm saying. Yeah, it doesn't account. I'm sure it came out.

I don't know that it fully accounts for the year. It doesn't give you the detail. But it's some 2021 over 2019. So pre-pandemic, it's up 17%. Yeah, I don't know if that's an average. In the five days, as of what point in time? We have five days of chip supply on hand, if I'm stating that correctly. Correct.

That's the meeting inventory of semiconductors in 2021. Again, the report doesn't provide that. In the year, sometime in the year. So that's nothing to say about like right now what's going on? No, that's my impression. It's not as of December. It's right. As of the year.

I think it was conducted on a survey basis. Right, right. Hey, Chad, does that, that resonates with you, those statistics in what's going on in manufacturing? Well, definitely. I know you had GM's chief economist on last week, right? And so, you know, the chip shortage, yeah, the chip shortage certainly is hitting the auto sector hard, but, you know, a lot of products have chips in them, right? Not just autos. So we're seeing those shortages, you know, kind of across the board. And that's certainly affecting their ability to produce. I mean, I think the good news is to kind of drift into where we might go later, you know, the Chips Act and you're seeing a lot of investments, you know, just last week, I think Intel announced a huge $20 billion investment in Ohio, right?

So a lot of other companies, Samsung, et cetera, are making similar investment announcements. So hopefully, you know, will help out in 2023 and 2024. It doesn't really help the short term here. But certainly for here and now, it's a big issue. Yeah. Do you sense, like when Elaine, we were talking to Elaine last week, again, the chief economist of GM, she generally was, I thought, upbeat about the chip, about shortages in general, the supply shortages in general. And she was making the point that chip production is up significantly in the fourth quarter globally.

And it's starting to have an impact on the ability of vehicle manufacturers around the world to produce more. cars and you know she sounded you know encouraging to me. Ryan, Chris, did you have the same sense of that conversation that was relatively upbeat? Yeah. And I think you see some, I think the Japanese manufacturers actually had a pretty good December in terms of their production. So I think she's right. I think we are starting to see that come back online.

It appeared up turned a corner there. And you see the same thing, Chad? You sense the same thing? more broadly in the manufacturing base or just? In general, yeah. In general, yeah. It's still one-offs there are still big issues. Yeah.

And I think Tim Cook, I saw the Apple CEO started, also suggested some of the supply chain issues seem to be ironing themselves out and it helped out in terms of their activity in the fourth quarter. So it feels like we're moving in the right direction. Okay. It certainly highlights a vulnerability, though. To Chad's point, everything has a chip. Yeah. This is a really important issue.

And with so many of the chips, the hiring ships coming out of Taiwan, it's a key strategic or geopolitical risk as well. Outside of chips, we just ordered a new set of living room furniture. And we were told it will come here sometime in four to seven months. So it's not just true. Those supply chain issues are huge outside of other chips and cars. Yeah. Well, let's come back to that.

Anything else, Chris, on that report from the Commerce Department on what's going on in the chip industry? Oh, it's really interesting a report. It's for the general public, right? So it's a very easy read if everyone wants to take a look at it. But just, again, I thought the points about the interconnection and how. how the chips are designed in the U.S. and manufactured in Southeast Asia. And just all those things have to go right in order to get the chip production. So it's, I thought it was a good report in terms of highlighting the complexities of solving

this issue, why it's, why it is something that we can't resolve immediately and it may linger for a bit longer. Yeah. Did they do any kind of forecasting in the report? Like, no. It was okay. No. some of the investments that are proposed here.

Yeah, some of your investments. But still, that there would be a lag to get up a new fabrication plant, right? It's not something you can turn around within a month or two. It's years. Take some time. Yeah. Well, someone else was making the point. It was Tim Way, one of our economists who attracts the supply chain issues and really is focused

on the chip industry that a lot of the shortages are for kind of a lower value added chips. that that's where the most significant constraints are. Did that come through in the report as well? They didn't, I didn't see much about that. About that, but yeah. Okay. I wouldn't doubt that, though. Yeah.

Okay. Hey, Chad, you want to play the game? I do. So I have an easy one and a hard one. Which would you like? All right, give Mark's a hard one because I don't think we've had it. Okay. We've never had anyone go three for three at all thing.

That's true. The pressure is on. Let's start with the easy one. So these are both, you want the easy first? Let's go with the easy one first because it's probably hard, but go ahead. 4.1%. Is that year over year? It is a year-over-year number.

And is that? Both of these numbers are manufacturing. Oh, I think I know what it is. The wage growth for manufacturing in the ECI. Yeah. From this morning. Oh my gosh. This is like incredible.

What's going on here today? I told you that was an easy one, Mark. What are you talking about? Easy. Ryan had no idea with that statistic. I knew that one. Oh, come on. Yeah.

It came out today. I was just going to let you have your moment in glory. Oh, lordy, lordy, lordy. Ring the cowbell. Okay, here we go. The first cowbell ring. Okay. This is like, I'm on fire, baby.

Unprecedented. Okay. Well, before you move on to the hard one, What do you think of that number, that 4.1%? What do you think? Well, it was a record high for the ECI, which has only been around since 2001. And we'll probably get to this a little bit later in our larger conversation. But we continue to hear from manufacturers that the struggle for talent is real, right, in the local communities.

And in our survey, it was 3.8 was the average. And I would present that to some of the CEOs and they'd say, yeah, we wish it was 3.8. It's actually probably like five or more, right, in some cases, for some cities. So definitely a lot of struggle for workers right now. They're having to compete against the service sector, right? Which is paying even more than that, but in some cases, on a year of your basis. So that's a pretty significant increase. Yeah, here's, you know, there's a little broader point around the wages.

I'm a little confused about that I'm just curious if anyone has a view on. you know, everyone likes the employment cost index, the EECI. That's the number you just, the wage number you just, you know, put forth. And they like it because it controls for shifts in the composition of the labor force. So, you know, in terms of industry, in terms of occupation, I think it even has, it's even more detailed than that within occupation that controls for, you know, mix. So it's kind of a, you know, apples to apples over time. measure of wage growth, which is, you know, important, different than other measures.

One other wage statistic that does that in a different way, but does it, is the Atlanta Fed wage tracker based on, I think, CPS data, hopefully they can continue to do this because I think the BEA is thinking about stopping provisioning of this data, but we'll can talk about that. But anyway, tracking the same worker and seeing what their wages are doing. And if you look at that, wage growth has picked, if you look at the ECI, the Employment Consist Index that came out, that shows a market acceleration in broad-based, broad-based acceleration wage growth. Ryan, what was the top line number for all across the board?

Was it 5% or something? Year over year. Year over a year. What was it? I can't remember. Yeah, I think it was close to five. It was close to five. It was one.

Yeah, I think it was close to five year over year. And, but if you look at the Atlanta Fed wage tracker, it has accelerated, but not nearly to the same degree, at least through, I think the last data point I saw was for November or maybe December's out now and I haven't taken a look. But any, any, any, any sense of the differences there, why it's such a big difference? Do you know? Do you have any sense of that? No. Ryan, do you have any sense of that? I remember looking in this a while ago.

So I got to dig back. I got to remember what I found out. There's a little quirk because we have a wage tracker. And basically what we do is we take all the most popular measures of wages. So average average average earnings, ECI, unit labor costs, the Atlanta Fed. And we match them all up together and create this wage tracker. And we have to make an adjustment. I got to remember why we did make an adjustment to the Atlanta wage.

But I can get back to you next week about it. Yeah, I'm just really curious. I mean, if you look at that Atlanta Fed. And the reason I like the Atlanta Fed data is because it breaks it out by different demographics. You know, you can look across region. You can look across industry. You can look across full-time, part-time job holders versus job switchers. And the thing I really look at is wage growth by where.

you are in the wage distribution, and you can see all of the, all of the acceleration in wage growth is in the folks in the bottom half of the wage distribution, particularly in the bottom quartile, the bottom 25% of the wage distribution, the folks in the top half of the wage distribution have not seen any acceleration. And if anything, it feels like it's decelerated a little bit, particularly for the highest wage workers. So that just seems a bit uncongruous with the ECI, which feels like the wage growth is a lot, acceleration has been much more broad-based. But so I'm just curious how, we've got to figure out how I would love to square, you know, that, those differences, you know, what's going on because they're telling different stories at this point. So not completely different stories, but certainly in kind, they're very different.

But, okay. Average hourly earning or average early earnings for production workers is also at a four-year-high, 5.2. So that also wouldn't necessarily, I guess, square with accelerating activity from the Atlanta. Right, because manufacturing wages definitely aren't in the bottom quartile. They're kind of in the middle of the high part of the distribution. 24 bucks an hour, yeah. Yeah, 24 bucks an hour. Yeah, exactly.

Okay, so, Chad, you said you had a hard one. Put on my old hat, this is a hint. SBA. Yeah, 2.2%. A number that came out this week. It came out this week. Yeah. So small business?

Something related to small business. business employment dynamics data. Oh. Employment dynamics data. I have not, I did not look at that data. That is, you said 2.2%.

2.2%. And is it, are you, so you're saying it has something, in the business employment dynamics related to small business, up 2.2 per,

year over year? No, quarter to quarter. It's just a percentage of all. Oh. Percentage of. You're related to manufacturing? Yes. Do you know, Chris?

If I get this, you guys, you know, you got a bowed, Jenny flucked to me. I think that's a word. All right. Give me a second. Okay. We'll give you a second. I told you this was a hard. I was trying to think of a hard one and an easy one, and I did.

It's like that Jeffrey. Hard one. This is a great... uh, data set to look at, but it's got, you know, higher rates,

uh, layout. Yeah, yeah, this is, startups? Startups. It is startups.

Uh, manufacturing startups. That's right. You are right, Ryan. What's the two point? Is that as a share of total startups? So this is the second quarter.

So there's a huge lag in, in all these data. So there were 7,000 manufacturing startups in the second quarter, which is 2.2% of all manufacturing establishments. Oh. That was the highest since the first quarter of 1998. That is a great statistic. So much like you're seeing increased entrepreneurship across the board during the pandemic.

You're also seeing it in manufacturing. Unfortunately, it doesn't go any more detail to know, like, where are they starting? But it's a nice, it's nice, fun statistic. Yeah, so the business employment dynamics, I'm trying to think of what is the underlying source data. Is that the QCW quarterly census of employment and wages? I don't know. Is it? Okay. So kind of the unemployment insurance record data. And here in this data, it's quarterly, it's lag because there's a lot of processing that goes on. It shows increases in employment and declines in employment. And they break it out in terms of new businesses, how much they're

hiring, how much hiring is going on in existing business. It gives you a lot of detail, A lot of, you know, so you want to businesses, it's whether they're expanding or, you know, yeah, all that fun stuff. So you can get under the hood and see what's really driving the employment data, you know, what, why is it doing what it's doing? This really helps with that. And did you look more broadly, Chad, is, did you notice whether business formation is up across the board or was that just pretty much? I didn't, I didn't in this case. I think in general, you know, business applications that were up pretty significantly. Although you've seen that pull back a little bit here in the last couple months,

but around October, it was a record high. So you've seen a pretty significant increase in entrepreneurship. So how do you explain it? What's behind this surge in entrepreneurship, new business formation in manufacturing? Well, in general, I'll say in general first. In general, okay. In general, people lose the job, right? Or they're looking for people are reevaluating their work like,

balance in this case with the pandemic and saying, hey, rather than working in a factory or whatever else, I'm going to go out and start my own job. And that's why you tend to see, especially in recessions or kind of times of economic unease, more entrepreneurship. In manufacturing, it's just easy to start up a job. I mean, you're coming up with new innovations. You're coming up with a new, it's easy to start a business, right? And so I suspect that you're seeing some kind of tag along, maybe people who used to work in manufacturing, You've come up with a new idea. They're going to go out and market it now and maybe become a supplier themselves, I guess.

Technology, I'm sure, is a big part of this conversation, right? Again, I don't know a lot about those companies necessarily to know who it is. I think it would be a great study to kind of go in and see who are the new entrepreneurs, but I suspect there's a lot in the pharmaceutical or technology or in that kind of space. Do you have a sense that it's broad-based in manufacturing, or do you think it is concentrated in like pharma and tech and i suspect it's more concentrated more concentrated right that's just a guess on my part yeah although you make a great point which we've talked about in the past on these podcasts if you look at the uh taxpayer identification data from coming from the

IRS which is a good read on business formation that's been up very strongly over the past year and that is broad-based that's across every industry i think almost every region of the country so it's consistent with that. Ryan, Chris, do you have any sense as to what could be driving the increase in entrepreneurial activity other than the things that kind of Chad mentioned? Any other views on that? I had more of a question or observation more on the, I was wondering if you get any sense in terms of who might be starting this business.

Is it the old, right? We see that 55 plus age workers are exiting labor force at higher numbers, but if they're going to start businesses, that's, that's actually positive. Maybe we should reevaluate the data somewhat. So do you think it's more the older worker who's kind of branching out or is it? I think it's probably a little bit of everything, but I definitely, there's definitely been increased retirements, as you know, Chris. And they can come back and maybe work part-time or work back as come back as a consultant, right? And that would be an example of, I guess, some manufacturing consultant would still be in that next code, right? So it could be

they're starting businesses then yeah yeah certainly they're creating positions for others yeah you know though i i don't think it's uh like proprietorships right because self-employed the number of people that are self-employed hasn't increased all that much i don't think right so these are these are these are real companies i mean these are they're incorporating you know or partnerships so it's not like somebody losing their job and just putting out a shingle and say hey you know i'm starting a company it feels more substantive than that right Or do I have that wrong? It probably is, but I think it's also self-reported, right?

So if you are, you could report that you're 31 to 33, right? If that's who you're supporting, right? And no one's going to question you on it. Yeah, got it. Yeah. That was a great statistic, very good one. And I'll point out the only one I did not get. So just send.

That was Ryan. That was Ryan. That was Ryan. I got that. Way to go, Ryan. Good job. Good job. All right.

This is your strongest showing. Ever. By far. I've had a couple showings over the year. This has got to be up there. No, definitely up there. I'm very proud of my performance so far today. So I'll have to say.

What do you have? Oh, this should not be hard, you know, just prefacing it that way. So I'd be a little surprised if, you know, we have difficulty with this one. 4.9%. 4.9%. And it is a statistic that came out this week. Is it related to manufacturing? It is not related directly to manufacturing.

No. So I don't get the bonus points for that. And it's not a year-over-year number? It is a year-over-year number. Yes, it is, indeed. Yep. You know, it's kind of GDP report? GDP report, no.

No. It has been obviously top of mind, kind of like everyone's... So inflation? Inflation. Very good. Okay. Very good. Now, this should be easy.

Yeah. What came out? Are you sure it came out this week? Core PCE? Core PCE. Very good. Not this week. Are you kidding me?

It came out two hours ago, my friend. I wrote the release on our site. Oh, did you really? The highest is 83, I believe. That is, really. right. The core, so PCE, that's the consumer expenditure deflator and core meaning X food and energy. This is the one inflation measure that the Fed focuses on the most in terms of trying to set or think about, you know, where interest rates should be in the course of monetary policy.

And 4.9% is, you know, they want two. You know, they're back down to two. So this is, you know, obviously well, well above 2%. You know, my sense is that it's at or near a peak, although I say that with less confidence, as I would have a few weeks ago, as energy prices are up again, which is not a good thing. But it feels like we're at or near a peak,

particularly if the supply chain issues are ironing themselves out, labor market, certain ironed themselves out after Omacron passes through. But I think that's an important statistic, you know, to focus on. So do I get a cowbell? Is it, did I hear it? Yeah.

Well, yeah. It's like just a cowbell. Yeah, way to go. Excellent. Great job. That's very good. Okay. Before we kind of dive in, I have one other question around monetary policy because, you know,

this was also the week that the Federal Reserve met, and we got another read on what they're thinking. And, Ryan, do you want to give us just kind of a summary of sort of where? they landed at the FOMC meeting, the Federal Open Market Committee meeting this week? Yeah, so they used the January meeting to tee up a rate hike in March. So they're very likely going to start normalizing monetary policy with regards to interest rates in March. And they really didn't push back against market pricing, which is betting on four rate hikes this year. That's what's a non-forecast. But the general takeaway is that they have zero tolerance for any upside surprises in inflation. So if we start to see, you know, inflation running

hot early this year, four hikes turns into five. But all in all, there wasn't a lot of surprises in the meeting. We knew they were going to tee it up for March. Quantitative tightening is going to start one to two meetings. And that's quantitative tightening is a reduction in the size of the balance sheet, one or two meetings after the first right hike. So March raised rates, July, I probably start letting the balance sheet run off. But they're clearly really worried about inflation, and that's why they're going to start, you know, pushing, put their foot on the break this year. I read, and I'm just curious if this is right, that the market, the financial markets, the investors are pricing in nearly five quarter point rate increases this year. Is that right?

Yeah, it's not fully priced in. It's close. But I'd say four is the most likely scenario. But markets have seemed to even gone beyond that at this point. They're almost a five. Yeah, and I think part of it was Powell, Fed Chair Powell, in his post-meeting presser, was very, very hawkish. They pulled it off with the statement.

You know, they got their point across that, you know, rates are going to rise soon. markets, there was a little bit of a relief rally. And then Powell started speaking and it was very, very hawkish. And that clearly rattled markets. And I think that's what's contributing to them in something in maybe a fifth rate hike. So it feels weird, doesn't it? I mean, here we were talking about employment declining in January, GDP falling in the first quarter. And yet we're, you know, we're on the high alert with regard to.

short-term interest rates. Yeah. Does that feel like thing? You think there's a risk that people are getting ahead of themselves here on these rate hikes? The number, yes. I think they're going in March no matter what. Yeah.

They've already teed that up. You know, they'll play off January, even if employment, you know, declines in February, which is unlikely. But they'll just say it's own work on. It's temporary. Things are going to bounce back. And they're laser focused on these inflation numbers

and Powell has no tolerance. So he's going to start clamping down. There's a lot of pressure from consumers. You saw consumer confidence fall today to a 10-year low. Certainly in our survey, it's the number one issue. I think there's just a lot of pressure right now to deal with inflation. Everyone's talking about it, right? Real wages essentially are negative, right, at this point,

even with those 40-year highs that I just talked about earlier. So I think there's a lot of pressure for policymakers to do something about this. So, yeah, I think March is all the – it's going to happen as well. Yeah. Well, in your forecast, Chad, do you now have four rate increases this year? Or what do you have? I have four. You have four.

Yeah. Kind of one a quarter going forward. Yeah. Wasn't it Jamie Diamond who came out and said that there's going to be seven over the next year and a half or something like that? So I think that also is in the back of people's minds as well, but I think we have four for this year. Oh, I missed that. I didn't hear him say that. So seven, so that's kind of one a quarter or something like that.

Yeah. Okay. Okay. And that's what we think they're going to do. Chad, is that what they should do? Are you on board with that? I think the Fed is behind the curve a little bit. Now, granted, that's what's happening now is perhaps changing that KACOS a little bit.

But clearly, the inflation right now is to the level that they clearly are behind the curve and they feel like they have to do something. So, yeah, I think, yes. Yeah, and you, Ryan, are you, you shook your head in the other, you said no. You don't think. What do you think? What do you think? Is your wait. Wait.

Wait for what? Wait. There's no, there's no rush. Oh. So, okay. All right. So I have, I sympathize with the view that they're behind the curve when you have inflation where it is now.

But it's going to moderate this year. So there's the potential that they tighten too fast, too soon. soon and they undermine the labor market. Now, what really rattled financial markets was when Powell said that we could raise rates a lot. And he said a lot before we hurt the labor market. And I don't buy into that. I think we're at zero.

We can get up to two. But, you know, I think they got to do this gradually. I'm afraid they're going to slam their foot on the break. Right. So your instinct now is that they should not be raising rates. as quickly. They should wait till what, May, June, see what? Yeah, June. June. Interesting.

Okay. Because June inflation will be moderating a lot. Yeah. Chris, do you have a view? Somewhat sympathetic to Ryan's view. I think they will hike in March because they've already, it would be mistaken. They pretty much said it. Yeah. If they don't, it's going to be more destructive.

Yeah. But then I do believe that inflation is going to roll over. here and kind of fade from the scene. I'm at least that's one of my key assumptions. And so for that, and I think there are a lot of other risks that are out there that, you know, Ukraine, Taiwan,

another wave of, of the pandemic. I think there are enough factors out there that, uh, they're not going to be able to, uh, race as quickly. So I,

I'm penciling in three personally, but, oh, you, you think there'll be three rate increases. Yeah. Yeah. Just because there's,

So many other factors here. And I think the inflation actually is going to, the supply effects are going to. Well, I think the, I think Chera Pous used the word nimble too, right? Which I think, in humble,

which I think really, you know, applies. I mean, because, yeah, I mean, we'll just have to see how this goes.

Yeah. Yeah. Because it's just job owning that. Yeah. In the presser. Yeah. Right. Okay.

Hey, let's turn to the topic at hand in manufacturing. And I want to preface. There's a lot to talk. about but one thing I want to start off is kind of a big picture and I was doing a little bit of preparation you know before this for our conversation and I noticed industrial production so that's in manufacturing so just focused on output in the manufacturing base you know it goes up and down all around with the business cycle no surprise and

it is back up you know it got creamed at the teeth of the pandemic a couple years ago and but it's made it way back and kind of back to where it was pretty pandemic, maybe a little bit higher. But it really hasn't gone anywhere for almost, I don't know, 20 years. I mean, you know, if you can go back to the end of the cycle leading into the Y2K bubble bursting, you know, the tech bubble when that burst, you know, in 1999, 1998, industrial production is just about back to where that was. You know, it really hasn't gone anywhere in 20 years. Is that a, does that, is that a, chat, a fair characterization of the reality of what's been going on in the manufacturing base?

You mentioned manufacturing renaissance, but you just don't see it in that data. I don't think you see it in that data, because that's an index. But when you look at the overall data from the BEA, when you look at real value added, right? Real value added actually has been all-time highs, right, for much of the last couple of quarters, right?

So you are seeing more output in general in the manufacturing sector, not just in a nominal way, but also on a real, on a real, the price-adjusted way. And so I actually think the manufacturing continues to hit on all cylinders. I think what's really hurted over the last couple of years has been the trade war. And then obviously the kind of this pandemic supply chain issues over the last year or so. What I like to say is manufacturing demand actually is pretty strong right now.

Again, let's take December kind of the disappointing number we're getting in December and January out of it. In general, manufacturing demand has been pretty strong. I think the challenge for the sector when I talked to them is that being able to meet that demand has been the challenge, right, with some of those capacity issues. Right. But, you know, you're seeing overall, I think, in terms of real output, continued growth over that time period. Right. So the IP, the Industrial Production Numbers Index that comes from the Fed, which is supposed to be a measure of real output, right? That's what that's supposed to be.

you're saying that that probably is not capturing the reality of what's going on here. That's my view. I mean, again, you can look at different numbers there. Yeah. If you look at real value added, which is also another measure of output, that's in dollar terms, like $2012. I didn't look at that. You're saying that is up. And real exports were an all-time high before the trade war.

We're still not far, we weren't far from that before the pandemic as well. So I think in general, when you're looking at other measures like the, overall output or exports, you clearly see that the manufacturing sector had been, certainly over the longer term, growing and getting bigger. And in my view, getting more productive, right? We have 12.5, 12.6 million workers right now. We had, you know, almost 20 million, obviously, at kind of at its peak. So we're certainly doing a lot more with less.

And so I think you have that debate quite a bit about, you know, is manufacturing shrinking or not shrinking? or getting, you know, staying the same, but I still see it as a sector that's growing and growing pretty steadily. And reason to be bullish about it. Yeah. So when you look across the globe, and I don't know if you do this, but is U.S. manufacturing holding on to market share, global manufacturing market share, or are we losing still?

I mean, obviously, we lost a boatload of share when China came on the scene. And with the WTO in 2001, we got creamed, you know, in the decade or so that followed. have we stabilized? It's stabilized. It has. We obviously, you know, when I came on board, this has nothing to do with my performance. But when we came on board in the U.S. was the number one manufacturer in the world, right? That was one of our talking points.

We quickly moved away from that stat because it quickly became China, right? And so we did lose market share for many years, but that has stabilized a bit. Right. And, of course, when I say manufacturing, that encompasses a lot of different activities. right everything from we talk about technology to the vehicle industry to furniture to clothing to food processing to petroleum refinery i mean i can go on and on in fact i think i can tell you every single nakes code would i bet you you know every name do you know every nakes code uh three right yeah i know them in general but don't quiz me on it right now yeah right

ryan what's three one three see i tell you he'll come up with it in five minutes he'll come back with it. And he won't even, he won't Google, I promise. It's not an electrical equipment, is it? Actually, I have no idea. Oh. I don't know 3-1 is manufacturing, but I don't know what's... I think it's a non-durable good, but I can't... It's a non-durable good. It's probably, okay, if I get this, this would be amazing, right?

3-1-3. I'm going to say... Hold on. I'm going to look it up to make sure... Wait, wait, wait, and I'm not... Look, you can see my hands are right here. I'm not doing anything. 313. I'd say that is, I would say, what, oh, really? Go for it. Go for it. I'm not going to get it wrong. I'm going to say that's leather, leather processing. No. Nope. What is it? What, come on. Textile manufacturing. Okay. Leather, oh, come on now. Leather processing, textile manufacturing. I was pretty close. It was close. It's close.

Come on. Chad. That's pretty close. I like it. Come on. And I bet it is leather manufacturing in the textile industry. Okay. All right.

I'm like I'm impressing myself this podcast. That's all I'm saying. How many trips to Wawa did you make today? Well, I am in Daytona Beach, Florida, home of where my wife grew up with, I met my mother-in-law. So believe this or not, there is a beautiful big Wawa in Daytona Beach, Ormond Beach. And I went to it this morning, had my hazelnut call. Do you have Wawa? You have Wawaas in D.C., don't you, Chad?

There is one in the city of the District of Columbia. That's it. Oh, we've got to change that. Wawa. Come on, man. Chad, do you like Wawa? Sure. Sure.

How could he say no? No, Mark, I really don't like Wawa. If I'm going to get a coffee, it's probably a Starbucks coffee. But yeah, yeah. Yeah, I'm telling you, I woke up this morning, 630, got in my car and drove over the Ormond Beach Bridge to the spanking brand new Wawa. Got my coffee, my mother-in-law, my wife, you know, all good. Here you go. This is the devoured Wawa cup of coffee.

Yeah, there you go. I don't know what they put in the coffee, but you're on fire. You've got to keep going to that one. Back to the topic at hand. Sorry, we digress. We digress. So I guess my question was, is the kind of the strength of the nation's manufacturing base broad-based?

Is it across all industries or some, I guess tech is shining through. In pharma, you mentioned. Any others that are shining through? chemicals, obviously. Well, part of chemicals is pharma, right? So you've got to kind of attribute it to that as well. The number one sector, actually, that has bounced back the most since the pandemic is aerospace. But that has largely to do with the aerospace sector being in a different place today than it was a couple years ago. Well, that's Boeing, right? I mean, that's got to be, they got a number of companies. So I was to be careful there. But yeah. Oh, sorry. Sorry, sorry about that. But they're the largest exporter in the country. I mean, they're a big part of the nation's manufacturing. They're, you know, prowess, really. So, yeah. I mean, at the other end of the spectrum, you know, paper, textiles tended to lag behind.

Right, right. And because of the chip shortage, post-pandemic, the motor vehicle sector really struggled this year, right? It's down about 6% in terms of industrial production since January. But that's a unique thing. The auto sector actually had, was the fastest to bounce back to pre-pandemic levels last summer, right? So this is all about chips and supply chains. Yeah, let's go there because that's a great point. I mean, the vehicle industry production is down, but not because there isn't demand.

There's like a lot of demand, a lot of pent-up demand. We talked about that last week with Elaine Buckburger GM. It's about I can't produce in the supply chain issues. So we've already kind of danced around this a bit, but how would you characterize the supply chain problems today? and are they getting better, not getting better? Where are we in this path to normalization in the supply chains? You do get a sense that the ports issue is getting better, right? So that was the conversation three or four months ago.

You still have long waits in the ports, but it's not as bad as it was, right? My view is a little bit of deja vu all over against it. Ryan will love this, right? So you're certainly when you're thinking about Omicron and what's happening abroad, right? So you have cities that are being shut down again, kind of in pockets of Asia. That's affecting ports. It's affecting production. And that certainly slows down the supply chain coming into the U.S.

The issue with the ports, in addition to everything, just the volume is also not enough dock workers, right? So that's part, it's a supply chain issue, but it's also a workforce issue. And then once they get it off the boats, there's not enough truck drivers, right? So you have all of these things kind of compounding into this larger kind of slowing of the overall process. At the factories themselves, right now, I know you guys cited this number last week from the household pulse survey, 8.8 million, not just manufacturing, but generally 8.8 million people in the last report that said that they were out sick with COVID or taking care of someone's COVID related. That's also slowed down production. You've seen a couple stories of that more recently, too, where that's affected overall employment. So in general, you get a sense that the supply chain issues are getting better, and yet there are these. lingering workforce and ports and Omicron issues that are kind of plaguing overall production.

I did ask on our most recent NAM Outlook survey, when do you expect, so this was a December, right? So we'll be asking this question again in the next week when I ask it again. But when do you expect the supply chain issues will abate or get better? And 54% of our members said this year, 2022, but almost all of that was the second half, right? That's, I think, 38.8 or whatever, was the second half of the year. And that's mostly what I hear from our manufacturers is that there's cautious optimism that supply chain issues will get better in the second half of the year, that some of these port issues and some of the other supply chain issues will start getting better.

But you have about, a little bit more than a quarter who think it won't get better until next year, the 20, 23 or later, right? The chip issue that we've talked about several times, it's going to take a while to dig out of that hole, right? Just the volume of chips that you need, electric vehicles, a lot of other, you know, as technology gets more sophisticated, you need more chips, right? And so it's going to take a while to dig out of that hole. And the workforce issues aren't going to go away, right? We aren't going to suddenly overnight get more truck drivers. We're not suddenly overnight going to find these workers for manufacturing and other jobs. So I think that's more of a structural

issue that's going to continue on throughout this year and into next year. So I'm always, optimistic, cautiously optimistic about the supply chain issues, but I think that lingering issue and why actually going back to our earlier conversation, I think inflation will be, even though it is going to improve, it's going to stay a little bit more elevated than we would like, is I think those wage pressures are going to continue to hover out there, and it's going to take a while for us to kind of get past it. Yeah. When you say, when you talked about supply chain issues, you talked about it in the context of the ports, is that the most significant an issue here? It's just really getting things through the ports to...

That was a huge bottleneck. It still is a bottleneck. So it's one of the larger bottlenecks that's out there. That obviously is getting better. And what I like to say here is that, you know, just if you flash forward a year or two, it'll be interesting to see how many companies take advantage of this opportunity, right? And say, because some companies have seen freight costs go up, not just double or triple. One company told me their freight costs have gone up eight times, right? So you have a lot of small and medium size of manufacturers that, you know, this is like, how am I going to make?

How can I make payroll with these huge, you know, wageing pieces I have to pay and then you have to pay for it? So I actually think this is a unique opportunity for manufacturers to say, well, maybe I should make it here, right? Rather than shipping it across. So this brings up to me the whole reshoring conversation again, right? that you're going to have companies that are reevaluating their supply chain and saying, if not the U.S., at least North America, where I don't have to perhaps ship it across the ocean. And so I do think that companies have that opportunity now to do that, right? You're seeing that a little bit with the chips act, right?

We're seeing a lot of increased production in the U.S. for chip production, right, to kind of bring some of that back home or to create new opportunities here. But I think every manufacturer is going to be, you know, every manufacturer tells you the reevaluating the supply chain. But that means different things to different companies. But I think this is a unique opportunity. And I think policymakers need to focus on that to say, okay, this is this is an opportunity for more reshore. What can I do to incentivize that so that we can have more resilient supply chains moving forward, but also have more production here in general. right. And I think that that onus really is on policymakers to not mess it up, I guess.

When manufacturers say reshorring, do they mean U.S. or do they mean kind of North America or they mean not Asia or what do they mean exactly? Or is it all over the place. It traditionally is U.S. although I would argue that North America benefits from that in general, right, so Canada and Mexico. So a lot of the reshoring that's taken place probably has come to North America at writ large. But you still see foreign direct investment in the U.S. in manufacturing hit record highs, right? So you're still seeing a lot of investment here that's taking place.

So your sense is because of the supply chain issues that were laid bare by the pandemic, there are probably issues there that just were never stressed. And now that we stress the system, we see, you know, where the bottlenecks are. You're saying because of that, we, you think that there will be significantly more investment in manufacturing in the United States going forward. Yes. Yeah. Now, companies were reevaluating.

of supply chain anyway, right? There's just been a whole host of events over the last five to ten years, right? Whether it's flooding. The Japanese earthquake. And then the trade war, right? Trade war, right? But I think this unique opportunity here, especially given where freight costs have gone, I think companies are going to look at that in a different way.

Yeah. Great. I guess the one other constraint, though, coming home is labor, right? I mean, manufacturing had a very severe labor shortage, even. before the pandemic because you had a lot of older workers, boomers, they're retiring, taking a lot of skills with them. Younger workers had not been going into manufacturing. And that was before the pandemic.

And of course, the pandemic has exacerbated all that. So did I characterize that correctly? That is very accurate. That's very accurate. You know, manufacturers are really worried about where that next generation of workers going to come from, right? We've got to identify, according to Deloitte and the Manufacturing Institute, more than two million workers over the next decade, right, to fill those jobs, the people who are leaving

and retiring, where are those new people going to come from, right? So we've been trying to encourage more women to go into manufacturing to more military veterans, right, to encourage more diversity in general. And as it relates to older workers, manufacturers tell us they don't want the people who are nearing retirement to leave, right, because they don't. they don't want to see that talent walk out the door, but they also don't have someone necessarily there to kind of take them, take that place. Right.

So we've done a lot lately on retention, and we did a study with AARP on multi-generational teams that came out a couple months ago where you can try to incorporate different generations to try to increase productivity there. But, you know, this is a huge issue. It doesn't seem like there's an obvious solution here, right? because this is the, you got labor shortages all across the board. Again, pre-pandemic, this was happening in post-pandemic, very much, you know, obvious. The only way out, it feels like it's a perceptions challenge, right?

Perceptions, okay. People, when you think about manufacturing, you have this perception out there, that manufacturing is dark, dirty, or dangerous or whatever, or, or you just think, well, it's not cool, right? It's, you know, I want to go work for Google or meta or one of those other companies. they're becoming manufacturers to some degree too. And I think, yeah, and I think what you have to recognize is that manufacturing has also become very high tech, right? Very advanced.

In many ways, there's a blurring of the line. Some of those companies, you know, Microsoft is a member, right? Some of those companies make more money from services than they do from goods, right? And so there is this blurring of the lines between what is a manufacturer and what isn't. And we're competing for talent with some of those folks, right? And so I think just recognizing that there are some fairly unique opportunities there, it's a high paying job. It can be a fun job. I think that's part of the challenge that we kind of need to overcome.

We have an initiative called Creators Wanted, which is a bus that goes around the country, kind of like it's kind of our got milk campaign where they, you know, invite kids in and see how cool manufacturing is. We, you know, we do manufacturing day where manufacturers open their doors for young, young adults and kids in school. And I think all of those things are really just to try to change perceptions about, you know, just how cool manufacturing can be, I guess. Yeah, yeah. Well, there's also so much technological innovation going on in manufacturing that, you know, it's really critical to our kind of long-term competitive advantage and, you know, just the overall, the nation's overall health. I mean, I just was looking at some of the advances in robotics that's going on. It's just incredibly amazing, you know. That goes back to Ryan's number from the game, right?

Yeah, exactly. Investments in R&D and productivity and automation. I read, I think it was a story in the Wall Street Journal about a month ago, more robots were sold last year than in any other year, right? If you kind of take the first three quarters and kind of annualize that, we sold more robots than ever, right? Automation is clearly the key. And it means that manufacturers are trying to fill those gaps wherever they can. But it also exacerbates the skills gap problem, right? Because if you are using some of these newer technologies, right, whether that's 5G or augmented reality or whatever it might be, it means you need a different type of worker, right?

It means a more high-paying worker. But it also means you're competing now against with all those tech guys, right? So that struggle for talent is one that is probably exacerbated by the automation that's going into the plants right now. Well, so my takeaway here is you're optimistic about manufacturing, you know, particularly in the context of the pandemic and the supply chain issues, manufacturing is coming home. You know, obviously lawmakers, policymakers are focused on this and, you know, are going to are working to try to incent bringing that home and making our supply chains more resilient. And the issue here in the near term, obviously, is, you know, working through this. supply chain issues globally, but longer run, it's about the labor supply. You know, where do we get the folks that are going to have the skills and the talents necessary to work in this sector? Did I get

that, you know, roughly right? That is exact. I couldn't have said it better. Okay. Ryan, did you hear that? This is like, this is my show. I got, I nailed everything throughout this show. You got it. Do you agree? He's shaking his head, no. No, no. This was your best podcast. Best podcast. I, I, I have to say. Just don't let it go to your head. Okay. That's fair. It already has, but, you know.

I know. But Chris and I are here. This is what we're here for to help. Bring it down. Now that you say that, before we let Chad go, you know, what would you, is there any questions or things that you would like to bring up to Chad? Any particular issues that we didn't cover that you'd like to cover? I guess, from my perspective, it sounds like manufacturing is going to return, but

But it's certainly going to return to the U.S. in a different form than it left, right? So very high-tech. So as you talk about that reshoring, it sounds like, yeah, we'll get all the highest high-tech firms coming to the U.S., but then perhaps the ones that are still more labor-intensive, they may still go to Mexico, right? So or other neighboring countries, if there is some type of reshoring. Is that your sense of things? In general. in general, but I think even in the apparel and textile sector, you're seeing production

return to the U.S. because of automation. And so I think that there are certainly opportunities here in the U.S., even in those sectors, which we might have kind of in the past, back when we were studying economics and grad school or whatever, said, yeah, those are going to go away, right? I think that there are unique opportunities for some of those industries, which are more labor-intensive to come back because of technology, because they perhaps, to need less labor than they used to. Ryan, anything?

You got the world's biggest brain on manufacturing sitting here right at this podcast. Anything you'd like to know? I thought the biggest hurdle for reshoring was the age of the capital stock for manufacturing, which is in the U.S. it's pretty old. So it'd be a big upfront investment for manufacturers. Do you think that's a big hurdle or there's ways around it? It can be a hurdle. But keep in mind, you know, certainly you can incentivize that through tax policy, right?

We've done a lot to encourage more investments, you know, certainly accelerating those investments that has helped, right? I think the other thing to watch, and we didn't really talk about it here, is the regulatory environment over the next few years has clearly shifted as well. And companies are looking at sustainability in ways that they might not have looked at it five years ago, right? and being net zero between now and 2050. So all of that really is going to need modernization and newer equipment. And so I think you already are seeing, companies have already done a lot in that space as it relates to climate, but I think you're going to see them.

There's a pivot here where companies are really going to be looking at their facilities and wanting to get to net zero, wanting to be sustainable, wanting to be climate friendly. And I think that will also shift and has shifted this conversation in a way that, again, we wouldn't have described it, say, five, ten years ago. You know, it really feels like there's got to be a lot of investment here, right? I mean, just reshoring because of all the issues, the need to focus on labor productivity, given the labor supply issues, you know, the need to focus on, lowering your manufacturing's carbon footprint, given all the kind of scrutiny on climate change, this feels like there's going to be a lot of investment.

So that number that Ryan called out on intellectual property, which is more than just manufacturing, obviously, but manufacturing is a big chunk of it. That feels like that's going to be a big number for a while to come. I think manufacturing accounts for 58% of R&D in the project sector. So it definitely has a big impact. Yeah. Great. Well, Chad, this is a wonderful conversation. Really appreciate it. Thank you for taking time out of your day and and helping us out here. Very kind of you. And to the listener, please, if you have suggestions for future podcasts, go to economy.com and you'll see a place there to give us your view and let us know. We love to hear from you. If you have a review of the podcast, any suggestions. I get, I constantly get. I constantly get. suggestions from people. Someone told me that we should begin with the game before we start talking, going deep into the statistics because it, you know, kind of messes up the game. But, you know,

I hear all kinds of suggestions. So please fire away. We're very interested in hearing your, your comments. So with that, we'll call it a podcast. Thank you very much.