U.S. Manufacturing Rides Rising Tide, Buoyed by Global Growth, Optimism--Update

By Andrew Tangel and Josh Zumbrun Features Dow Jones Newswires

American manufacturing has improved during the year since Donald Trump's election, despite a lack of promised policy changes aimed at lifting the sector's fortunes.

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Instead, say executives and observers, business for makers of items from bulldozers to semiconductors to food products is on an upswing thanks to steady global economic growth, a rise in energy and other commodity prices, and increased confidence. Overall in the U.S., the sector is adding jobs.

Manufacturing "absolutely has improved relative to where we were a year ago," said William Strauss, a manufacturing economist at the Federal Reserve Bank of Chicago, who described the sector's growth as modest.

Various measures of industrial production, spending, sentiment, and employment have climbed, while stock markets have risen to record highs partly in anticipation that the businessman-turned-president would usher in reduced taxes and fewer regulations.

"Global macroeconomic conditions are solid," Rockwell Automation Inc. Chief Executive Blake Moret told analysts, citing "strong orders" and optimistic forecasts for global gross domestic growth and industrial production.

Rockwell -- the Milwaukee-based maker of factory hardware and software to myriad manufacturers around the world -- said last week it expected organic sales growth as high as 6.5% in its fiscal 2018, with an additional 2.5% boost from a weaker dollar.

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Global energy and commodity prices have rebounded amid growth in many economies around the world. That has led to more sales for Illinois-based manufacturing giant Caterpillar Inc. and other makers of heavy machinery used to extract natural resources.

In the process, Caterpillar has increased its domestic workforce by 3,200 from the end of March to 49,700 at the end of September.

"The overall environment is more business-friendly and we think that has created some business confidence," Caterpillar Chief Financial Officer Brad Halverson said in an interview.

Much of the progress in the past year has come even though important parts of Mr. Trump's manufacturing agenda haven't come to fruition, observers and business leaders say.

Earlier in his term, Mr. Trump promised to punish American companies that shift production abroad, but such penalties haven't materialized. Advisory panels that included top manufacturing and other executives disbanded after Mr. Trump made controversial comments about racial tensions in Charlottesville, Va.

A big item, the overhaul of U.S. taxes, is being debated in Congress. But a $1 trillion infrastructure plan hasn't panned out. Nor has repeal of the Obama-era health-care law.

Some business leaders have mentioned the slow pace of policy change in Washington.

"We believe the lack of progress over key elements of federal policies -- specifically health care, tax reform, and infrastructure funding -- continues to exert downward pressure on both public and private construction activity," C. Howard Nye, chief executive of North Carolina-based Martin Marietta Materials Inc. said in an analyst call on Nov. 2.

The White House didn't respond to a request for comment.

While the sector overall has improved, some industries and companies have posted significant gains while others have continued to struggle. Among 70 manufacturing sub-industries tracked by the Labor Department, 19 have seen robust employment increases of 2.5% or more since October, the month before the election. But over that same period, 22 industries have seen employment decline, including motor vehicles and parts manufacturing and aerospace.

The performance of America's largest manufacturing companies also has been mixed. Of the 10 largest industrial companies in the S&P 500, only Caterpillar, Honeywell Inc. and 3M Co. saw their net income and earnings per share in the third quarter increase from a year ago, according to data from Thomson Reuters I/B/E/S. Net earnings and earnings per share have declined at General Electric Co., Boeing Co., United Technologies Corp., Lockheed Martin Corp. and General Dynamics Corp. Two companies -- United Parcel Service Inc. and Union Pacific Corp. -- managed to increase their earnings per share, while their overall net income slipped.

Data points to a healthier sector this year, but it has generated some mixed readings recently. An Institute for Supply Management manufacturing gauge hit its highest level in 13 years in September before dialing back in October.

The Federal Reserve's industrial production index hit a 9-year high in April, though it has gradually declined in recent months.

Employment numbers underscore the overall improvement. The government has said U.S. manufacturers have added 156,000 workers since Mr. Trump was elected in November 2016. That is a clear turnaround from the loss of 16,000 such jobs during the final year of Barack Obama's administration, although the recent growth hasn't surpassed manufacturing payroll increases in 2011 and 2014, when the sector gained more than 200,000 jobs.

Also, business investment has risen, a sign companies are spending to increase productivity. In the first quarter, investment in plants climbed 14.8% at a seasonally adjusted annual rate, the highest since early 2014. Investment in equipment climbed 8.8% in the second quarter, the highest in almost two years.

Spending on infrastructure has increased in countries like China, buoying makers of construction equipment that sell to builders there. And a weakened U.S. dollar is boosting exports by making American goods cheaper abroad.

To be sure, manufacturing job growth could again slow if the economy tips into recession or if there are disruptions in trade or other geopolitical problems. Those factors could fuel a long-term decline in the sector fueled by advances in automation and shifting of production abroad.

Still, many business leaders remain hopeful Mr. Trump can still deliver an infrastructure-spending plan and new trade barriers that benefit domestic manufacturers.

American corporate chiefs and other observers added the administration's actions to roll back federal regulations -- an agenda that has moved ahead with less public fanfare -- is likely to help in the long term. They also detect a boost in business confidence that has led manufacturers to spend on capital projects and hire more workers.

Harley-Davidson Inc. Chief Executive Matt Levatich added Mr. Trump's administration has brought a welcome spotlight to manufacturing and skilled trades.

"It hasn't yet really accrued into any specific policies, but we're optimistic that just the attention and the awareness will help shift people's mind-set about the role of manufacturing," Mr. Levatich said in an interview.

Write to Andrew Tangel at Andrew.Tangel@wsj.com and Josh Zumbrun at Josh.Zumbrun@wsj.com

American manufacturing has picked up pace over the last 12 months thanks to steady global economic growth, a rise in energy and other commodity prices, and increased confidence.

Although progress isn't being felt by all industries, makers of items from bulldozers to semiconductors to food products are on an upswing as various measures of spending, sentiment, and employment have climbed, while stock markets have risen to record highs.

The sector "absolutely has improved relative to where we were a year ago, " said William Strauss, a manufacturing economist at the Federal Reserve Bank of Chicago, who described the growth as modest.

Employment numbers point to the overall progress. The U.S. manufacturers have added 156,000 workers since Donald Trump was elected in November 2016, according to government data.

That is a clear turnaround from the loss of 16,000 such jobs during the final year of Barack Obama's administration, although the recent growth hasn't surpassed manufacturing payroll increases in 2011 and 2014, when the sector gained more than 200,000 jobs.

Also, business investment has risen, a sign companies are spending to increase productivity. In the first quarter, investment in plants climbed 14.8% at a seasonally adjusted annual rate, the highest since early 2014. Investment in equipment climbed 8.8% in the second quarter, the highest in almost two years.

A confluence of factors is helping manufacturing, according to Stanley Black & Decker Inc. CEO James Loree, who cited a shrinking wage differential between U.S. and foreign workers and rapid technological advances in industrial production.

In his particular business, he said, "End users love locally made products," Mr. Loree added at The Wall Street Journal CEO Council meeting in Washington.

Also, "global macroeconomic conditions are solid," Rockwell Automation Inc. Chief Executive Blake Moret told analysts, citing "strong orders" and optimistic forecasts for global gross domestic growth and industrial production.

Rockwell -- the Milwaukee-based maker of factory hardware and software to myriad manufacturers around the world -- said last week it expected organic sales growth as high as 6.5% in its fiscal 2018, with an additional 2.5% boost from a weaker dollar.

Global energy and commodity prices have rebounded amid growth in many economies around the world. That has led to more sales for Illinois-based manufacturing giant Caterpillar Inc. and other makers of heavy machinery used to extract natural resources.

In the process, Caterpillar has increased its domestic workforce by 3,200 from the end of March to 49,700 at the end of September.

"The overall environment is more business-friendly and we think that has created some business confidence," Caterpillar Chief Financial Officer Brad Halverson said in an interview.

Part of the optimism stemmed from the businessman-turned-president's election last November and his promise of reduced taxes and fewer regulations.

The gains have come even though important parts of Mr. Trump's manufacturing agenda haven't come to fruition, observers and business leaders say.

Earlier in his term, Mr. Trump promised to punish American companies that shift production abroad, but such penalties haven't materialized. Advisory panels that included top manufacturing and other executives disbanded after Mr. Trump made controversial comments about racial tensions in Charlottesville, Va.

A big item, the overhaul of U.S. taxes, is being debated in Congress. But a $1 trillion infrastructure plan hasn't panned out. Nor has repeal of the Obama-era health-care law.

"We believe the lack of progress over key elements of federal policies -- specifically health care, tax reform, and infrastructure funding -- continues to exert downward pressure on both public and private construction activity," C. Howard Nye, chief executive of North Carolina-based Martin Marietta Materials Inc. said in an analyst call on Nov. 2.

The White House didn't respond to a request for comment.

While manufacturing overall has improved, some industries and companies have posted significant gains while others have continued to struggle. Among 70 manufacturing sub-industries tracked by the Labor Department, 19 have seen robust employment increases of 2.5% or more since October, the month before the election.

But over that same period, 22 industries have seen employment decline, including motor vehicles and parts manufacturing and aerospace.

The performance of America's largest manufacturing companies also has been mixed. Of the 10 largest industrial companies in the S&P 500, only Caterpillar, Honeywell Inc. and 3M Co. saw their net income and earnings per share in the third quarter increase from a year ago, according to data from Thomson Reuters I/B/E/S.

Net earnings and earnings per share have declined at General Electric Co., Boeing Co., United Technologies Corp., Lockheed Martin Corp. and General Dynamics Corp. Two companies -- United Parcel Service Inc. and Union Pacific Corp. -- managed to increase their earnings per share, while their overall net income slipped.

To be sure, overall manufacturing growth could again slow if the economy tips into recession or if there are disruptions in trade or other geopolitical problems. A weaker dollar -- which has boosted exports by making American goods cheaper abroad -- could reverse direction. Those factors could fuel a long-term decline in the sector fueled by advances in automation and shifting of production abroad.

Still, many business leaders remain hopeful Mr. Trump can deliver an infrastructure-spending plan and new trade barriers that benefit domestic manufacturers.

Harley-Davidson Inc. Chief Executive Matt Levatich added Mr. Trump's administration has brought a welcome spotlight to manufacturing and skilled trades.

"It hasn't yet really accrued into any specific policies, but we're optimistic that just the attention and the awareness will help shift people's mind-set about the role of manufacturing," Mr. Levatich said in an interview.

American corporate chiefs and other observers added the administration's actions to roll back federal regulations -- an agenda that has moved ahead with less public fanfare -- is likely to help in the long term.

The Trump administration -- according to Mr. Loree, the Stanley Black & Decker CEO -- has provided the "icing on the cake" for the sector via its deregulatory efforts and its general pro-business approach.

"It's a moment in time when it's all coming together," he added.

Write to Andrew Tangel at Andrew.Tangel@wsj.com and Josh Zumbrun at Josh.Zumbrun@wsj.com

(END) Dow Jones Newswires

November 14, 2017 15:00 ET (20:00 GMT)