December manufacturing growth nearly quadrupled expectations as the sector enjoys a much-need revitalization, but what driving the growth and why might it start shrinking.
Experts predicted manufacturing to grow 0.3 percent in December. Instead, it rose 1.1 percent. Manufacturing growth stood at 2.3 percent in the fourth quarter and followed 3.7 percent growth in the third quarter.
“The manufacturing sector has just blossomed over the last year,” said Vance Ginn, chief economist at the Texas Public Policy Foundation.
According to Ginn, the catalyst for the resurgence is the tax reform passed in 2017.
“The cost to these manufacturing companies were often too high. The Trump tax cuts lowered the corporate income tax rate from 35 percent – the highest in the developed world – down to 21 percent and makes us more competitive, along with immediate expensing of depreciation.
“Those sort of things allow for a lowering of costs for manufacturing companies and what do they do? They start putting more money back into their business,” said Ginn.
But Ginn notes a couple of important twists. First, he points out that many these manufacturing jobs are vastly different than the ones in previous generations. He also says the jobs are not returning to the same parts of the country because businesses want a better tax deal and less regulation.
“The institutional framework you have for your economy – if it has too high of taxes, too many regulations, too many union rules and regulations associated with it – that’s going to force people out. It’s going to make a slower economy and a slower manufacturing sector.
“If you get rid of those, you see what can happen. Manufacturing is coming back,” said Ginn, noting that jobs once found in the industrial Midwest are now landing in less regulated places like Texas and Tennessee.
Listen to the full podcast as Ginn explains why the manufacturing sector might weaken in the coming months and what the reason could be.