The economic downturn caused by the pandemic has had many unusual dynamics, and one of these is that the manufacturing sector, along with housing, is leading the way to recovery.
The manufacturing recovery began as early as last September, when annual sales growth in the sector turned positive.
The recovery in manufacturing began as early as last September, when annual sales growth in the sector turned positive. More recently, January’s sales rose by 7% annually, a rate last reached in August 2008, just before the global manufacturing recession set in.
The service sector, by contrast, is likely to be a few months behind as vaccines are administered and people regain confidence to go out in public and begin spending.
Two mainstays of the U.S. manufacturing sector, Boeing and Caterpillar, are likely to benefit from increased consumer demand as the pandemic is lifted and, more important, for Caterpillar, as the Biden administration turns from pandemic relief to infrastructure spending.
Watch the manufacturing sector domestically this year and then look for a possible acceleration in 2022 and 2023 as Europe, Asia and South America follow the United States out of recession.
Given the critical importance of these firms in the manufacturing ecosystem, any turn for the better will have positive spillover effects for the middle market, especially for firms that feed into the broader aerospace construction industry.
The stock market is clearly paying attention. After 14 months of negative yearly return, the value of Boeing’s share prices has increased by more than 60% compared to the end of last March, while Caterpillar’s shares have returned more than 94%.
In addition, should there be an infrastructure package of $2 trillion or more in the U.S., this sector of the economy could gain significant momentum later this year. But that depends on the vagaries of the legislative process as congressional support waxes and wanes in Washington.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.