SIA’s recently published US Economic and Labor Market Trends report is a companion to SIA’s monthly December 2024 Jobs Report, providing a broader and longer-term perspective. Additionally, the report concludes with a look at the long-term US economic outlook based on a potential GDP framework and the implications of population aging on the economy and the staffing industry.

The present article provides additional discussion of trends in the manufacturing sector, the primary client vertical for staffing.

A key long-term trend across high-income countries is de-industrialization alongside government attempts to reinvigorate manufacturing employment. Post-WWII, the US manufacturing sector peaked in both share of GDP and share of employment in 1953, when it accounted for 28% of GDP and 32% of employment. Manufacturing GDP has continued growing but at a slower pace than other sectors, leading to its decline in share of total GDP. Manufacturing employment, however, has declined in both share of total employment and in its own level, but with an inflection point and relative plateau since 2010 in share of employment and a growing employment level pre-pandemic.

Following the pandemic bust and sharp recovery, the manufacturing sector has by most measures stagnated since late 2022. This stagnation occurring despite healthy overall economic and employment growth underlies the weakness in industrial staffing and apparent disconnect between staffing and the broader economy.

In the decade prior to the Great Recession (1998-2007), manufacturing contributed 58 basis points (19%) to average annual real GDP, and between the Great Recession and the pandemic recession (2010-2019), manufacturing contributed a far lower 22 basis points (9%). Over 2022 and 2023, this fell to a contribution of only 7 basis points, and declined further in 2024 at less than 6 basis points towards overall real GDP growth.

The Institute for Supply Management’s US Manufacturing PMI, depicted below, tells a similar story. Following strong activity in 2021, the PMI fell below its neutral level in November 2022 — the same month year-over-year growth in temporary help employment first turned negative. Though still in contractionary territory, the last few prints for the PMI show sequential improvement.

ISM Manufacturing PMI - Difference from Neutral Level

Source: Institute for Supply Management

The outlook for manufacturing is uncertain. Falling interest rates and improving confidence among consumers and businesses should provide stimulus to the sector. However, public policy is highly attentive to and active towards the manufacturing sector. Both the outgoing administration and the incoming administration have stressed efforts to reinvigorate manufacturing and grow manufacturing employment.

The outgoing administration adopted a strong industrial policy, providing subsidies and tax credits to select manufacturing industries. The early results of these policies indicate a measure of success as factory construction has increased to its highest-ever recorded pace, as depicted below. The surge is entirely driven by the industries targeted by policy — semiconductors, batteries, electric vehicles and solar power.

Inflation-Adjusted Private Sector Construction Spending, January1964 to September 2024

Source: US Census

Of course, as these investments rely on government support, there are several risks to their completion and their likelihood of achieving desired economic and employment goals. Foremost, once these facilities enter full production, there may not prove to be sufficient market demand for their products. The underlying subsidy programs also carry requirements as to the types of employment arrangements and working conditions the supported facilities can utilize. As a result, opportunities for staffing firms are likely in the supply chains and with the service providers that support these facilities: their logistics partners, their facilities maintenance providers and, in the near-term, with the construction and skilled trades workers supporting or performing the factory buildouts.

The incoming administration prefers deregulation and changes to trade policy as a means of supporting manufacturing, and further has criticized the specific industries and products supported by the current administrations’ programs. This presents another risk to this factory investment wave — changes to or revocation of the subsidies may see investment plans scaled down or even abandoned. The policy focus shifting to trade restrictions will likely also alter the landscape as to which manufacturing industries and which specific manufacturers are likely to gain. Broadly, complex products such as motor vehicles have complex, global supply chains and so greater exposure to risks from policy changes. However, the specific contours of opportunities and risks arising from changes to trade policy are unknowable prior to the availability of policy specifics.