October 7, 2022

The Return of the U.S. Factory Job

Posted on October 7, 2022October 7, 2022 by Staff Writer

Without a doubt, the pandemic has brought about many unexpected changes. Early booms in technology sectors during lockdowns and quarantines have been followed by subsequent declines. The rise in hybrid and remote work opportunities reflects another such development. But when it comes to trends in manufacturing employment, the biggest impact of the pandemic has been on domestic production. From supply chain problems to evolving foreign policies, there has been a significant return in factory jobs as of late. But it remains unclear if these gains will be maintained or simply reflect a fleeting rise in domestic demand. For now, however, the immediate future for U.S. domestic manufacturing looks quite bright.

“We have 67,000 more workers today than we had in February 2020. I didn’t think we would get there, to be honest with you.” – Chad Moutray, Chief Economist for the National Association of Manufacturers

Trends in Manufacturing Employment Through the Pandemic

When the COVID-19 pandemic struck, it was not kind to the manufacturing industry in the U.S. Within the first three months, roughly 1.36 million factory jobs were lost amidst COVID restrictions. But what happened over the course of the next couple of years is what’s most unusual. By August of 2022, there had been a return of factory jobs exceeding 1.43 million. That meant there had been a net gain of 67,000 manufacturing jobs even as a recession loomed. In past recessions, this has never been the case. In fact, the domestic manufacturing sector has still yet to recover the return of factory jobs to pre-2008 levels.

Certainly, these trends in manufacturing employment came as a surprise to even those in the industry. The manufacturing sector was seeing a better degree of resilience than the services sector, which had not happened in recent times. In addition, there continues to be increasing demand for domestic production as supply chain issues persists in post-pandemic times. And increases in shipping costs from overseas are encouraging some manufacturers to consider increasing domestic investments. While these trends may not last, the current snapshot shows many firms are still looking to add more skilled workers. In this regard, the return of factor jobs has yet to reach its peak in the aftermath of the pandemic.

“We had a huge shift away from services and into goods that spurred production and manufacturing and very rapid recovery in the U.S. economy.” – Janet L. Yellen, U.S. Treasury Secretary

Drivers of Current Manufacturing Job Trends

In trying to explain recent trends in manufacturing employment, perhaps the most notable one involves supply chain issues. The disruptions in global supply chains highlighted the security of domestic production of a variety of goods. Thus, as consumers demanded more durable products like cars, furniture, and electronics, U.S. companies had to respond. Likewise, other products such as foods and textile products also increased in demand. Combined with rising shipping fees concurrently, it’s easy to understand increased domestic production and the return of factory jobs. And as these supply chain woes persist, manufacturing companies have continued to add workers.

All hail the return of factory jobs in the US!

Of course, supply chain issues have not been the only driver of these trends in manufacturing employment. Another major driver has been various U.S. policies that have further supported these trends. For example, many manufacturing goods were deemed essential during the pandemic, allowing them to minimize the impact of restrictions. This combined with consumer stimulus packages resulted in a shift away from services to manufactured products. At the same time, U.S. policies related to China and China’s highly restrictive pandemic response further encouraged more domestic production. And the most recent Inflation Reduction Act also subsidizes some manufacturing sectors and provides tax incentives as well. All of these events are further contributing to the return of factor jobs in the U.S.

(What does the Inflation Reduction Act mean for businesses? Read about it in this Bold story.)

“The pandemic response by China has definitely prompted more than a rethink on where to put new money. I think we are actually beginning to see action.” – Mary Lovely, Professor of Economics, Syracuse University

Will the Return of Factory Jobs Persist?

The big question currently is whether these trends in manufacturing employment will persist. In this regard, there appear to be mixed signals. On the one hand, the job market remains robust despite recessionary pressures. The number of skilled factory workers remain small while manufacturers are increasingly looking to hire. In fact, many firms are becoming more flexible in their benefits and wage offerings to attract workers. Some are looking beyond traditional backgrounds to find workers who might be trained and developed to meet needs. As long as consumer demand persists for domestic production, it seems opportunities for factory jobs will only expand.

At the same time, however, it remains to be seen whether manufacturing firms are committed to domestic shifts. While many question the long-term benefits of operations in China, nearly 80% of firms have not made any moves. The profits enjoyed from manufacturing in China and other countries like Vietnam have served as obstacles to domestic investments. It may be that current U.S. policies supporting domestic manufacturing will continue to fuel change. If so, then trends in manufacturing jobs may well continue. But it remains too early to tell the impact of these new policies. As such, the return of factory jobs may not be a lasting phenomenon should the winds of change shift yet again. But it’s quite clear that in the short-term, the return of factory jobs in the U.S. is real. And for the time being, domestic manufacturing appears to be quite in vogue.

Good morning, Vietnam! Read about how manufacturing is shifting to this Southeast Asian nation in this Bold story!

Free Trade Does Not Equal Free Peace

Posted on October 7, 2022October 7, 2022 by Staff Writer

Over the last half-century, globalization has proceeded at a fierce pace. Nearly every nation is engaged in the exchange of goods and relies on this exchange for its welfare. Many assumed the impact of globalization would foster positive relationships, and perhaps even support democratic change. After all, by having countries negotiate trade arrangements, wouldn’t harmony be encouraged? In theory, by allowing companies to invest and develop operations abroad, integrated trade and economic systems would bring peace. But as recent events have proven, the direct path from globalization to global peace has not materialized at all. Instead, it actually appears to be contributing to escalating conflicts that could reverse globalization progress made.

From a historical perspective, political philosophers and economists alike have long suggested free international trade might lead to peace. Such beliefs have even persisted in the aftermath of war, and thus, this remains an idealized view of trade. However, today paints a different picture than the one they predicted. The impact of globalization looks to be moving in a different direction. Russia has invaded the Ukraine, resulting in globalized economic warfare. China and the U.S. are actively engaged in trade wars and tariff escalations. And geopolitical conflicts over Taiwan, Hong Kong and the South China Sea involving trade persist. The transition from globalization to global peace has certainly not occurred. Given this, it might be that the globalization of free trade is on the decline. And it’s worth exploring what this might mean for the future.

(Dive deeper into how China has waged war on the West in this Bold review of an important book on the subject!)

“After the fall of the Berlin Wall in 1989, a near-consensus prevailed among [Western leaders] that peace was the natural condition of the developed world and that globalization was immune from geopolitical risk.” – Bill Butcher, Financial Times

A Historical Perspective of Trade Globalization

The current wave of globalization is certainly not the first. Most notably, industrial globalization of commerce and trade developed strongly at the beginning of the 20^th century. Proponents of these developments believed the impacts of globalization would inherently create a lasting peace among nations. But these visions were shattered as the world suffered two world wars. Nationalism and strategic interests trumped economic trade agreements. This seemingly proved that a transition from globalization to global peace wasn’t a given. But this didn’t stop liberal idealistic sentiments to fade. In fact, they grew even stronger in the aftermath of World War II.

After the second world war, the U.S. and the Allies paved the way for globalization 2.0. While organizations like NATO were created to better ensure national securities, many still believed free trade could bring global peace. These globalization to global peace perspectives is what led to the World Trade Organization and the internationalization of finance. They also resulted in the formation of the European Union. And these views convinced Western leaders to invite China to participate in globalized trade. Their hopes (and beliefs) were that China’s involvement would push China toward more liberal and democratic practices. But the impacts of globalization failed to achieve this goal, and today, China represents one of the greatest economic powers. Once again, the belief that free trade on an international scale creates world peace has not been supported.

“What was striking about the second great period of globalization was its much greater intensity …This was reflected in the larger number of countries participating in the global trading system, very complex cross-border industrial supply chains and the frenetic internationalization of finance.” – Bill Butcher, Financial Times

Globalization 2.0

There’s little question that the impacts of globalization the second time around haven’t been beneficial. Globalization 2.0 has markedly improved the standards of living across the world. According to financial reports, international trade has lifted about 1.3 billion people out of poverty. It has been particularly helpful to lower-income nations who have been able to access goods and technologies. It has also created efficiencies as multinational corporations are able to access less costly resources of production. But at the same time, it has also led to some undesirable consequences. For one, it has led to a widening of inequality within and among nations. Those with stronger economies and resource access have a natural advantage. This is one factor undermining the ability to go from globalization to global peace.

The impact of globalization was supposed to be peace–where is that peace, though?

There are other negative impacts of globalization 2.0 as well. The internationalization of trade has made it easier for nations to gain advantage without going to war. Cybersecurity breaches and intellectual property theft are prime examples of this. It has also encouraged the weaponization of economic tools when international conflicts occur. This has certainly been the case against Russia in response to Ukraine’s invasion. And it is also evident in the ongoing trade war between the U.S. and China. Globalization to global peace philosophies are not supported by these developments and suggest just the opposite.

“While in the short term, close economic relationships may have a moderating effect on a state’s behavior in the long run strategic interests prevail.” – Rafał Ulatowski, Foreign Policy Specialist at the University of Warsaw

Is the Globalization Party Over?

Recent circumstances strongly bring into question globalization to global peace philosophies. Increasingly, nations are in conflict over issues that are no longer necessarily territorial in nature. The battleground has shifted to an economic one where geopolitical disagreements are fought differently. Notably, the pandemic has accelerated some of these conflicts. Interdependencies among nations as a result of the impacts of globalization crippled some economies as supply chains were affected. Today, many companies are looking to diversify their reliance on countries like China because risks are increasing. All of this suggests that the peak of globalization may have well passed. And in its place may come a sort of globalization recession in its wake.

According to some economic experts, the world is entering into a phase of geoeconomic fragmentation. Many countries have already imposed trade restrictions and cutbacks as they realize the risks of interdependence. In fact, more than 30 countries have done so involving food, energy, and other commodities. This includes the U.S., which is seeking to boost domestic manufacturing through its Inflation Reduction Act. These are the current impacts of globalization, and they are clearly not promoting harmonic collaboration among nations. International free trade is good in many ways. But a globalization to global peace pipeline based solely on trade simply doesn’t exist.

The government wants your whipped cream–can you believe it?

Have People Returned to the Office Yet? Not Quite

Posted on October 7, 2022October 7, 2022 by Staff Writer

The debate between remote work, hybrid work, and returning to the office continues in our post-pandemic world. Some companies have required employees to return to their desks. Others have accommodated employee requests and offered greater flexibility. Some have actually been forced to allow some degree of remote work because of talent shortages. But no matter what one’s perspective may be, there has been one major repercussion: empty office buildings. Throughout the world, major cities are facing dilemmas on how to handle the notable decline in office building occupancy. And thus far, there hasn’t been an easy solution to the problem.

For the most part, most countries have reopened and have relaxed pandemic requirements. China and a few others may be the exception, but the vast majority have returned to life as normal. As such, it might be expected that returning to the office in-person would follow. But the benefits of remote work for both employee and employers have caused many companies to rethink things. One of the aspects of these new work dynamics that deserves attention pertains to office real estate. Notably, the choices made today have some short-term effects. But long-term considerations must also be taken into account should work trends shift.

“There’s no part of the world that is untouched by the growth of hybrid working.” – Richard Barkham, Global Chief Economist for commercial real estate firm CBRE Group Inc.

Empty Office Buildings – A Global Problem

If one tours major cities in the U.S. like New York, Atlanta, or Chicago, the impact of remote work is noticeable. Traffic congestion is slightly less, especially some days. Foot traffic around downtown centers has reduced. And office building lobbies are much less crowded. But these developments in a post-pandemic world are not only occurring in the U.S. In fact, major urban cities across the globe are experiencing partially empty office buildings. While there have been many workers returning to the office as of late, many now work hybrid or remote schedules. As a result, vacancy rates have significantly increased in downtown office centers.

According to some recent statistics, New York has a vacancy rate of about 15% in its existing office complexes. Hong Kong has about the same percentage while London reports a vacancy rate of 10%. Many companies having realized the advantages of remote work have opted to downsize their space or relocate. And unfortunately, these moves have left partially empty office buildings in their wake. While it might seem intuitive to simply repurpose these buildings for other uses, barriers exist. And these same buildings are too new to be demolished or torn down. Cities are thus in a holding pattern waiting to see whether returning to the office might be an eventual trend.

“In this environment, you can be in a lot better building in a better location at a similar rent.” – Richard Litton, President of Harbor Group International

An Evolving Urban Dilemma

Empty office buildings pose serious problems for most cities. When it comes to municipal revenues, office centers generate a substantial amount of taxes. In fact, between 6-7% of municipal revenues typically come from major office buildings each year. These tax dollars are used to fund school systems, police departments and firefighting personnel. Therefore, many cities are feeling the pinch given recent developments. While city planners still hope that returning to the office will save the day, short term pressures are mounting. Solutions to replace these lost sources of tax income are few and far between.

Thanks to the influence remote work has had on the workforce, there will likely be a lot of empty office spaces for some time.

Lost tax revenues are not the only issue these cities are encountering. Partially empty office buildings mean less foot traffic within urban centers, especially in business districts. This reduction has culminated to the closure of many businesses that relied on passersby. Numerous cafes, flower shops, dry cleaners, and other such companies have been forced to shut their doors because of this. Not only does this bode poorly for business economies but it further reduced municipal tax incomes as well. Unless returning to the office trends pick up, it’s unlikely these once-occupied spaces will again host local businesses.

“It’s still early to tell what the structural change will be in both the economy and working and commuting. But clearly, the city is facing some short-term challenges.” – Ana Champeny, Vice President of Research at the Citizens Budget Commission

Potential Solutions to Consider

Obviously, having workers returning to the office would be the easy solution to the problem. But this appears to be unlikely for the immediate future. Low unemployment rates below 5% and a shortage of talent means workers are dictating terms of employment. The vast majority according to research polls prefer remote work overall. Therefore, cities must explore other options in dealing with empty office buildings. Of resolutions considered to date, repurposing these buildings or demolishing them appear to be the main options. However, neither is cost-effective to pursue of the nature of the buildings themselves.

(Remote work is now often a baked in requirement by job candidates–read more in this Bold story.)

Unfortunately, most empty office buildings today were built between the 1950s through the 1980s. These structures are too old to modernize without substantial costs. Compared to older buildings in the early 20^th century, these newer buildings have larger spaces. That means converting them into residences would not be ideal and would underutilize existing square footage. At the same time, zoning restrictions and architectural challenges are common, which also make repurposing costly. And because most of these buildings have significant value, tearing them down makes little sense. Thus far, an ideal solution to the problem hasn’t been found.

The Future of the Office Building

Without question, dealing with empty office buildings is a major challenge in the aftermath of the pandemic. While returning to the office may be desirable from this perspective, the likelihood that this occurs is small. Many experts believe remote work is here to stay because of its advantages and advances in technologies. Therefore, the future of existing office spaces remains unknown at present. Ultimately, however, push will come to shove, and office owners and cities will need to collaborate on a plan. City incentives, relaxation of zoning rules, and other accommodations are likely to be discussed. But waiting for those returning to the office in-person isn’t recommended. The wait may be quite long if not indefinite.

The government wants your whipped cream–can you believe it?

Day: October 7, 2022

The Return of the U.S. Factory Job

Trends in Manufacturing Employment Through the Pandemic