U.S. manufacturing sector’s woes pose wider dangers

By Henny Sender, Financial Times

Jan 18, 2016

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It wasn’t supposed to be like this.

The falling cost of energy in the US as a result of the shale revolution was supposed to encourage the relocation of operations from both domestic and foreign companies. For example, numerous energy intensive firms, such as petrochemical companies, were expected to build new plants in the US as a result of changing economics.

At the same time, technological breakthroughs would encourage even old economy companies such as carmakers to expand or shift production to the US to take advantage of the latest trends. And finally, quantitative easing was supposed to encourage manufacturers to expand capex given the low cost of capital.

None of these things have really happened. The cost of energy everywhere plummeted, undermining the competitive advantage of the US. There is excess global manufacturing capacity, giving producers little confidence to establish new facilities. Technology means that the “build it and they will come” mentality is a thing of the past.

Read more on how manufacturing plays an outsize role in the financial markets.

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