Manufacturers are mostly upbeat in their outlook for 2015, and that is translating into new investments in their businesses, both in terms of hiring and increased dollars devoted to construction projects and equipment.

One thing that has often held back construction, and general investment in the manufacturing sector, has been a sense that the nation isn’t on a firm footing economically. As manufacturers have become a little more confident, perhaps gaining traction in the next six months to a year, fixed investment will pick up further. Certainly, construction spending is on the rise, suggesting the optimism evident in other indicators for manufacturing is translating into increased investment.

Growth Areas to Watch
Natural gas-dependent sectors are the growth area to watch, and manufacturing projects in these sectors  are seeing the most investment. Much of the jump in nonresidential construction spending derives from investment in chemicals, plastics and fertilizer. The American Chemistry Council has kept track of the number of announced projects stemming from lower-cost energy and shale exploration, and it now has more than 200 examples. Much of that investment has yet to materialize, and the majority of these projects stem from foreign direct investment.

In the next year and beyond, not only will many of these facilities be completed and begin production, but employment and exports also will increase. In addition, growth continues in the durable goods and high-tech sectors.

Geographic Activity
Geographically speaking, there is a lot of investment in the Southeast, including Texas. At the same time, looking at the areas that have seen the most employment growth since the recession, many Midwestern, old-line durable goods industries have benefited. For example, Michigan has seen the fastest job growth since the recession. Much of that can be attributed to the rebound of the auto sector. In general, the sectors that have improved the most since the recession are motor vehicles, machinery and metals. Growth in these durable goods sectors should continue.

Long-Term Opportunities
In the long term, it is impossible to ignore the impact of shale. As the United States becomes the dominant energy producer in the world, the geopolitical nature of energy changes. Given that the manufacturing sector uses almost 30 percent of the energy in this country, low-cost and reliable energy also helps all manufacturers compete better.

Beyond shale, other technological advances are driving investment in the United States. As manufacturing has become leaner and as innovation continues to drive efficiency into the system, manufacturers are competing more effectively on a global stage.

In addition, there is an enthusiasm in the manufacturing sector that didn’t exist a few years ago. Manufacturing supports more than 17 million men and women, contributes $2.08 trillion to the U.S. economy annually, has the largest economic impact of any major sector, and accounts for two-thirds of private sector research and development. The manufacturing comeback not only benefits the industry, but it also fuels the U.S. economy.

As a result of all these factors, the United States is being looked at, and invested in, differently than five years ago. Manufacturers want to be here, closer to their customers and suppliers—benefiting both manufacturing and construction activity.

Challenges Contractors Should Know About
Regulations are first and foremost in terms of challenges facing the manufacturing sector. According to a 2014 report commissioned by the National Association of Manufacturers, complying with federal regulations costs Americans more than $2 trillion in lost economic growth annually (roughly equivalent to 12 percent of total GDP) that could be invested back into the nation’s businesses. The report found that federal regulations disproportionately burden manufacturers, particularly small businesses. That $2 trillion figure does not even include regulations at the local and state levels, which also have been hit hard.

The other big challenge is the nation’s outdated and uncompetitive tax code. The United States has the highest corporate tax rate in the world, and lawmakers need to address that not just for large corporations, but also for S corporations or other pass-through entities, which pay at the individual rate. That is why comprehensive tax reform is a must.

Workforce development remains a challenge as well. No industry can endure without addressing the skills gap.


Chad Moutray is chief economist for the National Association of Manufacturers. For more information, email cmoutray@nam.org or follow @chadmoutray.