Manufacturing Outlook December 2023 by Manufacturing Outlook

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THE GLOBAL MANUFACTURING OUTLOOK

NORTH AMERICAN OUTLOOK

CASS TRANSPORTATION INDEX

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ASIA OUTLOOK

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NOVEMBER ISM PMI: 46.7%

Released December 1st-The Full Executive Summary Report On Business - Page 10

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TABLE OF CONTENTS

5 PUBLISHER’S STATEMENT COVER STORY: WHAT SURPRISES LIE AHEAD IN 2024? By Lew Weiss

6 GLOBAL MANUFACTURING OUTLOOK

Continuing Deterioration In Global Manufacturing. India’s Expansion Slows; Rest Of Asia, Eurozone Down. U.S. Shows Slight Improvement By Royce Lowe

8 CASS INDEX OUTLOOK by Cass Transportation Systems

10 ISM MANUFACTURING REPORT ON BUSINESS The Manufacturing PMI Is 46.7%

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14 NORTH AMERICA OUTLOOK Readings Continue to Provide Mixed Signals By Dr. Chris Kuehl

26 ENERGY OUTLOOK Ill winds By Royce Lowe

28 MATERIALS OUTLOOK Outlook For Steel By Royce Lowe

AUTOMOTIVE OUTLOOK Bad Days At GM By Lawrence Makagon

34 CYBER SECURITY OUTLOOK Deciphering the Code: Top 9 Cybersecurity Acronyms Explained By Ken Fanger

36 ISSUES OUTLOOK Northeast Corridor, Infrastructure Law By Royce Lowe

LATIN AMERICA OUTLOOK Mexico’s Messy Oil Business by Royce Lowe

18 AFRICA OUTLOOK South Africa’s Spice By Royce Low

© 2023 All Metals & Forge Group LLC. No part of this publication may be reproduced or used in any form without the prior written permission of the publisher. Manufacturing Outlook is a registered trademark of All Metals & Forge Group LLC.

20 EUROZONE OUTLOOK Bouncing Along The Bottom By Royce Lowe

22 ASIA OUTLOOK

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Manufacturing Outlook /December 2023

U.S. China Relations: Core Realities By Christine Casati

24 AEROSPACE OUTLOOK China’s Aerospace Aspirations By Royce Lowe

COVER STORY/ PUBLISHER’S STATEMENT

What Surprises Lie Ahead in 2024? U.S. GDP came in at 5.2% growth (second revision) for the third quarter of 2023, with 2.4% growth expected for the fourth quarter. In 2024, GDP growth is forecast at around 2%. That’s good news in general, although it will be sector-specific in both manufacturing and services. So, what surprises could pop up to disrupt growth? The most concerning surprise would be an outbreak of war extending beyond the Middle East. War may be good for manufacturers who build weapons for the DoD, but it is always very expensive for any government engaged in war. Whether it is channeling weapons to Ukraine, funneling them to Israel, or beefing up the U.S. military, making weapons of war is paid for by borrowing future dollars (debt) to use now to pay for weapons, technology, equipment, and personnel used in war. Unfortunately, the surprise will be if the current conflagrations doesn’t expand. The majority of the money collected to service the debt (not pay it down – just pay the interest) is income tax. The U.S. is already running an insurmountable debt in the $30+ trillion range. According to The Economist, “In the fiscal year ending on September 30th, 2023, interest payments on America’s debt totaled some $660bn, up from $475bn the previous year.” The U.S. Treasury Department reports revenues for fiscal year 2023 at $4.44 trillion. In 2023, the federal government spent $6.13 trillion. Debt service is now almost 15% of total revenues. The surprise will be if the U.S. can sustain the debt service on this massively overused credit card, especially if interest rates tick further upward. Interest rates have been raised 11 times in the past 18 months by the Federal Open Market Committee (FOMC) bringing the key federal funds rate to a target range of 5.25-5.5 percent. This has slowed the growth in inflation to around 3% although that is a full percentage point higher than the Fed’s target of 2%. As interest rates rise, debt service (and most everything else) becomes more expensive. While taxable income may rise, paycheck purchasing power declines. The surprise in 2024 will be if Fed Funds interest rates remain stable or are reduced. Hiring skilled workers remains a thorn in the side of manufacturing, as well as many sectors in the services industry. The number of open jobs remains above 9 million according to the U.S. Bureau of Labor Statistics JOLTS report. However, manufacturing is beginning to let attrition reduce headcount, and employment in services has softened, too. The absence of skilled workers in the marketplace means companies will continue to expand automation and robotics. The number of open jobs for skilled labor will likely decline, but not because of hiring humans. The surprise will be if companies aggressively turn to hiring and training people to fill those 9 million jobs. For the past 18 to 20 months, the talk of a recession has been kicked around like a soccer ball and remains on the field of play. Neither team has scored a goal against the other regardless of the growing number of indicators tipping the field toward recession. Economic growth has always been an uphill battle, but it has felt a bit more difficult since mid-2022 amid various forms of uncertainty, including wars, debt, interest rates, unfilled jobs, and political parties that can’t place nice with each other. The surprise, and a pleasant one at that, would be for adverse factors to fade and for the economy to provide a clear and certain picture for 2024. Get your FREE subscription to this publication at www.manufacturingoutlook.com and check out each intriguing, informational, educational, and entertaining episode of Manufacturing Talk Radio on YouTube. n

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MANUFACTURING OUTLOOK

By Royce Lowe Continuing Deterioration In Global Manufacturing. India’s Expansion Slows; Rest Of Asia, Eurozone Down. U.S. Shows Slight Improvement The Global PMI slipped to 48.8 in October from 49.2 in September, with new orders down for the 16th straight month, job losses were up and confidence was down to an 11-month low. The deterioration was confined to intermediate and investment goods, with consumer goods production up at the quickest pace in five months.

The Watch, issued by Armada Corporate Intelligence and Morris, Nelson & Associates, reports that in the short term general manufacturing is showing good strength, but weakening in early 2024. Construction is doing well, but looking to 2024 and beyond there will be an issue with interest rates, and continued pressure on financing. This will

affect those looking to start new construction projects. Automotive, which is presently strong, will cool somewhat, due to price increases, interest rates, a waning interest in EVs, and short-term recovery from the recent strike. New orders did not return to growth in the U.S., and employment remained in continued

Manufacturing Outlook /December 2023

MANUFACTURING OUTLOOK

contraction largely due to attrition, not quits. Canada, meanwhile, saw production and new orders continuing to fall, and confidence at its lowest since May 2020. Mexico saw a revival in demand and new orders rising at the fastest pace since February 2019. Mexico is the near-shoring favorite for lower wages with productivity and quality rising for products exported to the U.S. The Eurozone continues along its deteriorating path, with seven of its eight major countries in contraction, and only Greece in (slight) expansion. France saw its biggest fall in new orders in almost three-and-a-half years. The Global Steel - Users index is showing an overall deterioration in operating conditions, and to the greatest extent since November 2022. Asia joined the U.S. and Europe in contraction, posting its first decline since January. All three regions registered lower new orders, employment, and purchasing, while production fell in Europe and Asia and was flat in the U.S. Input price inflation remained below the long-run series average, while suppliers’ delivery times lengthened for the fourth month running. Operating conditions at global aluminum users deteriorated for the third time in four months during the month of October. There was a very slight improvement in the U.S. New orders fell for the fourth month running, while production fell again despite a further cut in backlogs. Aluminum users reduced employment for the fifth time

in 2023 so far, and cut inventories of both inputs and finished goods. The rate of job shedding was the most seen for 11 months. On the price front, there were further increases in both input and output prices in the latest survey period, albeit at slower rates. The latest Global Copper Users PMI data revealed a further deterioration in the health of the global copper-using sector at the start of the final quarter of 2023 and at the fastest rate since November 2022. The downturn was again led by Europe, while Asia recorded a deterioration in conditions at copper users for the first time since January. At the global level, there were concurrent falls in new orders, jobs, and input stocks, while production fell in Asia and Europe but rose in the U.S. Both input and output price inflation in the copper-using sector eased to marginal rates. Suppliers’ delivery times have been broadly stable since September. There is again little movement in non-ferrous metal prices, but nickel was showing $8.00 per pound, or a $1.00 per pound drop in the past 60 days. U.S. manufacturing is holding up at present, but the global scenario, including in Asia, is deteriorating. Times are, to say the least, still uncertain. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n Manufacturing Outlook /December 2023

CASS INDEX OUTLOOK

Cass Transportation Index Report by CASS INFORMATION SYSTEMS, INC.

Cass Freight Index - Shipments The shipments component of the Cass Freight Index® fell 1.3% m/m and 8.9% y/y in November, after a 9.5% y/y decline in October. The y/y declines remain exaggerated by unusual excess inventory repositioning in 2H’22. In seasonally adjusted (SA) terms, the index was essentially unchanged, up 0.3% m/m. U.S. freight volumes, as measured by the Cass Freight Index, have fallen for most of the past two years, similar to prior downcycles in both length and

magnitude, except for the pandemic downturn. The 2023 peak season has been decidedly soft in the for-hire market, as real retail sales are still down from year-ago levels. Overall U.S. freight volumes are more flattish on a y/y basis as private fleet insourcing persists, in our view. The acceleration in real disposable incomes, supported by a surprisingly sharp disinflation, and the ongoing strong labor market suggest demand fundamentals will improve in 2024.

With normal seasonality, this index would be down 3%-4% m/m in December, leaving it down about 9% y/y. Freight Expenditures The expenditures component of the Cass Freight Index, which measures the total amount spent on freight, fell 1.3% m/m and 26% y/y in November. With shipments down 1.3% m/m, we infer rates were flat m/m in November (see our inferred rates data series below). continued

Manufacturing Outlook /December 2023

CASS INDEX OUTLOOK Seasonally adjusted (SA), the expenditures index rose 0.9% m/m, with shipments up 0.3% and rates up 0.6%. This index includes changes in fuel, modal mix, intramodal mix, and accessorial charges, so is a bit more volatile than the cleaner Cass Truckload Linehaul Index®. The expenditures component of the Cass Freight Index rose 23% in 2022, after a record 38% increase in 2021, but is set to decline about 18% in 2023 and another 14% in 1H’24, assuming normal seasonal patterns from here. Both freight volume and rates remain under pressure at this point in the cycle. Inferred Freight Rates The rates embedded in the two components of the Cass Freight Index declined 18% y/y in November, after falling 15% in October, as significant freight rate deflation continued. Only about 2 percentage points of the decline are due to fuel at this point. Cass Inferred Freight Rates™ rose 0.6% m/m SA, following a 0.5% increase in October. While this followed an outsized 3.3% m/m drop in September, the stabilization is notable and similar to the slowing declines in the Cass Truckload Linehaul Index. Based on the normal seasonal pattern, this index would rise m/m in December, with the y/y decline narrowing to 16%. With spot rates stabilizing, sequential declines are likely to slow from here, but the freight market is delivering significant savings to shippers this holiday season. Cass Inferred Freight Rates are

a simple calculation of the Cass Freight Index data—expenditures divided by shipments—producing a data set that explains the overall movement in cost per shipment. The data set is diversified among all modes, with truckload (TL) representing more than half of the dollars, followed by less-thantruckload (LTL), rail, parcel, and so on. Truckload Linehaul Index The Cass Truckload Linehaul Index, which measures changes in linehaul rates, fell 0.3% m/m in November to 140.7, after a 0.6% m/m decline in October. •

The November level was a new cycle low and down 7.5% y/y, but shows further stabilization. On a y/y basis, the Cass Truckload Linehaul Index fell 8.3% y/y in October, after a 9.1% y/y decline in September.

•

Since June, the index has declined an average of 0.2% m/m, suggesting further moderation in y/y declines.

•

As a broad truckload market indicator, this index includes both spot and contract freight. With spot rates stabilizing over the past several months, downward pressure on the larger contract market is lessening, with a few instances of contract rate increases bucking the downtrend of late.

Freight Expectations We continue to expect modest y/y growth in consumer spending this holiday season, driven by the acceleration in real disposable incomes and the ongoing strong labor market. The recent easing in fuel prices improves our confidence that peak season will end on a higher note.

General economic conditions remain better than those in the for-hire freight market. Although private fleet capacity expansion continues to pull freight from the for-hire market, supply patterns are changing. In addition to falling pent-up capital spending, low freight rates are driving net revocations of operating authorities to a record net pace. The surprising strength in the economy in 2023 may provide less support for freight in 2024, but supply contraction should propel the cycle forward in 2024, causing the trajectory of rate trends to change, even if the broad economy slows, even if the broad economy slows. Our outlook is for freight markets to keep bouncing along the bottom in the near term, followed by some holiday volatility and a change in trajectory next year, and is detailed in the ACT Research Freight Forecast. This service provides in-depth analysis and forecasts for a broad range of U.S. freight measures, including the Cass Freight Index, Cass Truckload Linehaul Index, and DAT spot and contract rates by trailer type, LTL, and intermodal price indexes. We provide monthly, quarterly, and annual predictions for over forty data series over a two- to three-year time horizon, including capacity, volumes, and rates. The ACT Research Freight Forecast is released monthly in conjunction with the Cass Transportation Index report. How have their forecasts performed? For 2022, ACT’s forecasts for the shipments component of the Cass Freight Index were 97.5% accurate on average for the 24-month forecast period. Our January 2021 forecast, two full years out, was 99.8% accurate. n

Manufacturing Outlook /December 2023

ISM REPORT OUTLOOK

THE INSTITUTE FOR SUPPLY MANAGEMENT’S MANUFACTURING REPORT ON ® BUSINESS BREAKING NEWS

ISM PMI at 46.7% for November 2023 Released December 1st ISM PMI for the past 5 years

NOVEMBER 2023 46.7%

Expanding Contracting

continued

10 Manufacturing Outlook /December 2023

ISM REPORT OUTLOOK INSTITUTE FOR SUPPLY MANAGEMENT®

Analysis by

reportonbusiness Economic activity in the manufacturing sector contracted in November for the 13th consecutive month following a 28-month period of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®. The Manufacturing PMI® registered 46.7 percent, unchanged from last month’s reading. The New Orders Index remained in contraction territory at 48.3 percent, 2.8 percentage points higher than the figure of 45.5 percent recorded in October. The Production Index reading of 48.5 percent is a 1.9-percentage point decrease compared to October’s figure of 50.4 percent. The Prices Index registered 49.9 percent, up 4.8 percentage points compared to the reading of 45.1 percent in October. The Backlog of Orders Index registered 39.3 percent, 2.9 percentage points lower than the October reading of 42.2 percent. The Employment Index registered 45.8 percent, down 1 percentage point from the 46.8 percent reported in October. The Inventories Index increased by 1.5 percentage points to 44.8 percent; the October reading was 43.3 percent. The New Export Orders Index reading of 46 percent is 3.4 percentage points lower than October’s figure of 49.4 percent and the Imports Index remained in contraction territory, registering 46.2 percent. The three manufacturing industries that reported growth in November are: Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; and Transportation Equipment. ISM

‡Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

Timothy R. Fiore, CPSM, C.P.M.

Chair of the Institute for Supply Management® Manufacturing Business Survey Committee

MANUFACTURING

PMI at 46.7% ®

PMI

The U.S. manufacturing sector contracted in 2021 2022 2023 November, as the Manufacturing PMI® registered 46.7 percent, the same figure recorded in October. This is the 13th month of contraction. 50% = Manufacturing All of the five subindexes that directly factor into Economy Breakeven Line ® the Manufacturing PMI are in contraction terri48.7% = Overall tory, up from four in October. Of the six biggest Economy 46.7% Breakeven Line manufacturing industries, two — Food, Beverage & Tobacco Products; and Transportation Equipment — registered growth in November. A reading above 50 percent indicates that the manufacturing sector is generally expanding; below 50 percent indicates that it is generally contracting.

Manufacturing at a Glance INDEX

Nov Index

Oct Index

% Point Change

Direction

Rate of Change

Trend* (months)

Manufacturing PMI®

46.7

0.0

Contracting

Same

New Orders

48.3

45.5

+2.8

Contracting

Slower

Production

48.5

50.4

-1.9

Contracting

From Growing

Employment

45.8

46.8

-1.0

Contracting

Faster

Supplier Deliveries

46.2

47.7

-1.5

Faster

Inventories

44.8

43.3

+1.5

Contracting

Slower

Customers’ Inventories

50.8

48.6

+2.2

Too High

From Too Low

Prices

49.9

45.1

+4.8

Decreasing

Slower

Backlog of Orders

39.3

42.2

-2.9

Contracting

Faster

New Export Orders

46.0

49.4

-3.4

Contracting

Faster

Imports

46.2

47.9

-1.7

Contracting

Faster

Overall Economy

Contracting

Same

Manufacturing Sector

Contracting

Same

*Number of months moving in current direction. Manufacturing ISM® Report On Business® data has been seasonally adjusted for the New Orders, Production, Employment and Inventories indexes.

Commodities Reported Commodities Up in Price: Cocoa; Electrical Components; Electronic Components (3); Labor — Temporary (3); Natural Gas (5); Polyethylene; Polypropylene (2); Steel (5); Steel — Carbon; Steel — Cold Rolled; and Steel — Hot Rolled. Commodities Down in Price: Aluminum (6); Corrugated Boxes (4); Crude Oil; Diesel; Nickel; and Steel Products (6). Commodities in Short Supply: Electrical Components (38); Electrical Equipment (2); Electronic Components (36); and Semiconductors.

Note: To view the full report, visit the ISM ® Report On Business ® website at ismrob.org

ISMWORLD.ORG

The number of consecutive months the commodity has been listed is indicated after each item.

Manufacturing Outlook /December 2023

continued

ISM REPORT OUTLOOK

ISM Report On Business ®

Manufacturing PMI® New Orders (Manufacturing) 2021

November 2023 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

2022

New Orders

2023

ISM’s New Orders Index registered 48.3 percent. The two manufacturing industries that reported growth in new orders in November are: Food, Beverage & Tobacco Products; and Plastics & Rubber Products.

48.3%

52.7% = Census Bureau Mfg. Breakeven Line

Production (Manufacturing) 2021

Production

2023

2022

48.5%

52.2% = Federal Reserve Board Industrial Production Breakeven Line

The Production Index dropped into contraction territory in November, registering 48.5 percent. The five industries reporting growth in production during the month of November are: Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Transportation Equipment; Plastics & Rubber Products; and Electrical Equipment, Appliances & Components.

Employment (Manufacturing) 2021

2022

Employment

2023

ISM’s Employment Index registered 45.8 percent. Of 18 manufacturing industries, three reported employment growth in November: Food, Beverage & Tobacco Products; Transportation Equipment; and Chemical Products.

45.8% 50.4% = B.L.S. Mfg. Employment Breakeven Line

Supplier Deliveries (Manufacturing) 2021

53.1%

2022

2023

Supplier Deliveries Delivery performance of suppliers to manufacturing organizations was faster for the 14th straight month in November, as the Supplier Deliveries Index registered 46.2 percent. The three manufacturing industries reporting slower supplier deliveries in November are: Wood Products; Miscellaneous Manufacturing‡; and Food, Beverage & Tobacco Products.

46.2% 30

Inventories (Manufacturing) 2021

2022

2023

Inventories The Inventories Index registered 44.8 percent. Of 18 manufacturing industries, three reported higher inventories in November: Nonmetallic Mineral Products; Primary Metals; and Food, Beverage & Tobacco Products.

44.4% = B.E.A. Overall Mfg. Inventories Breakeven Line

44.8%

‡Miscellaneous Manufacturing (products such as medical equipment and

supplies, jewelry, sporting goods, toys and office supplies).

12 Manufacturing Outlook /December 2023

continued

ISM REPORT OUTLOOK

ISM Report On Business ®

Manufacturing PMI®

November 2023 Analysis by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management ® Manufacturing Business Survey Committee

Customer Inventories (Manufacturing) 2021

2022

Customers’ Inventories

2023

50.8%

ISM’s Customers’ Inventories Index registered 50.8 percent. The eight industries reporting customers’ inventories as too high in November — in the following order — are: Apparel, Leather & Allied Products; Printing & Related Support Activities; Furniture & Related Products; Fabricated Metal Products; Transportation Equipment; Chemical Products; Electrical Equipment, Appliances & Components; and Primary Metals.

Prices (Manufacturing) 2021

2022

2023

49.9%

Prices The ISM Prices Index registered 49.9 percent. In November, the seven industries that reported paying increased prices for raw materials — in the following order — are: Plastics & Rubber Products; Fabricated Metal Products; Primary Metals; Machinery; Miscellaneous Manufacturing‡; Food, Beverage & Tobacco Products; and Nonmetallic Mineral Products.

52.9% = B.L.S. Producer Prices Index for Intermediate Materials Breakeven Line

Backlog of Orders (Manufacturing) 2021

2022

2023

39.3%

Backlog of Orders ISM’s Backlog of Orders Index registered 39.3 percent. No industries reported growth in order backlogs in November. The 15 industries reporting lower backlogs in November — in the following order — are: Printing & Related Support Activities; Wood Products; Textile Mills; Primary Metals; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Furniture & Related Products; Machinery; Fabricated Metal Products; Miscellaneous Manufacturing‡; Food, Beverage & Tobacco Products; Chemical Products; and Transportation Equipment.

New Export Orders (Manufacturing) 2021

2022

New Export Orders

2023

46%

ISM’s New Export Orders Index registered 46 percent. The six industries reporting growth in new export orders in November — in the following order — are: Nonmetallic Mineral Products; Paper Products; Primary Metals; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing‡; and Chemical Products.

Imports (Manufacturing) 2021

2022

2023

Imports ISM’s Imports Index registered 46.2 percent. The three industries reporting an increase in import volumes in November are: Food, Beverage & Tobacco Products; Fabricated Metal Products; and Transportation Equipment. n

46.2% ‡Miscellaneous Manufacturing (products such as medical equipment and

supplies, jewelry, sporting goods, toys and office supplies).

Manufacturing Outlook /December 2023

NORTH AMERICA OUTLOOK

DECEMBER 2023

NORTH AMERICA OUTLOOK By Dr. Chris Kuehl

Readings Continue to Provide Mixed Signals This piece is a trip down the black hole of economic theory! I know you readers can barely control your excitement at this point. Takes you back to those fun-filled hours in Econ 101, doesn’t it? In truth, there are some key issues that are a bit easier to understand if one is aware of what economists think this all means.

why we have the joke of putting fiveeconomists in a room and getting five opinions (six if one is from Harvard). We all look at the same data but reach different conclusions based on our philosophical position. In the interests of full disclosure, I can reveal that I am a devotee of Milton Friedman and the Chicago School.

These include the question of which is worse – inflation or recession? Then there is the debate over the “neutral” rate of the Fed Funds Rate. Another important conversation is over what to make of the gloom-and-doom merchants that predict the end of the world by 2030. There are lively debates over whether a low rate of joblessness is a good thing or not. To start with, it is important to understand that economists are fundamentally philosophers as opposed to scientists (although we pretend to be the latter). This is

But I also have elements of the Austrian School of Ludwig Von Mises and Friedrich Hayek. In other words, conservative, free-market, capitalist. Take the issue of unemployment. It would seem a good thing to have that rate low, as that means that there are more consumers with money to drive an economy that relies on consumption for roughly 70% of its GDP. But low levels of unemployment have a cost as well – higher wages. The driver of inflation right now is wages as there is a worker shortage. We have seen very active unions

14 Manufacturing Outlook /December 2023

and will continue to see this. It is hard to hire people, hard to motivate them, and these employees are more expensive and less productive than has been the case in years. How to reverse some of these trends? A lot of layoffs that make people a lot more grateful for having a job. But if there is too much unemployment, the consumption levels plummet so a balance has to be struck. Which is worse – recession or inflation? Most economists and most central bankers will assert that it is inflation. The reality is that recession doesn’t hurt everybody and often benefits some companies and people. If your business is wellrun and comes into the recession with cash there is an opportunity to buy up competitors or expand or develop opportunities upstream and downstream. Fully 60% of the Fortune 100 expanded or started in a continued

NORTH AMERICA OUTLOOK

recession. Individuals with cash find lower prices everywhere. Inflation clobbers everyone as money loses its buying power. The poor get hit the hardest but the rich suffer as well. Everybody loses in an inflation surge and that means that central banks will ALWAYS pursue lower inflation with rate hikes even if it means inviting a recession. This is where that neutral rate discussion comes in. It has been assumed for decades that the neutral rate was 1.0% - over that and the economy slowed and under 1.0% and the economy speeds up. Now the thinking is that neutral may be 2.0% or even 2.5%. That changes the target for inflation. Finally – what to do with the gloomand-doom merchants chanting dire dirges for the end of the decade. Let’s be clear. Economists can’t predict to next Tuesday – much less six or seven years from now. Why do it then? These are less like forecasts than they are warnings – the economist trying to get our attention. The real message is that there are major problems and if they are not addressed the likelihood is a major economic collapse. We have six to seven years for the powers that be to deal with a massive government debt that could be as high as 150% of our GDP, the retirement of the entire Boomer generation (all 76 million of us), the massive shortfall in infrastructure maintenance (we get a D on our roads, bridges, and tunnels --- from the civil engineers who build such things), the impact of climate change (regardless of who and what is to blame, we know we are seeing change), chronic worker shortage, and so on. If these are not dealt with, the economy very likely hits that wall so these strident assertions of a massive economic collapse are actually pleas to do something now to avert that fate. The cynic in me is not willing to hold my breath and hope that our leaders

do much to avoid this pain. What does all of this mean for the coming year and the performance of the economies of the U.S., Canada, and Mexico? To begin with, do not assume that a couple of quarters of downturn or even outright recession will convince the central banks to start dropping interest rates. The Bank of Canada has been explicit on the subject and has stated that any hint of resumed inflation will trigger another rate hike while the Fed continues to repeat the “higher for longer” mantra. The consensus view at this stage is that GDP growth in the U.S. will slide into recession territory at the start of the year (down by 1.0% in Q1 and 0.7% in Q2). That is not a universal sentiment, however – especially with the revision of Q3 numbers to 5.2%. The expectation is that Q4 of this year will be 1.8% but that could be revised upwards if there is stronger than expected retail activity. The estimate for Canada has been revised downward by 0.3% by S&P and it is now sitting at 1.2% for the current year. They see 1.2% growth for next year as well but that depends heavily on commodity demand. Mexico is seeing accelerated growth estimates – 3.3% growth for this year (up from 3.1%). The expectation is for growth at 3.4% for next year. The pace of foreign direct investment has never been faster and the expectation is that this grows faster in 2024. The major investors are from the U.S. but South Korea is a close second. Japan and China are not all that far behind. Manufacturing is driving the bulk of that Mexican growth. It now accounts for almost 90% of Mexico’s exports. Only a decade ago the economy of Mexico was dependent on oil exports to the U.S. as well as tourism and remittances. These are now far behind

the manufacturing contributions. Mexico has replaced China as the main source of imports into the U.S. Much of this is related to the automotive industry but consumer goods are flowing from Mexico as well. Next year will be historic as far as Mexican politics is concerned. There will be a female President as both major parties have chosen a woman as their standard bearer. Claudia Scheinbaum for the Morena Party (currently in power with AMLO – Andres Manuel Lopez Obrador) and Xochitl Galvez for the PAN party. Canada does not face an election until 2025 but there is considerable jockeying for position already. Justin Trudeau is seeing his lowest poll numbers and many in the Liberal Party would like to see a different candidate in 2025 (not likely). The Conservative challenger is gaining in the polls – Pierre Poilievre. His message has been economic and focused on cost of living issues. As has long been the case, the U.S. economy determines the fates of the other two. If the U.S. economy does slump during the first half of next year there will be less demand for the manufactured output from Mexico as well as the commodity exports from Canada. Author profile: Dr. Christopher Kuehl (Ph.D.) is a Managing Director of Armada Corporate Intelligence and one of the co-founders of the company in 1999. He has been Armada’s economic analyst and has worked with a wide variety of private clients and professional associations in the last ten years. He is the Chief Economist for the National Association for Credit Management and is on the Board of Advisors for their global division – Finance, Credit and International Business. n

Manufacturing Outlook /December 2023

LATIN AMERICA OUTLOOK

DECEMBER 2023

LATIN AMERICA OUTLOOK By Royce Lowe

Mexico’s Messy Oil Business Mr Octavio Romero is the head of Pemex, Mexico’s national oil company. The Economist reports that he recently confirmed the contents of a letter leaked in September, wherein Pemex informed Mexico’s treasury that it was unable to pay over $500 million to three suppliers, one of whom has started a dispute-resolution process. With a debt of over $100 billion, equivalent to 8% of Mexico’s GDP, Pemex has been the world’s most indebted oil company for several years. Its exploration and production are profitable, but the majority of its losses come from its refining operation. The company was recently downgraded by Fitch and by Moody’s, the credit rating firms. The company’s debt is a risk to the country. More

16 Manufacturing Outlook /December 2023

government support will be needed. The question is for how much longer can Pemex rely on bail-outs to stay afloat? Some of Pemex’s problems date from decades ago. In the 1970s Cantarell, one of the world’s largest oil fields, was discovered in the Gulf of Mexico, and Pemex stood out as a driving force in the Mexican economy. Governments proceeded to milk it to death, and subsequent governments imposed exorbitant taxes on it. This limited its ability to invest. Hence Pemex never really ventured into gas exploration and has an underdeveloped petrochemicals operation. Mexico’s president from 2012 to 2018, Enrique Pena Nieto, tried his best to make Pemex more independent,

and more profitable, as part of his shake-up of the energy sector. He took away oil subsidies and opened energy to the private sector. There were some successes, and new fields were discovered, but during his administration, Pemex’s debt went from $61 billion in 2012 to $106 billion in 2018. There was corruption, one of the prime examples of which was the Odebrecht scandal, where a huge Brazilian construction company paid millions in bribes to secure contracts. This sent one of the heads of Pemex to jail, where he still awaits trial. President Andrés Manuel Lopez Obrador (AMLO) came to power in 2018, vowing to rescue the company and restore it to its former glory. He wants to cut the debt, make continued

LATIN AMERICA OUTLOOK Mexico self-sufficient in petroleum, and increase oil output by 45%. His government has handed Pemex $73 billion, with more to come. Its tax rate was reduced from 65% in 2018 to 40% and will see 35% in 2024. Mexico imports some 60% of its natural gas from the U.S., so AMLO is worried about energy security. He also wants to go back to the glory days when oil was powering the economy. Hence the government is pouring money into Pemex without demanding reforms. The problem, according to an old-hand executive, is that Pemex is still Pemex. But Mexico is no longer an oil economy. The country now has a very strong manufacturing base which accounts for about a third of GDP. In 2021, oil accounted for just 16% of government revenues. Mexico’s total oil production peaked at just under 3.5 million barrels per day in 2004 and has fallen by roughly half since then to under 2 million barrels. Both AMLO and Mr. Romero say their strategy is

working. Debt has fallen and Pemex turned a profit in 2022 for the first time in a decade. The fall in oil production has been stemmed since 2018, but at far below the 45% output increase that AMLO had aimed for. Production of natural gas has fallen. The administration bought a refinery in Texas and started building another one in Mexico that cost double the estimate. Pemex has cost-cutting programs, which unfortunately resulted in the loss of many of its talented people. Through all its woes, Pemex is not prepared for the global move for clean energy. Oil demand will remain, but there will be pressure for its extraction to be relatively cheap and clean. As we mentioned in November’s issue of Manufacturing Outlook, there will be a changing of the guard in Mexico in 2024. Whoever takes the reins will have Pemex on their plate. This is likely to be Claudia Sheinbaum,

the candidate for AMLO’s party. She has laid out no policy for Pemex, but she is AMLO’s protegée and has been behind his energy policy. She has a doctorate in environmental engineering and is more interested in renewable energy than AMLO. She may have to be careful during her campaign to not criticize Pemex too harshly. In any event, Pemex needs to be “fixed.” This may take up more of the next president’s time than is warranted or anticipated. If Pemex can get production and refining up, taxes down, and corruption down, additional profits should result. That is a very tall order. Author profile - Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook.n

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Manufacturing Outlook /December 2023

AFRICA OUTLOOK

DECEMBER 2023

AFRICA OUTLOOK By Royce Lowe South Africa’s Spice This is based on a piece from The Economist about competition in South Africa. It opens by talking about the IMF, and their blaming a lack of competition and the high market power of many South African manufacturers for the country’s weak economic performance. Firms with big shares of the domestic market drive up prices while resting on their laurels and growing fat and lazy, holding back productivity growth. There are all kinds of rules in the country that keep out competition from foreign companies, and make it harder for new ones to sprout and grow at home. But a battle for the

18 Manufacturing Outlook /December 2023

spicy chicken lovers offers hope. It shows that when markets are open to new entrants, South African firms can be fiercely competitive. Nando’s is the market leader It opened its first outlet in Johannesburg in 1987. Since then it has grown into one of the world’s most successful restaurant chains, with more than 1,200 branches across 22 countries. It has created a brand identity built around spicy chicken; even spicier advertising. Then along comes Pedros, a feisty young upstart that wants to fight

Nando’s at its own game in its own market. Its restaurants look much like Nando’s, with similar interior decoration. There’s a basket of sauces on every table, “mild” through “extra hot,” and the aroma of freshly grilled peri-peri chicken - a hot pepper sauce from South Africa - comes to greet you from the kitchen. Last year, South Africa’s advertising industry regulator said in a nonbinding ruling that Pedros had traded on the name and reputation of its competitor in its adverts. There is no doubt that its brand identity is very similar to that of its larger competitor, continued

AFRICA OUTLOOK and its growth has been much faster. Five years young, Pedros has already opened some 125 stores, with another ten already in the pipeline. Nando’s South Africa’s CEO, Mike Cathie, says he welcomes the competition. He knows that Pedros aren’t the only ones trying to resemble them. And it doesn’t seem to be hurting his business. He says Nando’s sales keep growing, along with the record number of its restaurants. Of course, there’s price. Isn’t there always? Pedros is much, much cheaper. It sells a quarter-chicken, fries, and a roll for just under 45 rand ($2.45). The same meal at Nando’s costs 75 rand ($4.08). Pedros says it has lower costs because of in-house marketing, manufacturing, and distribution. Good for Pedros. These lower prices should please

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South Africa’s competition regulator. There were complaints earlier this year about the rising consumer price of chicken. Along with eggs, chicken accounts for up to 7% of total spending by the poorest decile of households. It is by far the country’s most popular meat. The average South African gobbles down 38kg of it a year, compared with 16.9kg of beef, yet most of it comes from just five firms that have high levels of protection from imports. Regulators worry that such a concentrated market might allow companies to drive up prices. So the lesson that comes from Pedros is that in industries where barriers to entry are low, such as restaurants, there is no shortage of innovative new firms willing to join the fray and shake up the markets. The IMF reckons that by making it easier for this to happen across the rest of the

economy, among other reforms, South Africa could boost its GDP by about 2.5% over five years. These firms can compete not just at home, but also abroad. Nando’s has outlets across the world, from Australia to Zimbabwe. Pedros has a few in neighboring Botswana. It’s not difficult to find bad news when talking about South Africa. We’ve published lots of it here, from the problems with Eskom, the power supplier, to the corruption that penetrates all levels of government. We all know that competition is the basis of capitalism. Let South Africa have a lot more of it. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n

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Manufacturing Outlook /December 2023

EUROZONE OUTLOOK

GLOBAL OUTLOOK

EUROZONE OUTLOOK Bouncing Along The Bottom By Royce Lowe Just when we might have thought things couldn’t get any worse in the Eurozone manufacturing sector, we came upon a month such as October, where the manufacturing PMI continued to slide to a three-month low. It’s not just the three-month low, but rather the fact that the PMI has been below the 50 mark for 16 months, and that business confidence is at an 11-month low. Orders are down, production is down, backlogs

20 Manufacturing Outlook /December 2023

are down - and employment with them. We’re looking at a scenario where PMI survey data continued to highlight considerable weakness in demand, with new orders contracting at one of the steepest rates in the survey history. The latest decrease has been surpassed only by those seen during the pandemic, the global financial crisis of 2008-09, and the

energy crisis late last year. Similar trends were also evident for both quantity of purchases and backlogs of work, highlighting the bleak picture within the eurozone manufacturing industry. Countries ranked by Manufacturing PMI, October: Greece 50.8, 2-month high Ireland 48.2, 3-month low Spain 45.1, 12-month low Italy 44.9, 3-month low continued

EUROZONE OUTLOOK

Netherlands 43.8, 2-month high France 42.8, 41-month low Austria 41.7, 6-month high Germany 40.8, 5-month high The situation in the Eurozone may best be illustrated by the comments of Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, who said: “The Eurozone manufacturing sector’s trend over the last two years or so looks like a bumpy sleigh ride down into the valley. Given that the headline PMI did barely move over the last few months, including October, we may be about to reach the bottom of the valley. Thus, the big question is when we will begin to make an ascent. The stagnating new orders index, which remains deep in negative territory, and the similar behavior of the Quantity of Purchase Index do not suggest an immediate turnaround. Having said this, history tells us that in many cases the leveling out of these indices is the precondition for a start of the recovery. We expect this to happen in the first half of next year. Companies continue to decrease their stock of purchases. Thus, we do not see any desire from firms to refill their empty shelves, which we’d expect during a demand recovery,” he said. “In light of the new geopolitical tensions in the Middle East, and subsequent rise in downside risks,

this is perhaps not fully surprising. Notably, companies cut staff much more aggressively in October than in the previous month. However, when we compare the headline PMI with the employment PMI, we see that the latter is actually in better shape than the former. This is kind of atypical because usually, both indices tend to move in sync, as we can see from the data between 2011 and 2019. There is a reason behind this seemingly odd behavior which is the shortage of labor. That means many companies could not find people to fill their open positions. Hesitancy to lay off workers has meant that the jobs market is not taking as big of a hit as it did in past tough times. It looks like the eurozone countries are pulling each other down. With France, Italy, and Spain PMIs diving and Germany already signaling a deep manufacturing recession, it is pretty clear that the sector is headed for a contraction in all these countries this quarter,” he concluded. In short, even when Dr. de la Rubia is trying to sound optimistic, he doesn’t sound very convincing. There is a glimmer of hope in Europe, but we probably won’t see it fulfilled until 2024. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n

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Manufacturing Outlook /December 2023

ASIA OUTLOOK

DECEMBER 2023

ASIA OUTLOOK

By Christine Casati U.S.-CHINA TRADE RELATIONS: CORE REALITIES New Export Controls – Perceived Threats Progress was made at APEC and the Presidential Summit in San Francisco After a year of high-level detailed negotiations, U.S. President Joe Biden and Chinese President Xi Jinping finally met face-to-face for 4 hours on November 15 at the Filoli estate outside San Francisco. Both leaders were attending the Asia-Pacific Economic Cooperation (APEC) forum where world leaders from 22 nations joined 22,000 attendees. The last time they had met was in November 2022 on the sidelines of the G20 Summit in Bali, Indonesia. Despite

22 Manufacturing Outlook /December 2023

the escalating economic and military competition between the two nations in recent years, both men exuded a certain warmth and friendliness, having reached a comfort level from years of knowing each other. And Xi seemed genuinely pleased to meet business leaders whose investments he needs, as well as old friends from his time as a student in Iowa. It was his first visit to the U.S. in 6 years. Fortunately, the U.S. achieved its primary objective of restoring commu-

nication channels at every level with China’s military. This was the most critical action item impacting global security. Conversation also included how to establish a forum on Artificial Intelligence to discuss how to make sure AI programs do not impact nuclear command and control. China also caved in on years-long requests by the U.S. to rein in sales of fentanyl raw material chemicals which are primarily exported to Mexico for easy formulation into deadly street drugs, killing tens of thousands of U.S citizens each continued

ASIA OUTLOOK year who unwittingly overdose. The U.S. provided a list of known factories in China producing these materials, and promises were made by China to close those operations down. Lots more work must be done to implement this plan. The U.S. Will Never Decouple From China. Biden reiterated that it was not the U.S. intention to “decouple” from China. Jake Sullivan reiterated the real goal was to “de-risk” from China. Gina Raimondo, Secretary of Commerce, and U.S. Trade Representative Katherine Tai who hosted APEC, both underscored these messages, as well as clarifying the specific product areas in high-tech semiconductor manufacturing which would remain subject to export controls. However, data shows that in almost every sector of manufacturing, including both technology and industrial supply lines, the U.S. remains inextricably connected to China’s manufacturing production capacities. Although China’s economy has been sputtering post-Covid 19, it is a fact that every 1% decline in China’s GDP growth is tied to at least .2% decline in U.S. GDP and .7% decline in global GDP. (Bloomberg; WSJ) Tit for Tat: China and the U.S. Will Continue to Counter Each Other China’s area of influence has expanded globally through increased trade and Belt & Road Infrastructure projects costing over 1 trillion in support and loans, most of which have not been repaid. Outside of neighboring East Asia-Southeast Asia regions of influence, it has moved aggressively for two decades to fill in the gaps in areas where superpower influence has been weak, notably Africa and Latin America. The U.S. is moving rapidly but belatedly to catch up, seeking both bilateral and multilateral projects, and making investments (e.g. Nov. 8: U.S. announced plans to invest $553 million in Colombo, Sri Lanka port project, rivaling China’s.)

Progress Made on Three of Four Pillars of Indo-Pacific Economic Framework (IPEF) Efforts among 14 member partners (Australia, Brunei, Fiji, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea, Thailand, U.S., and Vietnam) resulted in signed agreements on three of the four pillars at APEC (supply chains, clean energy, infrastructure, but NOT trade). The Biden Administration is facing political backlash on the trade side, and announced they have more work to do. Some disappointed regional partners are not sure they can trust U.S. trade promises anymore. (In 2017 the U.S. pulled out of a similar Transpacific Trade Partnership (TPP) under the Trump administration.) On the bright side, Biden announced the creation of a program to provide a pipeline of projects in partner countries and then match private sector financing to help startup businesses raise capital. This is based on the U.S. partnership for Global Infrastructure and Investment, part of the U.S. response to counter China’s Belt and Road Initiative. Factors Weighing On China’s Fragile Economic Recovery Deflationary pressures persist in manufacturing. Manufacturing activity contracted in October, with ex-factory prices dropping 2.6% from a year ago. While overall industrial profit growth has increased 2.7% from a year ago, it dropped by 7.8% for the first ten months compared to the same period a year earlier. This pace of growth in October is significantly slower than September’s 11.9% gain and August’s 17.2% boost. Momentum in the industrial sector continues to weaken along with downward pressure on wages and commodity prices. This will pressure the government to continue with more accommodative policies. (National Bureau of Statistics; Bloomberg)

Contraction in property investment deepens. The Chinese government is taking steps to actively jump-start a turnaround in the property markets, but these steps may endanger banks that are already reeling from bankruptcies, low lending rates, and bad loans to both developers and buyers. China is encouraging banks to lend without collateral and reduce the deposits required on second homes, for example, to 40% from 80%, and at the same time to lower lending rates to developers. In the meantime, the major asset company ZHONGZHI is bankrupt and investors are likely to lose everything. OUTLOOK: U.S. diplomacy remains necessarily deeply engaged, diffused throughout many levels, and efficacious. Aggressive behind-the-scenes diplomacy will quietly continue to try to achieve more positive trade outcomes not yet reached during preparations for the U.S.-China Summit or the APEC Summit. China will continue to try to block some areas of the Indo-Pacific Economic Framework pursued by the U.S. which they fear will interfere with their trade relations in East and Southeast Asia. But with more pressing problems at home, China is likely to focus most on domestic stimulus and corrective actions in the property and banking sectors, while reducing Belt & Road investments. In the meantime, the U.S. will move to strike its own deals with individual nations to counteract China’s BRI in South Asia, Africa, and Latin America. Author profile: Christine is co-founder and President of China Human Resources Group, Inc, a management consulting firm based in Princeton NJ. She has provided U.S. companies with strategic development and project implementation services for projects in China since 1986. n continued

Manufacturing Outlook /December 2023

AEROSPACE OUTLOOK

DECEMBER 2023

AEROSPACE OUTLOOK

By Royce Lowe China’s Aerospace Aspirations Bloomberg reports that China Eastern Airlines Corp. recently ordered 100 C919 single-aisle planes from Commercial Aircraft Corp of China Ltd., (Comac), dealing a potential blow to Boeing, which hasn’t had a large order from Chinese carriers in years. The order is worth $9.9 billion at list prices, but discounts will apply. Delivery will take place from 2024 to 2031. China Eastern even announced a delivery schedule for the planes, with the heavier deliveries taking

24 Manufacturing Outlook /December 2023

place over the last four years. Comac produces the C919, which is seen as competition for narrowbodies from Boeing and Airbus. The C919 made its maiden commercial flight this past May, also operated by China Eastern. China Eastern already operates two of the aircraft, part of a previous order for five of the planes. Comac also makes the smaller regional ARJ21 jet and has received more than 1,000 orders for the C919,

primarily from China. The airline operates 782 aircraft. Last year it ordered 100 Airbus narrowbodies in a deal it said was worth $12.8 billion, pre-discount. The whole was part of a larger $37 billion deal from Chinese airlines for almost 300 Airbus planes. The two fatal 737Max crashes in 2018 and 2019 were effectively the start of deteriorating relations between Boeing and China. These were not helped by tensions between Beijing and continued

AEROSPACE OUTLOOK and International Studies (CSIS) in Washington, concluded that. Kennedy thinks the C929 will never be more than a drawing. CSIS did an analysis in 2020 and estimated that approximately 90% of the C919’s main or large-scale component suppliers were from North America and Europe, with only 10% coming from China and other countries in Asia. These figures were backed up by those of Shukor Yusof, an aviation industry analyst. Washington. China took longer than other countries to lift the ban on the grounded 737Max. In fact, the first flight in China was this past January, by China Southern Airlines. In its latest commercial market outlook, Boeing said China will buy a fifth of the world’s new aircraft over the next 20 years, amounting to 8,560 planes. The forecast is for 6,470 of these planes to be narrowbodies, such as the Max. In 2017, Comac and Russia’s United Aircraft Corporation set up a joint venture in Shanghai to focus on building a widebody passenger jet called the CR929. From the start, this project saw numerous delays. Further, Russia’s aerospace industry has been heavily sanctioned by the U.S. and its allies since Russia’s invasion of Ukraine last year. The South China Morning Post reports that Comac is itself pushing ahead with the design of this jet, given the alleged breakup of the China-Russia joint venture. The C919 took more than 14 years of development before its maiden flight. The state-owned company has yet to be able to mass produce the C919, but has said it aims to have an annual output of 150 of the narrowbody aircraft within the next five years.

China has been “talking up” its expertise in the aviation business for some years now but only some six months ago did we see the maiden flight of the C919. It’s now announcing progress on the C929 front, talking of a “laboratory” to implement design. But how much progress has China actually made in its bid to compete with Boeing and Airbus? More to the point, how much of the C919 is Chinese? Where does Comac get its major parts to fit together into an aircraft? CNN reports that a large chunk of the C919’s parts come from foreign suppliers, mostly in North America and Europe. Chinese state media has said some 40% of the model’s components are imported, though experts say the real proportion is much higher. It’s normal for manufacturers to source equipment for their planes from around the world, but “the C919 is unique in that almost nothing that keeps it in the air is from China. The C919 is primarily a non-Chinese airplane with Chinese paint on it,” said Scott Kennedy, who spent two years leading a team that researched China’s decades-long efforts to develop its own commercial aircraft. Kennedy, trustee chair in Chinese business and economics at the Center for Strategic

China has acknowledged the criticism. Even a state-run tabloid asked the same question regarding reliance on imports. The C919 contains Honeywell’s electrical system and landing gear, GE’s flight recorder, CFM’s LEAP engine, Parker Aerospace’s flight control system and fuel system, Rockwell Collins’ weather radar and simulator system, and Michelin’s tires. All are U.S. or European companies. The C919 has made some sales outside the major North American and European markets. It could take many years for the plane to be certified by North American and European aviation agencies; certainly by the FAA. Comac’s aim is to compete with Airbus and Boeing. It will be a long time before they are ever in that position. There’s little doubt that those 8,560 planes that China will buy over the next 20 years will come from the big two manufacturers. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n

Manufacturing Outlook /December 2023

ENERGY OUTLOOK

DECEMBER 2023

ENERGY OUTLOOK Ill winds By Royce Lowe We spoke last month about the state of the U.S. offshore wind industry, and of the potential difficulties in “bringing it home.” Fortune Magazine recently looked into the situation, as did Bloomberg. Wind energy developer Orsted the world’s largest offshore wind developer - is writing off $4 billion,

due largely to its cancellation of two large offshore wind projects in New Jersey whose financial challenges are typical of those confronting this industry in its relative infancy. The industry’s supporters see offshore wind as a way to help end the burning of planet-warming fossil fuels, but it is derided by

opponents as unworkable without massive financial subsidies. Orsted recently stated it is scrapping its Ocean Wind I and II projects off the coast of southern New Jersey due to problems with supply chains, higher interest rates, and a failure to obtain the amount of tax credits the company wanted. New Jersey approved a tax break for Orsted in July, letting it keep continued

26 Manufacturing Outlook /December 2023

ENERGY OUTLOOK federal tax credits that otherwise would have gone to ratepayers. Other projects have already been canceled, and many offshore wind developers are seeking better terms from governments with whom they have contracts. In fact, New York recently rejected such a request. There are those who point to other, cheaper ways to produce electricity, such as solar and natural gas. But the appeal for those who are supporters, including environmentalists, many state governments, and the Biden administration, is that the process is not a fossil fuel process. “The urgency to transition to clean, renewable energy is an irreversible reality,” read a recent statement by nearly 40 environmental, labor, and community groups from New Jersey who support offshore wind, including the state’s chapter of the Sierra Club. “In a world of warming temperatures and extreme weather in likely the hottest year on record (2023), maintaining the status quo of fossil fuel generation is not an option as the cost of climate inaction is undeniably high.” Mads Nipper, Orsted’s CEO, admitted the difficulty of the decisions his company was making, by deciding “to de-risk the most painful part of our portfolio, and that is the U.S.”

and nationally, most of it from Republicans, who have convinced the U.S. Government Accountability Office to look into the industry. Rep. Jeff Van Drew, a Republican who represents the area in southern New Jersey where Orsted’s wind farms would have been built, did not hide his glee at the decision to scrap the projects. “David defeated Goliath!” he recently stated, calling wind farms “bad for the economy, the environment and electric customers.” Numerous resident groups also voiced their opposition to the projects, citing similar concerns, and expressing their dislike of an ocean horizon dotted with wind turbines. Despite the aforementioned challenges, some wind projects are moving forward. Orsted said it is proceeding with its Revolution Wind project in Connecticut and Rhode Island.

stages of development. Four new proposals were submitted in August alone, adding to the one remaining project of the three originally approved by the state, Atlantic Shores. That is a project by Shell New Energies U.S., and EDF Renewables North America. Atlantic Shores says it remains committed to its project, although stating that it, too, is seeking additional help. “We are actively engaging in conversations with the administration, regulators, and elected leaders across New Jersey to identify viable solutions that will not only preserve the progress made thus far, but also facilitate the successful execution of Atlantic Shores Project 1,” the company said. The crisis is spreading. BP Plc on Tuesday said it took a $540 million pre-tax impairment in the third quarter related to its offshore business in the U.S. In China, top turbine maker Xinjiang Goldwind Science & Technology Co. said on Friday that third-quarter profit tumbled 98%, while Norwegian energy giant Equinor ASA took a $300 million impairment on its U.S. offshore wind projects.

In Virginia, a utility’s plans for an enormous wind farm off that state’s coast gained key federal approval recently. Dominion Energy received a favorable “record of decision” from federal regulators who reviewed the potential environmental impact of its plan to build 176 turbines in the Atlantic, more than 20 miles (32 kilometers) off Virginia Beach.

Power generated from the Orsted projects was intended to come ashore and connect with the electrical grid at the site of a former coal-fired power plant. The emissions from this power plant used to tell visitors to the nearby beach which way and how strongly the wind was blowing. The plant was recently demolished.

Pro-wind groups including the American Clean Power Association and the Oceantic Network acknowledged the setback posed by Orsted’s cancellations. But both were heartened by progress on the Virginia project and Orsted’s decision to continue with Revolution Wind, and both said the future of the industry is promising.

The industry also faces stiff political headwinds in New Jersey

New Jersey still has several other offshore wind projects in various

Seems there’s a war going on. Those for wind versus those who still want fossil fuels. Particularly when they call wind bad for the environment. And it seems Red states are turning up their noses at EVs.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n

Manufacturing Outlook /December 2023

MATERIALS OUTLOOK

DECEMBER 2023

MATERIALS OUTLOOK Outlook For Steel By Royce Lowe The World Steel Association (worldsteel) recently released an update of the Short Range Outlook (SRO) for 2023 and 2024. The following detailed forecasts developed by Worldsteel indicate that steel demand will grow by 1.8% in 2023 and reach 1,814.5 MT after contracting by 3.3% in 2022. In 2024, steel demand will see a further increase of 1.9% to 1,849.1 MT. Since the second half of 2022, the activities of steel-using sectors have been cooling sharply. This continued into 2023, particularly affecting the EU and the U.S. Considering the delayed effect of the tightening monetary policy, steel demand recovery in 2024 is expected to be slow in the developed economies.

28 Manufacturing Outlook /December 2023

Emerging economies are expected to grow faster than developed economies, but the performance of emerging economies continues to diverge, with emerging Asia maintaining resilience. China’s property market has not stabilized yet in the latter part of this year, but China’s steel demand will record slightly positive growth thanks to government measures. The 2024 outlook for China remains uncertain depending on policies undertaken to tackle the current economic difficulties, manufacturing’s slowdown, and the highest property defaults ever recorded. It is noted that the Chinese economy is in a structural transition phase that may add volatility and uncertainty. Other

uncertainty is linked to regional conflicts and unrest such as in Russia and Ukraine, Israel and Palestine, and elsewhere that disrupts many exports to those regions. These could contribute to rising oil prices and other geo-economic fragmentation, both of which are downside risks. It is worth noting that despite the weakening of construction activities due to high interest rates, infrastructure investment is showing positive momentum in many regions, even in advanced economies, reflecting the effect of decarbonization efforts. IN GENERAL: The global economic outlook continued to worsen under the influence of continued

MATERIALS OUTLOOK monetary tightening that hurt consumption and investment alike. But inflation started to moderate in 2023, thanks to the slowing economy, which may allow further relief in 2024. However, the war against inflation is not won, and there is still persistent core inflation, a tight job market, and rising oil prices. The construction sector has been affected by high interest rates and high costs, especially the residential sector. Despite this, infrastructure investment remained positive. Supply chain bottlenecks have eased, but the manufacturing sector continues to slow under weakening demand. The consumer durables sector has been particularly affected. However, the recovery in auto production will continue in 2023, helped by the order backlogs and easing of supply chain bottlenecks, allowing high growth in many regions. The sector is expected to decelerate in 2024. The average age of an automobile in the U.S. is around 12 years, an all-time high, with no surge to replace them to own a more expensive car with a higher interest rate loan. IN CHINA: The depression in the property market that continued into 2023 is weighing on the economy, leading to its unexpected slowing. Falling housing sales have led to financial troubles for major real estate developers, generating concerns about the health of the Chinese economy. The situation was expected to stabilize in the latter part of 2023 following the Chinese government’s measures to stabilize the economy in July. So far, that hasn’t materialized and the problem will drift into 2024. Almost all steel-using sectors have shown signs of weakness since the second quarter. Key real estate indicators like land sales, housing sales, and new construction starts

continued to fall in 2023. The decline in new starts in 2021-2022 has adversely affected construction activities and will continue to affect steel demand in 2024. On the other hand, infrastructure investment continued to grow in 2023 thanks to the government’s efforts to boost construction. There may be further infrastructure projects. As a result, infrastructure investment in both 2023 and 2024 is expected to remain fairly positive. Manufacturing growth momentum also weakened, but maintained moderate growth in 2023, with positive growth in auto production and strong growth in home appliances. Growth in manufacturing may weaken further due to weakness in export markets. It is expected that steel demand in 2023 will record 2.0% growth supported by infrastructure investments and stabilization in the property sector. The outlook for 2024 is uncertain. Falls in both the real estate market and exports will continue to exert negative pressure on steel demand. This demand will tend to contract in the absence of additional government support measures. If, however, the government introduces additional measures to support the economy, steel demand in 2024 may attain the level of 2023. There is a downside risk for both 2023 and 2024 if the stimulus is weaker than expected. DEVELOPED ECONOMIES: Steel demand is expected to contract by 1.8% in 2023 after falling by 6.4% in 2022, with Europe suffering particularly heavily from monetary tightening and high energy costs. In 2024, a rebound is forecast, with growth of 2.8% in steel demand. In The European Union (27

countries) and The United Kingdom, there was more resilience than expected, despite the energy crisis from the Russia-Ukraine war, and high interest rates. These put a heavy toll on manufacturing activities. There is continuing recovery in the auto sector, but despite this auto production is not expected to reach the pre-pandemic level in 2024. Residential construction is also affected by high interest rates, material costs, and labor shortages, while the momentum in infrastructure investment remains stable. Germany is in a particularly difficult situation, with both a manufacturing recession and a housing crisis. With monetary policy expected to remain tight, a rebound in real demand is not foreseen for 2024, but as destocking cycles end, a technical rebound will enable positive growth in steel demand in 2024. After a fall of 7.8% in 2022, steel demand is expected to fall by 5.1% in 2023. Growth of 5.8% is expected in 2024. THE UNITED STATES economy fought back against steep interest hikes, but steel-using sectors are feeling the impact. Residential construction is feeling the pinch of high interest rates and is expected to contract in 2023 and 2024. The commercial building sector is showing robust recovery thanks to reshoring activities. Growth in the infrastructure sector is also being supported by the 2022 Infrastructure Law and Inflation Reduction Act (IRA). Manufacturing has also been slowing, but the automotive sector is expected to continue its postpandemic recovery. The lagged effect of tight monetary policy points to downside risk for 2024. After a fall of 2.6% in 2022, steel demand is expected to decline by 1.1% in 2023 and then grow by 1.6%

Manufacturing Outlook /December 2023

MATERIALS OUTLOOK

in 2024. Prices will remain high for as long as mills can hold them with their reduced production. However, year-over-year profits may fall if the mills keep prices too high for too long, and create a demand drought. IN JAPAN, labor shortages and rising costs are leading to sluggish growth in construction activities, but manufacturing steel demand is expected to show moderate growth in 2024, helped by the recovery of automotive production. After a fall of 4.2% in 2022, demand is expected to decrease by 2.0% in 2023 and then grow by 0.6% in 2024. That is a tepid outlook. SOUTH KOREA is in recovery from the flood damages in 2022, and small but positive growth in construction after years of contraction will allow a recovery in steel demand in 2023 that will be only moderate. There is overall weakness in manufacturing, except for automotive. Following a contraction of 8.5% in 2022, South Korea’s steel demand is

expected to show growth of 3.3% in 2023 and 1.1% in 2024. In emerging and developing economies, excluding China, steel demand shows resilience to global headwinds. After falling by 0.6% in 2022, steel demand in these economies will show growth of 4.1% in 2023 and 4.8% in 2024. THE INDIAN ECONOMY seems oblivious to the pressure of the high interest rate environment, and India’s steel demand is expected to continue its high growth momentum. Growth in India’s construction sector is driven by government spending on infrastructure and recovery in private investment. Infrastructure investment will also support the capital goods sector growth. Healthy growth momentum will continue in automotive. The consumer durables sector is the only sector that is underperforming due to higher inflation/interest rates that constrain discretionary spending. However, it will improve in 2024 with festive season spending and progress in the Production Linked Incentives (PLI) Schemes.

After growth of 9.3% in 2022, steel demand is expected to show a healthy growth of 8.6% in 2023 and 7.7% in 2024. ASEAN- ASSOCIATION OF SOUTHEAST ASIAN NATIONS - steel demand will be driven by domestic demand and infrastructure investment, despite inflation and deteriorating external conditions. The region’s export economy has slowed considerably, and it is denting its manufacturing performance. Vietnam is particularly affected by the deteriorating global trade environment. The political situation is causing delays in infrastructure investment in some countries. After falling by 0.2% in 2022, ASEAN steel demand is expected to increase by 3.8% in 2023 and then by 5.2% in 2024. In OTHER EUROPE, (NON-EU), Turkish steel demand is expected to record a very high growth of 19.0% in 2023 and to continue to grow in 2024. Steel demand will benefit from the earthquake-related construction continued

30 Manufacturing Outlook /December 2023

MATERIALS OUTLOOK activities and the abandonment of its unconventional monetary policy that drove foreign investment out of the country. After falling by 2.5% in 2022, steel demand in Other Europe is expected to increase by 14.9% in 2023 and by 5.1% in 2024. In the MIDDLE EAST and NORTH AFRICA (MENA) region, a contraction is expected this year as steel demand in both the GCC (Gulf Cooperation Council) and North Africa contracts. After a strong recovery in 2022, the GCC will see its steel demand decline in 2023 due to sluggish construction activities in Saudi Arabia and Qatar. However, in 2024, steel demand will show a healthy rebound with more mega projects and pent-up demand for housing. The UAE is expected to perform better among the GCC countries thanks to its booming real estate sector and investment in non-oil sectors. Egypt’s steel demand continues to suffer from the impact of the Russia-Ukraine war. High interest rates, severe currency depreciation, limited access to foreign currency, and higher production costs are leading to the suspension of mega projects. The situation is expected to improve slightly in 2024 as inflation is expected to peak in the second half of 2023. Following growth of 9.4% in 2022, total steel demand in the MENA region is forecast to decrease by 3.5% in 2023 and increase by 3.5% in 2024. RUSSIA AND OTHER COMMONWEALTH OF INDEPENDENT STATES (CIS)

+UKRAINE. After performing better than expected in 2022, with only a minor contraction in GDP thanks to massive government stimulus measures, the Russian economy is expected to record a small positive growth in 2023, helped by oil revenues and adjustments of the economy to the sanctions. Steel demand is also expected to recover moderately in 2023. But in 2024, Russia will see a deteriorating economic environment with currency depreciation, labor shortages, and supply chain disruptions. Industrial production will deteriorate due to reduced access to modern technologies and continuous restrictions on the import of spare parts. Despite the continuation of the war, the steel use situation in Ukraine is for stabilization and improvement. Since March 2023, steel using sectors have shown an upward trend amid a low base of comparison. Construction activities are helped by relocation of businesses, construction of housing for internally displaced persons, restoration of damaged infrastructure, and development of new logistics routes. Forecasts for 2023-2024 have been revised upwards for both Russia and Ukraine compared to the April 2023 outlook, but significant revisions are possible depending on the course of the war. LATIN AMERICA was ahead of other countries in raising interest rates to tackle inflation and some countries have already started to loosen monetary policy. However, this is causing the economy to slow, and the steel demand outlook is worse than that in April, with many countries showing contraction in 2023. Construction will grow

marginally in 2023 and 2024. There are multiple economic and political downside risk factors such as China’s slowdown, high debts and financial market volatility, and unstable and uncertain political situations. Steel demand in Latin America is expected to increase by 1.4% in 2023 and then grow by 2.1 % in 2024 after falling by 8.3% in 2022. Brazil’s steel demand is expected to contract again this year with sluggish manufacturing and a weakening real estate sector. Government investment along the newly launched GDP acceleration program - government investment in infrastructure - is expected to boost construction in the coming years and steel demand is expected to recover moderately in 2024. The situation is brighter in Mexico, where the economy is supported by strong consumer sentiments, nearshoring activities, and electionrelated government spending. Steelintensive manufacturing sectors are in positive territory, especially the auto sector. With a contracting residential sector, construction activities are less vigorous, but the nearshoring phenomenon and public investment are supporting construction. As will be noted, the foregoing forecasts are those of worldsteel. The forecasts are, of course, subject to internal or external factors in the regions described.

Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n Manufacturing Outlook /December 2023

AUTOMOTIVE OUTLOOK

DECEMBER 2023

AUTOMOTIVE OUTLOOK By Lawrence Makagon Bad Days At GM When a company of the size and stature of General Motors runs into what might be termed difficulties, then the people holding the really responsible positions in that company have to skate their way through them. As Bloomberg recounts, near the end of October, after announcing earnings that were really quite good, there was strike action, with thousands walking off the job. The UAW union quickly picked up on this, and 5,000 workers walked off the job at GM’s largest factory in Detroit. The union leaders decided that the earnings meant that GM could afford a generous settlement. And settle generously it did. But bad news rarely comes in small doses. Next, GM scrapped its targets to produce 100,000 electric vehicles in

32 Manufacturing Outlook /December 2023

the second half of this year, and a cumulative total of 400,000 by the first half of next year. There is as yet no further word as to when it expects to meet these targets. “As we get further into the transformation to EV, it’s a bit bumpy,” Chief Executive Officer Mary Barra said on an earnings call. She told analysts that GM will moderate the pace of its transition into 2025. Industry Week reports that GM’s CFO, Paul Jacobson, joined Mary Barra at a conference call, where the two reiterated the need to cut costs in GM’s processes upon conclusion of its next UAW contract. Jacobson also said the delay in completing GM’s electric truck operations in suburban Detroit will push $1.5 billion in capital spending into future

years. Work will be completed “only after the engineers have implemented improvements to the overall financials of the company’s EVs.” The slowing of EV investments is part of a longerterm strategy to become “nimbler” in efforts to find a balance between building a still-unprofitable EV business and maintaining margins in ICE vehicles. GM is developing various cost-cutting programs that Barra and Jacboson say will total $2 billion by the end of next year. But they say more will need to be done, including vehicle design and engineering, as GM seeks to simplify its operations. Jacobson likened that work to “a mindset that’s more conducive to software,” where product and process changes are pushed through more regularly, and continued

AUTOMOTIVE OUTLOOK said higher labor costs from the next UAW deal will need to be similarly addressed. “We’re going to have to look at efficiencies across the board,” he said. “We’ve got some work cut out for us but we’re committed to making it work.” GM is talking here about “simplifying its operations” through cost-cutting programs. And only after the engineers have implemented changes to improve the overall financials of the company’s EVs. These programs will take a long time to complete, and it is to be hoped that GM takes a long, hard look at the necessity for a strong engineering and quality control presence. Then there’s the problem with the autonomous Cruise. California saw a woman hit by a car and dumped in front of a Cruise robotaxi that pulled to the side of the road and dragged her some 20 feet at speeds up to 7 m.p.h. according to the DMV. The DMV claims Cruise didn’t disclose video of the pullover maneuver when the company shared the footage with officials on Oct. 3. The agency said it learned what happened from the

U.S. National Highway Traffic Safety Administration, which has opened up a preliminary defect investigation. The DMV said the company’s omission hinders its ability to evaluate the safety of its autonomous vehicles. Cruise disputed this recounting of events, saying it showed the full video to DMV officials several times on Oct. 3. A DMV spokesperson said the agency stood by the facts laid out in its order of suspension, which is open-ended. The bottom line here, as reported by every news service with a license, is that GM has grounded the Cruise nationwide, following its suspension. For GM, on many fronts, the future is one big challenge. There again, Elon Musk is talking about cost cutting that he describes as “ruthless.” IPhone, EV: What’s the Difference? Foxconn makes two out of every three IPhones, on an outsourced basis. Now it’s looking at going into the EV business, on the same basis. Foxconn bought the Lordstown Motors plant in Ohio last year for $230 million, before it went bankrupt. Right now

the only EV coming out of that plant - renamed Foxconn Ohio - is a Monarch tractor. Electric cars are presently taking up much of CEO Young Liu’s attention. As well as the site in Ohio, Foxconn is building an EV factory from the ground up near Bangkok in Thailand, and may also do the same in India, the Middle East, and eventually Europe. Global smartphone sales aren’t sparkling the way they were, and Liu is pushing Foxconn into bigger markets that can fuel future growth. Goldman Sachs says the EV outsourcing market could be worth as much as $144 billion by 2030. Apple has had a car project under wraps for pushing a decade, and Foxconn would be near the top of the list to build such a vehicle. Before this Lawrence Makagon, happens, Foxconn Staff Writer needs to prove it has the know-how and the supply chains to go forward with such a project. Liu is confident that Foxconn can do for cars what it did for iPhones and other gadgets. n

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Manufacturing Outlook /December 2023

CYBER SECURITY OUTLOOK

DECEMBER 2023

CYBER SECURITY OUTLOOK Deciphering the Code: Top 9 Cybersecurity Acronyms Explained By Ken Fanger, MBA, CMMC-RP, President, On Technology Partners In the realm of cybersecurity, acronyms are the signposts that professionals and the average person alike encounter. The industry’s fondness for abbreviations often leaves those unfamiliar with the cybersecurity world confused, making ‘cybersecurity acronym explanations’ a popular search trend. To navigate this shorthand, here are the top 10 cybersecurity acronyms and what they mean, so you can stay on top of the cybersecurity game: 1. VPN (Virtual Private Network) VPN stands for Virtual Private Network. It’s a service that encrypts internet connections, ensuring that your data travels on a secure pathway. They’re often used to protect remote work setups and personal privacy online.

34 Manufacturing Outlook /December 2023

2. MFA (Multi-Factor Authentication) MFA, or Multi-Factor Authentication, is a security tool that requires more than one method of authentication from independent categories of credentials to verify the user’s identity. The common one is a username and password, followed by a numeric code sent to the users cell phone and entered as the second step. 3. IDS (Intrusion Detection System) An Intrusion Detection System (IDS) is a monitoring system that detects suspicious activity on a network or system. It’s often searched with IPS (Intrusion Prevention System), indicating a proactive approach to cyber threat defense.

4. IoT (Internet of Things) The Internet of Things (IoT) refers to the ever-growing network of physical objects that feature an IP address for internet connectivity and the communication that occurs between these objects and other Internet-enabled devices and systems. 5. DDoS (Distributed Denial of Service) DDoS stands for Distributed Denial of Service, a type of cyberattack where multiple compromised computer systems attack a target, such as a server, website, or other network resource, and cause a denial of service for legitimate users of the targeted resource. 6. SOC (Security Operations Center) A Security Operations Center (SOC) is continued

CYBER SECURITY OUTLOOK a centralized location that deals with security issues on an organizational and technical level. A SOC is equipped to monitor, analyze, and protect an organization from cyber-attacks. 7. APT (Advanced Persistent Threat) An Advanced Persistent Threat (APT) is a stealthy cyber threat, usually a nation-state or state-sponsored group, which gains unauthorized access to a computer network and remains undetected for an extended period. 8. SIEM (Security Information and Event Management) Security Information and Event Management (SIEM) is a set of tools and services offering a holistic view of an organization’s information security. SIEM tools provide real-time analysis of security alerts generated by applications and network hardware. 9. NIST (National Institute of Standards and Technology) NIST is a U.S. federal agency that develops and

promotes measurements, standards, and technology to increase productivity, facilitate trade, and improve the safety of businesses online. Its framework is often searched by businesses aiming to improve their cybersecurity. Each of these acronyms plays a significant role in the vast landscape of cybersecurity. Understanding them enhances your knowledge of how to protect against potential cyber threats. With the ever-evolving nature of cyber risks, familiarizing yourself with these terms is not just useful, it’s imperative for anyone navigating the digital world, especially for businesses and individuals looking to safeguard their data. Editor’s Note: Readers are encouraged to contact On Technology Partners to learn about the services they provide for customers. Cybersecurity is only as good as the technology partner you choose to be involved in the protection of your company’s data. After years of working with On Technology Part-

ners, we consider their services and knowledge to be exemplary. This is an opinion, not an endorsement, but On Technology Partners should be in your evaluation mix. Author profile:Ken Fanger, MBA has 30 years of industry experience in the fields of technology and cyber security, and is a sought-after CMMC Registered Professional, helping manufacturers and contractors to meet DoD requirements for CMMC compliance. He is passionate about technology deployment, and his MBA in Operations & Logistics has helped him to be an asset in the designing and deployment of networks to enhance the manufacturing experience. Over the past 5 years, he has focused on compliance and security, including working on the SCADA control system for the Cleveland Power Grid. Mr. Fanger works with each client to identify their unique needs, and develops a customized approach to meeting those needs in the most efficient and cost-effective ways, ensuring client success. n

Manufacturing Outlook /December 2023

ISSUES OUTLOOK

DECEMBER 2023

ISSUES OUTLOOK By Royce Lowe Northeast Corridor, Infrastructure Law The Northeast Corridor is the most heavily traveled rail corridor in the U.S. It’s in a region that represents 20% of the U.S. gross domestic product. It runs from Boston to Washington, DC. Were it to shut down for a single day, it would cost the U.S. economy $100 million in lost productivity. But to say it’s been neglected would be an understatement. It’s seen no significant investment in generations. The corridor that exists today is the product of investments dating back to the 1830s, and many of its existing bridges and tunnels were built in the early 20th century.

Elektrek reports that the Biden administration’s Infrastructure Law, which passed in November 2021, earmarked $66 billion for rail investment – the most significant (and well overdue) investment in passenger rail since Amtrak was created in 1971. From this $66 billion Infrastructure Law budget, $16.4 billion has been allocated to pay for 25 passenger rail projects on Amtrak’s Northeast Corridor. This will involve rebuilding 12 tunnels and bridges that are over 100 years old. There will be upgrades to tracks, power systems, signals, stations, and other infrastructure. Future projects will be advanced to significantly

improve travel times by increasing operating speeds and reducing delays. The two major projects in the $16.4 billion budget are the Frederick Douglass Tunnel in Maryland and the Penn Station Access in New York City. Some 24,000 Amtrak and Maryland Area Commuter passengers rely on the Frederick Douglass tunnel daily. The 150-year-old tunnel is the largest Northeast Corridor bottleneck between Washington and New Jersey, and $4.7 billion will be spent in a phased funding agreement to replace it. The electric upgrade will increase speeds from 30 mph to 110 mph and reduce continued

36 Manufacturing Outlook /December 2023

ISSUES OUTLOOK delays on the entire Northeast Corridor. Penn Station Access in New York City will receive $1.6 billion in a phased funding agreement to repair and rehabilitate 19 miles of the Amtrakowned Hell Gate Line, including tracks, bridges, and signals. The project will increase Amtrak service, introduce Metro-North service which currently only leaves from Grand Central to Penn Station, and cut local transit travel time from the Bronx to Manhattan by as much as 50 minutes. U.S. Transportation Secretary Pete Buttigieg said, “These investments will make our busiest passenger railroad safer, faster, and more reliable, which means fewer delays and shorter commutes for the 800,000 passengers who rely on the Northeast Corridor every day.” Electrek’s take on this news: “Well, it’s about time.” Which will probably be echoed by hundreds of thousands of commuters. Electrek continues, “Amtrak trains on the Northeast Corridor emit up to 83% less greenhouse gas emissions than car travel and up to 72% less greenhouse gas emissions than flying. More people will take trains if already-cleaner train travel becomes more efficient, faster, and more frequent in the Northeast. Plus, you can only electrify with the infrastructure to support it.” The Infrastructure Law included other measures, many concerned with atmosphere decarbonization. The first-ever U.S. investment in electric vehicle charging stations, $7.5 billion, was allocated. Unfortunately, this was only half what President Biden wanted to build a national network of 500,000 charging stations. The U.S. currently has about 160,000 charging outlets. There is $73 billion to build a stronger electric grid. This means money for “thousands of miles of new, resilient transmission lines to facilitate the

expansion of renewable energy, including through a new Grid Authority,” according to a White House Fact Sheet. There is $7.5 billion for zero- and low-emission electric buses and ferries. Passenger and freight rail gets $66 billion, less than the $80 billion Biden wanted. The White House posted on July 28: The deal invests $66 billion in rail to eliminate the Amtrak maintenance backlog, modernize the Northeast Corridor, and bring world-class rail service to areas outside the northeast and mid-Atlantic. Within these totals, $22 billion would be provided as grants to Amtrak, $24 billion as federalstate partnership grants for Northeast Corridor modernization, $12 billion for partnership grants for intercity rail service, including high-speed rail, $5 billion for rail improvement and safety grants, and $3 billion for grade crossing safety improvements. According to the same fact sheet, roads and bridges will receive $110 billion. “This investment will repair and rebuild our roads and bridges with a focus on climate change mitigation, resilience, equity, and safety for all users, including cyclists and pedestrians.” Environmental remediation: $21 billion to clean up Superfund– polluted locations in the U.S. requiring a long-term response to clean up hazardous material contaminations and brownfield sites, reclaim abandoned mine land, and cap orphaned gas wells. Superfund is the common name given to the U.S. law called the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA. Superfund is also the trust fund set up by Congress to handle emergency and hazardous waste sites needing long-term cleanup.

The Infrastructure Law Missed Out On Several Items Electric vehicle tax credits: Biden called for $100 billion in government subsidies for electric vehicles, and that issue was addressed in a larger separate funding bill. “In May, a Senate panel advanced legislation to boost electric vehicle tax credits to as much as $12,500 for EVs that are assembled by union workers in the United States,” reports Reuters. The electric vehicle tax credit has been renamed the clean vehicle tax credit, and credits will vary by car model and income. There are also credits for used vehicles. The maximum credit is $7,500. Electric vehicle charging stations, part 2: Funding to back a further $7.5 billion in low-cost government loans for charging stations through an infrastructure bank was dropped during negotiations. Electric school buses: American Lung Association national president and CEO Harold P. Wimmer expressed disappointment in the $2.5 billion for zero-emissions school buses when $20 billion was originally proposed by President Joe Biden. This funding would only be good for transitioning a small percentage of the country’s diesel school buses to zero-emission electric buses. A $20 billion investment will transition onefifth of the buses to zero-emission. An overwhelming majority (68%) of Americans, across all demographic groups, support the idea of the $20 billion investment. There’s no doubt there’s a lot of work here, good work. This will be good for industry, and employment. Author profile: Royce Lowe, Manufacturing Talk Radio, UK and EU International Correspondent, Contributing Writer, Manufacturing Outlook. n

Manufacturing Outlook /December 2023

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