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US Manufacturing Slowdown Leads to Workforce Cuts

American manufacturers are facing a series of hurdles to continued growth, including lower demand and rising costs.
Blue car on assembly line in modern factory with overhead conveyors and bright lighting, featured in an article on US manufacturing slowdown.

US Manufacturing Slowdown Leads to Workforce Cuts

American manufacturers are facing a series of hurdles to continued growth, including lower demand and rising costs.

Together with

Good morning. American manufacturers are facing a series of hurdles to continued growth, including lower demand and rising costs, which have impacted production and led to plenty of workforce cuts.

Today’s issue is sponsored by Agrippa — a broker-free, AI-powered platform that strategically connects commercial real estate capital seekers with capital providers.

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Market Snapshot

S&P 500
GSPC
5,436.44
Pct Chg:
-0.50%%
FTSE NAREIT
FNER
782.61
Pct Chg:
+0.86%
10Y Treasury
TNX
4.141%
Pct Chg:
+0.001
SOFR
1-month
5.34%
Pct Chg:
0.0%

*Data as of 7/30/2024 market close.

Factory FADES

America’s Post-Covid Factory Boom Is Running Out of Steam

As the post-pandemic manufacturing boom fades, companies are cutting jobs and reducing production due to falling orders and rising inventories.

What happened: Major manufacturers, including Deere & Co. and Agco, are downsizing their workforce. Deere has shed 2,100 production workers since November, and Agco plans to cut 6% of its salaried staff. Companies like Polaris and Whirlpool are also adjusting production as demand wanes, citing weaker-than-expected retail performance and a sluggish housing market.

Economic headwinds: Several factors are dampening factory activity: higher interest rates, increased operating costs, a strong US dollar, and falling commodity prices. The rapid sales and profit growth seen during the pandemic, fueled by consumer spending on durable goods, has given way to a more cautious environment. For example, steel prices have dropped significantly, reflecting reduced demand as buyers anticipate further price declines.

Zoom in: Despite some positive signs, such as higher spending on durable goods contributing to stronger-than-expected economic growth in the second quarter, overall factory output grew at a slower pace in June. The automotive sector, particularly electric vehicles (EVs), is experiencing softer demand, leading some manufacturers to reduce EV production and shift focus back to internal combustion engine vehicles.

➥ THE TAKEAWAY

Why it matters: As the initial post-Covid manufacturing surge wanes, the industry is confronting a reality check. Companies are scaling back in response to a complex web of economic challenges, from fluctuating commodity prices to a stronger dollar. While some sectors may find opportunities in government spending and defense contracts, the overall landscape suggests cooling.

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✍️ Editor’s Picks

  • Follow the leaders: Cushman & Wakefield’s (CWK) Q2 profits surged to $13.5M from $5.1M YoY, and the firm foresees more sales growth after upcoming Fed rate cuts.

  • Bottom’s up: Alternative property sectors saw a 34% drop in sales volume during Q2, with $8.6B in investment volume.

  • Avoiding a crisis: Despite warnings of potential issues from maturing CRE loans, small and regional banks have largely weathered the storm, with few bank failures in 2024.

  • Uneven growth: While some Southern cities are booming economically, many states in the region remain among the poorest in the nation.

🏘️ MULTIFAMILY

  • Rent rises: Chicago rents rose over $120 from March to June, reaching $2.2K per month, which is considered affordable if residents have an annual household income of at least $88K.

  • Student housing surge: Muinzer acquired over $250M in student housing near Purdue University, 99% pre-leased, as US multifamily sales decline.

  • Lead paint limbo: A NY landlord lawsuit challenges the city’s lead-testing system after a private lab disputed a $27K lead abatement, impacting landlord rights and property costs in the city.

🏭 Industrial

  • Missed expectations: Digital Realty’s (DLR) Q2 revenue dropped by 0.7% YoY to $1.36B, missing expectations, with shares dipping to $145.65.

  • Rural revolution: Amazon (AMZN) expanded its ultrafast delivery to rural US destinations, targeting 90% coverage. The e-commerce giant is also delivering more of its own packages now.

  • Bigger in Texas: Microsoft (MSFT) plans to build a $482.6M, 244.7 KSF data center in Castroville, TX, scheduled for completion in early 2028.

🏬 RETAIL

  • Record-breaking retail: Consumer spending boosts retail occupancies to record lows, with multi-tenant vacancies hitting an all-time low in March.

  • Seizing opportunity: Blackstone is considering the acquisition of Retail Opportunity Investments Corp, a retail REIT with a focus on shopping centers, following a significant drop in its stock value.

  • Retail roundup: Orion Real Estate Group bought a $50M retail net lease portfolio covering 94 KSF in 5 major US markets.

  • Meteoric expansion: Nick the Greek expands rapidly, with plans for 25 new locations in 2021, aiming for 100 total by 2024.

  • Fast food fallout: McDonald’s (MCD) sees global sales slip by 1% in Q2, Ronald’s first decline in 13 quarters, although MCD shares are up 4% on the success of $5 meal combos.

🏢 OFFICE

  • Tech boom: Flint, MI, leads emerging tech hubs across the country with 114% growth in high-tech wages, followed by Brownsville, TX, and Racine, WI.

  • Bay Area bargain: SoCal investor BH Properties aims to acquire a San Francisco office for $13.5M, an 80% discount from a decade ago.

  • Unlocking growth: Sun Belt real estate trust executives are ready to increase their investments in high-end offices due to compelling opportunities currently available.

📈 CHART OF THE DAY

According to RealPage Analytics, most of the US metros expected to lead the market by the end of 2024 have limited supply pipelines and consistently strong demand. Specifically, Cleveland, Cincinnati, Columbus, and Chicago have seen significantly more rent growth than the rest of the nation.

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