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2024 is here and the materials/manufacturing sectors are in a position to have a great year. Below is some commentary from one of our favorite investors and then a deep dive into some macro economic themes that will drive the US manufacturing sector this year.

What the numbers say...

Now, let's dive into the ISM Purchasing Manager Index (PMI) and what it tells us. If you're not familiar with the PMI, it measures the level of demand for products by analyzing ordering activities at the nation's factories (Investopedia).

Looking at historical trends, we can observe that a reading of 47 has become the crucial "support line" to monitor. Currently, the index shows a downtrend, indicating a contraction in manufacturing in America. However, breaking above a 50 reading would signify month-over-month expansions in the US manufacturing sector.

By examining the forward-facing trend in the first chart, combined with recent index data and other economic indicators, it appears that the manufacturing sector in America is undergoing a bottoming process. With a strong push forward, assuming the trend holds, we anticipate a promising year for the materials and manufacturing industries in the US.

ISM Purchasing Manager Index - 5 year view with forward facing trend

ISM Purchasing Manager Index - 10 year view with "47 Support Line"

ISM Purchasing Manager Index - Max view year

Where do rates come into play?

The US rates market has experienced significant volatility recently, as the probability of rate cuts has been slashed by half within just one week. This sudden change in circumstances can be attributed to a stronger than anticipated job report, which amplifies the ongoing narrative of a tight labor market in America.

Fed Terminal Rate trend path based off of predictive markets.

The higher for longer narrative is now clearly over. The current question is not whether the Fed will cut rates, but rather how many times they will cut and when they will start. At this moment, we are still on pace to cut roughly a point based off of the predictions market.

As we closely monitor various aspects of the economy, including the labor market and the lingering effects of the shipping container delays caused by the Red Sea attacks, a clearer picture of the impact on interest rates will emerge.

The Set Up

On the tails of the rate cuts and the bottoming of the PMI, the US Manufacturing economy is set to seize this moment as money will flow out of treasury's and other safe assets back into the economy. Commodities will be one of the initial locations that this flow of funds leads to.

So, how can a company truly take advantage of this opportunity?

The answer lies in one word... technology. And I'm not just saying this because we happen to be a technology company perfectly equipped to propel your materials/manufacturing business forward during the potential boom of 2024.

US Labor Participation vs. US Labor Productivity Rate since 2000

The chart provided by depicts the fascinating correlation between the US Labor Participation Rate and the US Labor Productivity Rate since 2000.

It is intriguing to observe that while labor participation has declined over the past two decades, productivity has experienced a rapid increase.

How did this remarkable shift occur? Once again, the answer lies in technology.

With the current advancements in generative AI and automation, it is predicted that the US Manufacturing sector will face a shortage of over two million workers by the end of 2025. However, we firmly believe that this gap can be bridged, allowing the productivity climb to persist.

Our vision is for US manufacturing to reclaim its former glory by embracing technology as a means to drive onshoring. By utilizing technology to bridge the knowledge gaps required to enter the industry and, most importantly, by empowering more individuals with the tools for creation, we can propel GDP growth.

If you want to position your materials business for growth in 2024, claim your account here.

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