Amid disappointing manufacturing figures, one bright spot emerges

This week, new figures on manufacturing showed that industrial production fell in January (while economists were expecting an increase), and December’s figure was revised down. Bad winter weather was a factor, and high interest rates and weak overseas demand likely contributed as well.

While manufacturing overall fell nearly 1% from January of last year, there is a bright spot, however: high tech manufacturing, like of semiconductors and circuit boards, rose by more than 20%.  

“It’s not a blip,” said Mark Zandi at Moody’s Analytics.

Demand for chips is booming starting with the auto industry, he said. “Production is steadily rising globally. And, of course, then there’s AI.”

Meanwhile, the government is spending tens of billions to build new chip factories, most of which aren’t producing yet, said Ned Hill at The Ohio State University’s Manufacturing Institute. 

“These are very large, complicated plants to design and build,” he said. “There’s also a long lead time to buy the equipment. So these plants are going to roll out over a two-to-five-year period.”

Now, this alone won’t jumpstart U.S. manufacturing. Semiconductors make up less than 0.5% of GDP, noted Paul Ashworth at Capital Economics. 

“So although it’s growing at a very rapid pace, it doesn’t do much, even to boost manufacturing overall,” he said.

But that’s beside the point, Moody’s Zandi said: “This isn’t about jobs; this is really about national security. We had to bring some of that chip production back home.”

Right now, most semiconductors are produced in Taiwan — and they’re crucial for everything from defense equipment to personal computers.