Be Careful What You Wish For; Why The Re-Industrialization Of America Is Bad For Stocks

Tyler Durden's picture

Jobs; it is all about jobs; and yesterday's dismal payrolls print suggests that despite the orgasmic flourish of monetary policy (and fiscal deficits), things are not going so well. However, the clarion call for a pending manufacturing renaissance continues; the hope remains high that with just a little more time and little more money, we will revert to some pre-crisis utopia and the re-industrialization of America will begin. Be careful what you hope for is the message from Morgan Stanley's Gerard Minack who warns that this 'reindustrialization' is bearish for stocks. The biggest medium-term issue for equity investors is whether current high profits can be sustained. One factor boosting margins was the Asian-led surge in global labour supply, which squeezed returns to labor and boosted returns to capital. This was particularly pronounced in America. Reindustrialisation implies that this process has run its course, suggesting that returns to capital will revert to normal over the medium term. Most see the prospect of America reindustrialising as bullish, but reindustrialisation may reverse the current mix: Economic growth may improve, but margins worsen.


Via Morgan Stanley's Gerard Minack,

Reindustrialization Risk

The reindustrialisation of America, if it occurs, will likely be bearish for US equities. The biggest medium-term issue for equity investors is whether current high profits can be sustained. One factor boosting margins was the Asian-led surge in global labor supply, which squeezed returns to labor and boosted returns to capital. This was particularly pronounced in America. Reindustrialisation implies that this process has run its course, suggesting that returns to capital will revert to normal over the medium term.

Most see the prospect of America reindustrialising as bullish. In my view, that depends on whether you are an economist or whether you are an investor. The ‘deindustrialisation’ of America was bad for economic growth, but the increased global supply of labor lifted margins and total profits. The effect of wider margins on profits far outweighed the effect of two weak US GDP cycles (the cycles following the 2001 and 2008-09 recessions). Reindustrialisation may reverse this mix: Economic growth may improve, but margins worsen.

The first point to note is that America hasn’t really deindustrialised. America remains the world’s largest manufacturer measured by value added (Exhibit 1).


Manufacturing has been falling as a share of GDP in most developed economies. The decline in manufacturing’s GDP share in the US is not out of line with the decline elsewhere in the G7 (Exhibit 2).

These are trends that pre-date the rise of Asia as a force in global trade. Manufacturing’s share of US GDP and profits has been declining since the early 1950s (Exhibit 3).

To be fair, those shares were unsustainable: They reflected, in part, the windfall to America from set-backs to several large competitor nations in 1939-45.

Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.

The second point to note is that the fall in manufacturing profits over the past 25 years has been more than offset by rising profits in other US sectors (Exhibit 4).


Importantly, that offset was in large part due to an economy-wide squeeze on labor compensation.

As I’ve discussed before, one of the most important trends in the US has been the declining wage share of GDP. This decline was due to several factors, but the increase in global labor supply was clearly critical. What has been peculiar to the US, however, is that consumer spending remained strong in the face of declining wage income share (Exhibit 5).


This combination accounts for most, but not all, of the increase in profit share seen over the past 25 years. The increase in global supply of labor put structural downward pressure on the domestic price of labor in the US. Consequently, returns to capital have disconnected from the relative domestic supply of capital and labor. Exhibit 6 shows how the profit share historically tracked the relative utilization of American labor and capital. (The former is measured by the unemployment rate; the latter measured – admittedly imperfectly – by the Fed’s series of industry-wide capacity utilization.)

The final point to note is that the expansion in margins was a far more important driver of profit growth than the (relatively) minor reduction in trend sales growth. As a matter of arithmetic, margin expansion has accounted for half the growth in domestic profits over the past decade (Exhibit 7).

More importantly, the effect on sales of squeezing labor income was largely offset by the declining household saving rate (which explains much of the widening gap between spending and labor income shown in Exhibit 5). Looking ahead, reindustrialisation could contribute to these trends reversing.

On that basis, reindustrialisation would be bearish for equities.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
ebworthen's picture

Just wait, the corporatocracy will find a way to hire people at $8.25/hour with 29.5 hours per week.  No healtcare and no other benefits.  FoxConn U.S.A.

Skateboarder's picture

A year without healthcare for every hour of angry (wait a tick, why aren't these called terrorist!) birds you have played in your life.

Vampyroteuthis infernalis's picture

The white trash dream lives on, spend more than one can make...

More importantly, the effect on sales of squeezing labor income was largely offset by the declining household saving rate

whotookmyalias's picture

LOL, the readers of this site know better than to use the stockmarket as a measure of goodness.  Re-industrialize and let the market suffer. It will be better overall for the average citizen.

Boris Alatovkrap's picture

Must build industrial base at home! So Boris is purchase EDM Cutter and CNC Mill. Tight fit in living room so is move son bed back into bathroom/laundry.

Now just is need customer...

WTFRLY's picture

Yes and soylent green when the food production grid collapses. The US will be living in Demolition Man...

Unpopular Truth's picture

Have you ever tried to start a business?

Healthcare cost is a killer. The employer is thinking of staying in business, and will obviously try not to pay for healthcare.

Obamacare agrees! The penalty for not providing it is smaller than the cost of providing it. Obama wants to be the one to provide it; NOT the employer to provide it.

Can we think about the larger question:

Health care is a commodity, like food, housing, cars.

Democrats, Occupy Wall Street, and the 47% should be thinking it should all come from the government. FINE!

Republicans, Tea-partiers should be thinking we should each buy our own. FINE!

Either way, sticking the employer with the cost just kills jobs - which hurts all of us. The way we have always done it (from the employer) is a distraction.


thisandthat's picture

Might as well title this piece "The Case For Slavery", or "Why The Re-Enslaving Of America Is Good For Stocks" (that hard to figure out why? aka, wasn't that the whole point of delocalization/globalization?).

ghandi's picture

god forbid American workers get a decent salary.

Bobbyrib's picture

There is no room for that between rising CEO bonuses, Bernanke raising the cost of living, and our labor pool being "overcrowded." I would have to say that everyone should find a way to provide your own income or you will be underpaid for your work. Working for someone else is the pits.

debtor of last resort's picture

How a decent worker became a Double Beggar.

ajk24455's picture

Yeah we can't let the market go down.  Screw capital investment!  There's got to be something left to financialize and keep the party going for a few years. 

rtalcott's picture

What is this labor everyone talks experience in high volume high tech US manufacturing is that DL ain't shit to product costs.

q99x2's picture

Long fraud short reality.

Skateboarder's picture

If you ever meet an asshole who identifies himself as "management," strike the motherfucker in the jaw. If you are that asshole, a pox unto you. Can't do real work? Sorry buddy, you won't get to participate when we rebuild our world again. No more middlemen. No more middlemen. No more middlemen.

r3phl0x's picture

Nope, not likely. Rather than hire a large US labor force - manufacturers will replace Chinese labor with US robots. US labor still fucked.

Cognitive Dissonance's picture

The only hope for (continuing stock) profit growth is the re-re-refinancialization of America, not re-industrialization.

(Moar Ponzi please.)

disabledvet's picture

I think there should be a "living will" this time which fully explains to all "who still consider themselves sentient" how "we're gonna take down the country...and the WORLD!" this time. And I would ask for it in detail such that I could an art critic..."just how good you did it again this time."

RockyRacoon's picture

... re-re-refinancialization of America...

Give 'em time.  They are working on it.  You are just not patient enough.

Cognitive Dissonance's picture

Hi Rocky,

Mrs. Cog and I just got back from a week of cleaning and repairing the Plan "B" homestead. I was most impressed with the fact that Mrs. Cog out worked me on all fronts. However it's nice to be back home, though it won't be "home" for much longer. 

<Regarding Mrs. Cog's work ethic.........nice to see the mind control techniques still work.> :) 

PS: Mrs Cog and I were wondering what kind of welding project you're working on.

RockyRacoon's picture

Glad to hear the furnace work didn't blow you to smithereens.   I was getting prices on a custom built metal bulkhead/door for a foundation opening and the best price was about $600+ (it's about 4X4 feet square).  I figgered, what the hey.  I can do this.  Never welded in my life but I know some folks who are good at it if I get stuck.  For what I would have spent on a door I could end up with all the tools AND the experience to boot.  I'm an adventurous coon in that respect.  We shall see...   If you don't hear from me you'll know it didn't go well.  Told the wife to be on the lookout for the smell of burning hair.

Cognitive Dissonance's picture

The Heatmaster 5000 and I bonded right out of the gate. Speaking of burning hair I'm presently missing half of my left eye brow and a "U" shape portion of my front hair from a severe case of singe.  :)

I have jumped into many different projects in my life simply because the cost estimate came back greater than I expected. So I understand completly. However those AC welders can do a whole lot more than just burn some hair. Stand in a puddle of water and grab the business end while it's turned on and tell me if you like the tingle. Good luck bro.

RockyRacoon's picture


Thanks for the heads-up on the stupid stuff I should look out for.

Picked me up one of those aerosol fire extinguishers whilst I was out the other day.  All I gotta do is turn the nozzle 180 degrees and I'm fine!

Fuh Querada's picture

What Re-industrialization?

Yours, I Robot

LoCicero's picture

The fix is in already - what do you think "Immigration Reform" is all about?

Immigration Reform = Amnesty = Wage Arbitrage = Stagnant Wages/Salaries = Profit Growth = Bullish for Equities = Campaign Contributions

The political class and CEOs are no longer your countrymen; they don't care that the middle class has been destroyed.  See How The Economy Was Lost by Paul Craig Roberts

TimmyB's picture

It's worse than that. Corporate America will be allowed to bring in "guest workers" to help drive wages down even lower. So if jobs do come back, overseas workers can follow them here too.

And of course these "guest workers" won't have the same rights as U.S. citizens, so they will work here under the same shitty conditions they have at home. Just what we all need, competition for jobs from legal slaves. Let the good times roll.

yatikto's picture

and the "citizens" will collect welfare checks, as the "guests" work.  nice system.  will see how long that will last.

I am curious about the high efficiency of production per capita and its relation to unemployment.

have we reached paradise?

hooligan2009's picture

economics interpreting facts? problem with data representations of this sort is that you need to rehash the source data into your own preferred logic in order to put a different interpretation on what has actually happened. seems to me (opinion) that in much the same way that religion evolved into government based on "economics", countries have now evolved into populations exisiting within arbitrary boundaries, that bears no relation to the scope of the populations to reach beyond the boundaries. government attempt to confine (emprison) populations by imposing taxes and by rewarding populations (with welfare benefits) to be sedentary, thus capturing their votes. 

the charts above completely miss this point. (again) intuitively, consumer spending dominates the economy and is fuelled by imports that are sold in places like Wally World. consumers dont need the output of heavy industry; rather, they consume the products of light manufacturing and agriculture. that is why there is an apparent maintenance of US industrial output in the charts. 

the charts show that manufacturing out in the US delcined from c.25% of gdp in 1970, to 15% of gdp in 2010 (three years ago, so its not even up to date), the analysis proceeds to talk about consumer spending and worker compensation and glosses entriely over the distortion to the economy from the activities (profits and remuneration) of the financial sector (see the plunges and recoveries). there is no mention of the loss in gdp had manufacturing not been resited overseas, nor the loss in tax revenue, livign standards and of course the need to become increasingly indebted at the consumer and government level to replace the loss of productive capabilites. allowing taiwan, singapore and hong kong to outcompete the US in terms of technology and brains is a seismic failure of govenment.

of course, banks/brokerages such as morgan stanely are engaged in diversionary tactics and propagands and seek to distort "truth" by polarizing arguments in areas where they cannot lose (more business either way). 

bleh..shame that macro "economics" is still being hijacked by the banking sector. i would have hoped that global corporates based in the US and its universities would have been more "progressive" in providing answers for voters who, in turn, could elect politicians with a different agenda, rather than one trapped in the last century.



trader1's picture

the cure to our ills is a "religious experience"

hooligan2009's picture

well for myself, when the markets crashed in 1987, i thought it was time to get a paper qualification (left school at 16 to get a real job before my friends graduated university and took them). i thought about a CFA, but instead chose an MBA, with a view to making sure I had a sufficiently broad range of skills to start a business. funny how "common sense" can be revealed or learnt by trial and error.

anyway, in the company management module, there was a component on leadership. the thesis was that leadership styles could be "transformational" or "transactional".

obama was elected (opinion) because he held himself up to be a transformational leader. "yes we can". unfortunately for anyone who voted for him, he has reverted to type and its very much a case of "no he can't" right now. leadership failure. lame duck president after just a few months, already looking to take as much from the public trough as he and his wife can get. heaven forbid that the rewards would come after doing the right thing as a result of gratitude from an improved nation.

it would not take much to dismantle the banks into their operating divisions and float them off on the stock market. it might even be exciting. it would not take much either, to concoct a think tank to come up with ideas and plans to put in a 21st century infrastucture (ranging from healthcare to roads to energy) and have it tested by the public (universities, companies, individuals, blog sites etc). these ideas are not political, they track back to common sense, personal involvement and "yes we can" attitudes. 

mobilization is what will "rescue" the country, mobilization around the common sense of improving infrastructure. this in turn will facilitate the creation of value more "effectively" than other, competing, countries.

religious experience? well i view religion as transactional; it dies as soon as it is "invented". 

transformational leadership by the 435 + 100 + 1 (plus the judiciary) is the answer to a problem that is slowly turning the country into a failure to harness the true wealth available from common sense.

(if only the military was back home, and just half the money (back to bush one levels) was redeployed into infrastructure..oh well.. c'est la guerre


trader1's picture

religious experience? well i view religion as transactional; it dies as soon as it is "invented". 


everything is "invented" in our mind.  now let me have some fun with you ;-)

postulate: religion is a belief or set of beliefs that drives what you think, see, hear, feel, and do.  in other words, religion is like a 6th sense, or the one which transcends the other 5 senses.  religion is how our consciousness and self-awareness try to reach equilibrium or stasis.

you just described a religious experience that you had after the 1987 crash.  

religion is above the transactional level; it is transcendental.  beyond what determines your thoughts/actions/sensations to a single event or series of events, religion forms the core of who we think we are, how we view others and the world around us, and our relationship to the infinite universe/cosmos.  in other words, religion is the who, what, when, where, why, and how of transactional accounting.   

atheism is a religion.  it takes a lot of faith to not believe in god, that which is unexplainable in our terms and what transcends the origin, the now, and the future of the inifinite universe / cosmos.  

even not believing in anything is a religion, because one has to try very hard to believe in "nothing".  if that's the case, then the only logical option is to commit suicide.  

hooligan2009's picture

hmmm..ok..i can agree that you could term the choice I made in 1987 as (in religious terms) an "epiphany". my feelings at the time were more akin to the need to survive in a changing world. at the time I had not concept that events such as 1987 were "de rigeur" rather than what I now know is that "shift happens"!

i can see enormous value in the rituals of religion covering births, deaths, marriages etc..but there is a reason that there is no celebration of divorce or abortion in a is in denial that these events occur at all, so in that sense religion does not encompass the scope of all transactions that all of us face in a "normal" life.

i think uou are confusing the value of belief with the value of enjoyment when you offer suicide (presumably painless suicide) as a logical option. i enjoy many things in life that have absolutely nothing to do with a belief system. i like sex, watching sport (used to participate, but just a bit too old now), the antics of kids and my perosnal favorite...watching otters!! 

so no i am not a manic depressive agoraphobe that needs religion (buddhism, monotheism, jedi knightism, marxism, keynesianism, socialism, MBAism) to enjoy the gift of life..

i haven been fortunate enough to achieve independence of thought without the pressures that go along with cubicalism or dealingdeskism. i do enjoy trading (even being wrong and stopping out).

shift happens and love otters!

how about you?

i am spartacus.

trader1's picture

that was a well thought-out reply.  

you've got a great religion, and you don't even know it.  

for lack of a better word, let's call it spartacanism!

karzai_luver's picture

horse shit of a post..........


Margins anywhere have more to do with the funny money benny and the inkjets roll than any labor issue.

Labor cost is almost beside the point.


If you have chinese demand you will have chinese style gvt and economy.


You don't want that here unless you like to eat your soup straight out of the chicken river.

DO these posters ever get out from their cubes?



NoWayJose's picture

There won't be any re-industrialization in the US until the entire globe suffers a debt-triggered economic collapse. It might happen but in the meantime, why would any company create jobs in the US with all the environmental regulations, forced healthcare costs, and ever increasing taxes? Even if you overcome those things with cheap Bernanke Bucks, the same devalued dollar makes all your raw material costs shoot sky high. The only jobs in 20 years will be low paid part time service jobs, a few high paid specialty jobs that can compete in the global economy, or similar specialty jobs that cannot be done overseas or by robots - such as healthcare, plumbers, electricians, etc

Theosebes Goodfellow's picture

You're right about any re-industrialization until everybody everywhere suffers a collapse, though you presume much about what jobs there will be and about the state of any "global" economy. Healthcare, plumbers and electricians will always eat, as will any who are actually producing real wealth. As Douglas Adams pointed out though, "phone sanitizers, third class" will probably become extinct. (Actually he said they'd inherit the Earth, but I digress.)

The world economy, (and the US Dollar), will work, until it doesn't. How one fairs once that happens will be determined by how much stored real value one has, how much food you have available and whether or not one has the means to retain the first two. Invariably one's world will become much smaller and more localized. Plan accordingly.

Bobbyrib's picture

Your name is very relative, because when you speak of the name "Jose" that is who is taking jobs as plumbers, electricians, and to a lesser degree so far healthcare (nurses). There is no country left, if TPTB pick a conflict they want the US to engage in, I'm out faster than a fat kid playing dodge ball. If the 1% starts to understand the concept of country my feelings will change, but we both know it won't.

MedicalQuack's picture

This really the nail on the head when it comes to stocks and US Consumers.  I just took the Verge article about questioning the JOBS act and it's no so good success so far.  Look at Goldman modeling it and finding out they can play in here and get some pretty lucrative benefits of no questions asked for 5 years to enable investments on high risk companies. 

The big guys move in all the time and stick it to the little guys. They really don't want the small folks in here, you are right.

As a small person and blogger I can relate and I had to go through some efforts to try a little source called GoFundMe.  It took banishing any pride I had with others perception to put a campagn on there as my Mother now has cancer and a little help for medical bills.  Well when I looked further I didn't feel so bad as there's Hollywood actresses and more with campaigns raising money for cancer treatments, and more.  So is this where crowd funding goes for us little folks? 

I mean I'm glad it's there but geez...the big guys come in and just take over with their models and algorithms every chance they get to make it harder and it may look like it's front to help the little guys, but it's a shell.  I don't understand why our government can't see through some of this.  I guess we are the new peons out there to control and manipulate with the use of data.  Data selling is contributing to a big part of this problem too.  Why in the heck does Blue Cross needs to be buying our Master Card and Visa records to identify if we are now buying clothes one size larger?  Hey we are not dumb and we know how addicted they are to data and risk assessments and they love to add as much data as they can, but the consumer has to be treated with some dignity here and ethics are being crossed.

I have tons of articles with insurers using analytics unethically and they will continue to do that if nobody says anything.  In addition with buying our purchasing records who knows what queries they will come up with next beyond buying a larger size wardrobe.  We have HHS telling developers to "hurry up" with software, prime example of the wrong person in the wrong job, not enough knowledge on how long processes take and the expense and even Health IT vendors laughed at that one and the sad thing is they don't realize who's laughing at them either. Here's the big mHealth dispute...what a joke with government and others thinking all this grows on trees.

You are right on the money here with re-industrializaiton of the US, as companies want peons making as little as possible here.  Here's how they run their "code for cash" developer programs with paying little or nothing for developer talent.  Develop for our platform and we'll give you a few bucks and even if you are not a winner we might by your computer code for cheap too.  It's total data manipulaiton for stock profits.



GeezerGeek's picture

Your lament that "I don't understand why our government can't see through some of this" assumes something that may not be true. Why not ask why the government acquiesces to these things? What makes you think the government is on the side of the little guys and not the TBTF crowd? What makes you think the government isn't the enemy of the people and a protector of the elites?

Time to rethink your assumptions. Ever since the founding of the republic, manipulation of the government to enrich the few has been common. Sometimes it also helped the rest of us, sometimes it didn't. And if you don't think that Blue Cross should be buying your credit card data, try using cash. 

Mark Noonan's picture

Yes, re-industrialization would be bad...for operators of the Wall Street Casino.  For actual investors who seek a long term, steady profit (rather than ever increasing - by quarter! - profits which leads to bubbles and crashes), this will be a good thing.  I think we've all had it with this fake money, ususry-based economy and would rather have one geared towards the needs of the average man and woman.

DUNTHAT's picture



But it is best fo Joe Sixpack.

Screw the banks.  Your day has come and gone. We will never let you up once we get you down.

Mark Noonan's picture

Just waiting for the day when someone running for office says, "my plan is to squeeze the life out of Goldman Sachs, and all like it, and then retire".

Bobbyrib's picture

Just reordered checks for my account-$25.50 for a box. I barely use checks, but need at least one a month (rent). I advise everyone else to find a new bank when you run out of checks, that way they're free.

Yen Cross's picture

      This article, needs to be [Off Shored].

H E D G E H O G's picture

I just have a few questions that may be pertinent here.

(1). Just WHAT the fuck are WE going to be making in this great RE-INDUSTRIALIZATION PERIOD? ........Ishit, Teslas, Solyndras, Chevy Volts, Windmills? How 'bout moar GreenInk and Denim paper plus maybe printing presses?

(2). Just WHAT demoralized, broke, poverty stricken middle class family is going to be BUYING these RE-INDUSTRIALIZED goods?.... The millions living off .Gov WELFARE/EBT/DISABILITY checks and other handouts?

(3). Just WHAT offshore/across the border POS company is going to pack up and move back to a fucked up tax code where they would have to actually PAY TAXES, delapidated infrastructured, and unskilled labor force that has been conditioned to the fine living standards of the .GOV TIT?

RE-INDUSTRIALIZATION, so early 19th Century. I think Generation F (as in FUCKED), should concentrate on the fine art of savvy Bank Withdrawals, For-Hire Personal Protection/Termination Skills, Stealth Transport of Goods, and maybe throw in a littlebit of 3-D Printing on the side to round out their resume.  THIS IS FUCKING REALITY.

Fuh Querada's picture


(normal font would have been easier on my optic nerves though)

and there's this of course

H E D G E H O G's picture

sorry, forget to take my shades off sometimes:)

trader1's picture

re-industrialization is the wrong term to be using.


orwellianization is a more accurate description of the future.


AmCockerSpaniel's picture

Slow down grasshopper. It can not be done over night what took decades to get here. We all know about the first step on a long road. Well; We can not sustain what we have now. I would say my first step would be repealing "FREE trade". It's how they got us to give them all our money, and it has to stop. You need to have a job that pays a decent wage, so you can pay more to buy things. What we have now is just the opposite. Do we want to live like Foxcom workers, or more like or fathers? Think long term, and win. Buy gold.

e-recep's picture

this article is bankster-talk. microeconomic solutions to macroeconomic treason? i say bullshit.