Factory production in America grew solidly in the past month. This implies that the U.S. economy is brushing aside the weakening European economy and is in no danger of a recession. Job gains will continue. Commercial REALTORS® specializing in industrial spaces will likely experience increased business opportunity.
Specifically, industrial production in November was 5.2 percent higher from one year ago. That is the best gain since January 2011.
The construction industry has been one of the lagging sectors in the current economic cycle. Therefore, there has been lower production for construction supplies, like cranes. Meanwhile, the manufacturing sector is reviving very nicely.
Because of rising industrial production, the capacity utilization rate finally rose above 80 percent for the first time since early 2008. High utilization will require constructing new factories. Commercial real estate practitioners involved in factory site locations need to keep their eyes sharp.
It is very good news that U.S. companies are producing more. However, it will still be the case that many developing countries will take up a larger share of global manufacturing in the future, particularly related to unskilled repetitive factory assembly work. With wages rising in China, new factory centers could arise in Vietnam, the Philippines, and Mexico. Americans working in menial repetitive tasks that do not require much education will therefore face low-wage competition from these countries. However, Americans in the knowledge-based work like software development, medical instruments, and professional business service will experience rising global demand for their services and will experience higher salaries over time. Income inequality in America will therefore likely become even more unequal in the future between those with and without an education.
Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.