Five Manufacturing Predictions For 2022
When it comes to predicting the future, especially pertaining to economics, it’s important to take any commentary with a grain of salt. John Kenneth Galbraith, one of the most famous economists of the last century, once quipped: “The only function of economic forecasting is to make astrology look respectable.” So keeping this in mind, we present five governmental, manufacturing, and economic predictions for 2022 which will impact the industrial sector and supply chains globally. The first prediction for 2022 is that defense spending ramps up considerably—far beyond even the $786 billion bipartisan bill that recently passed the polarized House of Representatives 363-70. Between Russia and Ukraine, uncertainty in the South China Sea, Taiwan and China catapulting itself ahead of the US in hypersonic missiles that can loiter above the atmosphere while circling the earth waiting for a target, the US is on, pardon the pun, the defensive in terms of military prowess. Given this, with near certainty, 2022 will be a year in which the defense supply chain begins to gear up once again for increased spending in the years ahead—which will have a downstream impact on materials across a section of discrete manufacturing given the supply base overlap at tier one, two and three levels.
The second prediction for 2022 involves early infrastructure spending which will begin to flow through into the manufacturing economy, albeit perhaps more slowly than some would like to see. However, infrastructure spending will likely continue to put pressure on both skilled and semi-skilled labor, potentially robbing human capital capacity from other areas of the manufacturing economy. It remains unclear how great the overall impact will be from the infrastructure stimulus over the longer term, however. As the Economist suggests, “ultimately, the amount that America spends on infrastructure is a direct result of the amount that Americans are willing to be taxed.” And here, we’re not sure what the appetite will be, given the 2022 congressional elections which will likely alter the balance of power.
The third prediction involves commodity price volatility which will continue along with a general bullish/sideways sentiment. Even though prices have softened during Q4 2021, (as of mid-December), this may appear as an end-of-year seasonal correction as opposed to a broader market correction. Hence, markets could remain in a somewhat bullish trend, despite bearish blips. A larger commodity supercycle still appears overly rosy as the global economy moves toward green energy and the like—but may only transition gradually. From an individual commodity perspective, the metals which look the most bullish in 2022 include nickel and tin and, as an industrial commodity or asset class, stainless steel (which will remain the toughest to source),
followed by aluminum and carbon steel.
The fourth prediction for 2022, tied to commodity prices, is, of course, overall inflation. Here, we do not see potential easing until at least 2023, as white goods and large appliances have already priced in inflation for 2022 based on higher material costs. If you’re buying new industrial machinery or planning on a new Weber on the back porch, expect these all to cost more (as well refrigerators, washers, dryers, and appliances generally).
Finally, the fifth and final prediction for 2022 involves the continuation of supply chain bottlenecks, albeit not necessarily at the level seen in recent months. The Federal government will continue to place blame on commodity bottlenecks (including a Senate Bill that was introduced late in 2021) in areas extraneous to the actual root causes, which stem from demand variability, supply capacity, and labor shortages. These may begin to ease in 2022, but manufacturers will compete more on the resiliency of their supply chains as opposed to other variables. As with manufacturing in general in 2022, there will be both winners and losers.