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The Truth About the US Manufacturing Renaissance 

Ray Cunha 

Soundbites from Research 

Ray Cunha


Industrials analyst Ray Cunha puts claims of a manufacturing revival in the United States to the test.
Much has been made of the potential for a manufacturing renaissance in the US – a function of economic recovery, labor cost increases in China and, particularly, cheap shale gas, which provides lower energy prices for US industry. The subject has become so topical that some brokerages have even organized investment conferences around this theme.

But we don't hear companies reporting such a renaissance on their earnings conference calls, and we've yet to see much of an earnings and cash flow impact in the broad industrial sector from cheap shale gas in the US. While natural gas inputs into the chemicals industry are estimated at 16 per cent (with some extreme examples, such as ethane cracking, having 80 per cent of costs from natural gas), it is estimated that for 90 per cent of US manufacturing industries, energy as an input averages less than 5 per cent of the cost of goods sold.

Meanwhile, we see a gradual economic recovery in industrials and select instances, such as the automotive industry, where new facilities have recently opened in the US. However, this is primarily due to an ample supply of affordable labor, supply-chain improvement, currency hedging and "getting closer to customer markets". The much-anticipated US manufacturing renaissance has not yet materialized.

The material contains the current opinions of the author, which are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation.

Allianz Global Investors Distributors LLC, 1633 Broadway, New York NY, 10019-7585,, 1-800-926-4456.


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