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- [00:01]
A
Welcome to Thoughts on the Market. I'm Michelle weaver, Morgan Stanley's U.S. thematic and equity strategist.
- [00:06]
B
I'm Chris Snyder, U.S. multi industry analyst.
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A
Today, will 2026 be the year of U.S. manufacturing's transformation? It's Tuesday, January 13th at 10:00am in New York. U.S. reshoring has been an important component of our multipolar world theme and manufacturing is one of those topics we have always had our eyes on. We've been making some big predictions about a transformation in this sector, so it makes sense that it features prominently in the big debates we've identified for North America in 2026. In the last few years, there's been a steady stream of investments in automation, controls and upgrades across U.S. manufacturing. And this is happening against a backdrop of shifting global supply chains and lingering policy uncertainty. Now the big market debate is whether these investments will generate a whole wave of greenfield projects, that is brand new multi year construction initiatives to build facilities, factories and infrastructure from the ground up. Chris, what exactly is driving this current wave of efficiency and productivity investment in U.S. manufacturing and how long term of a trend is it?
- [01:17]
B
I think what's driving the inflection is tariffs. The view that has underpinned my US reshoring call is that I believe companies have to serve the US market. The US accounts for 30% of global consumption, equal to EU and China combined. It is also the best margin region in the world. So companies have to serve the market. And now what they're doing is they're going back and they're looking at their production assets that they have in the US and they're saying, how can I get more out of what's already here? So the quickest, cheapest, fastest way to bring production online in the US is drive better productivity and efficiency out of the assets you already have. And we're seeing it come through very quickly after Liberation Day.
- [02:03]
A
And you think these investments are an on ramp to larger greenfield projects. What evidence do we have that this efficiency spend is setting the stage for a ramp up in new factory builds?
- [02:15]
B
I think this is absolutely the leading indicator for greenfields because this is telling us that the supply chain cost calculation has changed. What all of these companies are doing are saying, okay, how can I get products into the US at the cheapest cost possible? What we're seeing is the cost of imports have gone higher with tariffs and now it's more economically advisable for these companies to make the product in the United States. And if that's the case, that means that when they need a new factory it's going to come to the United States. They might not need a factory now, but when they do, the US is at least incrementally better positioned to get that factory. Other data that we're seeing, I think the most interesting data that's come out of all of this is the bifurcation in global PPI or producer price data. If you look at it on a regional basis, North America markets saw PPI go higher in 2025. They were all the tariff exempt regions, US, Canada and Mexico. Every other region in the world saw PPI down year to date. That means that these companies and factories are having to lower prices to stay competitive in the global market and sell their products into the United States. That tells us also where the next factory is going. If you have a factory in the US And a factory in Malaysia and your US factory is pricing up, that means the return profile is getting better. If your factory in Malaysia is pricing down, it means the returns are getting worse and you're pricing down because it's overcapacitized. That's not a region where you're going to add a factory. What I like to say is price drives returns and supply is going to follow returns. And right now that price data tells us the returns are in the United States.
- [04:09]
A
And for people that might not be familiar with ppi, can you explain it to everyone? It's sort of like CPI's cousin, but how should people think about it?
- [04:16]
B
Yeah, so ppi, producer price inflation. It's effectively the prices that my companies, the producers of goods are charging. So maybe this is the price that they would then charge a distributor, who then the distributor ultimately is selling it to a store and then that's, you know, kind of factoring its way into cpi. But it starts with ppi.
- [04:34]
A
And what are some of the key catalysts investors should be looking for in 2026 that could confirm that this greenfield ramp is underway?
- [04:41]
B
The number one, you know, metric I think the market looks at is manufacturing project starts every month. There's data that comes out and says how many manufacturing projects were announced in the US that month. And what we've seen coming out of Liberation Day is that number on a project value has gone higher. You know, it hasn't totally inflected, but it's pushed higher. The thing that has inflected is the number of announcements. So this is not like two or three years ago where we had these mega projects. What we're seeing right now is very broad. And to me that's more important because that shows that there's durability behind it, and it shows that. This is because the economics are saying it makes sense. It's not necessarily just because, okay, I got an incentive and I'm trying to follow alongside that.
- [05:26]
A
The market seems skeptical, though, pointing out that the ISM Manufacturing Purchasing Managers Index has been shrinking. This could be a sign that demand isn't strong enough to justify building new factories right now. How would you address that concern?
- [05:39]
B
Yeah, no, I mean, you're definitely right. Like, the biggest pushback on the restoring theme is the demand for goods is not very strong. Consumers are not in a good place. So why would companies add capacity in this backdrop? That's never happened before. Companies only add capacity when they're producing a lot and the utilization goes up. This is not a normal cycle. Throughout history, the motivation to add capacity was when your production rates go higher, your utilization hits a certain level and then you add capacity. So it always started with demand. To your point, the motivation right now is tariff mitigation, and you do not need higher demand to support that. The US has a $1.2 trillion trade deficit, so that more than anything, gets me confident in the theme and the duration behind it. And I think it's a very different outlook. When you look across the international markets, they're the ones that need to find incremental demand to justify investment.
- [06:37]
A
And given the scale of U.S. purchasing power and the shift in global capital flows, how do you see these manufacturing trends impacting broader performance? In 2026, we published our outlook and.
- [06:50]
B
We'Re calling for the US industrial economy to hit decade high growth level in the back half of 26 and into 27. And this is a big reason why we think about this a lot from a capex perspective. And we're seeing the investment, we think that ramps into larger greenfields, but we're also seeing it in the production economy. If you look at the delta between U.S. consumer spend and U.S. manufacturing production, that has really narrowed in recent months. And that tells us that we're increasingly serving US Demand through domestic production. So that's another factor that's going to drive activity higher and it doesn't need a cycle. And I think that's what's really important. And I think that is what creates this as a more secular and also durable opportunity. So obviously, reshoring is something that's very close to me and important for the industrial economy. But as you think about the multipolar world theme more broadly, how do you think that evolves in 2026?
- [07:56]
A
Yeah, absolutely. Last year, the multipolar world was an incredibly powerful theme, and when investors were thinking about the multipolar world last year, it was largely about how are companies going to mitigate the risk of tariffs in the near term. We had the policies come out and surprise everyone in terms of the breadth and the magnitude of the tariffs we saw. We had a lot of policy uncertainty around what is that final level of tariffs going to look like. And a lot of the reaction was really short term. It's how can we use our inventory buffers to try and preserve our margins? How much of these additional tariff costs can we pass off to the end customer? How can we insulate ourselves in the near term? I think this year it's going to turn to more longer term strategic thinking, reshoring and a lot of the greenfield projects you were talking about I think will absolutely be an important component of the multipolar world this year. I think we're also likely to see a greater emphasis on US Defense. With the action we just saw in Venezuela, I think we're going to see more of that defense component of the multipolar world starting to be expressed in the US it was a big part of the expression of the theme in Europe last year, but I think it will gain relevance in the US this year.
- [09:07]
B
Yeah, and I think the next chapter in US industrial growth is just getting going. It's taken 25 years for the US to cede roughly 12 percentage points of global share in manufacturing. We don't think they take that much back, but we think this is a very long Runway opportunity.
- [09:24]
A
And as we watch for the next wave of greenfields, it's clear that efficiency and productivity investments are more than just a stopgap. They're a longer term theme and they're a foundation for a new era in U.S. manufacturing. Chris, thank you for taking the time to talk. Great speaking with you, Michelle, and to our listeners. Thanks for listening. If you enjoy thoughts on the market, please leave us. A Review Wherever you listen to the show and share the podcast with a friend or colleague today.
- [09:52]
C
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