Fed rate cut offers limited relief for US factories facing competition from China By Reuters

By Timothy Aeppel

(Reuters) – Drew Greenblatt likes that the Federal Reserve has cut interest rates.

But the half-point cut, the first of what is expected to be a series of cuts, won’t help him win what he calls “trench warfare” with one of his big customers.

That buyer moved work out of China during the COVID-19 pandemic — placing about $800,000 in orders at Greenblatt’s small U.S. plant last year. Greenblatt bought robots and hired more workers to meet the new demand. Then the orders stopped earlier this year.

“When I asked why, they said they went back to China to save money,” said Greenblatt, president of Marlin Steel, a Baltimore maker of highly engineered wire baskets used in industrial and laboratory machinery. .

Greenblatt’s issue underscores headwinds facing U.S. manufacturers that lower interest rates won’t ease, including supply chain snarls, stubbornly high prices for many raw materials, simmering labor unrest in some sectors, and especially in China.

US Vice President Kamala Harris plans to unveil new economic policies on Wednesday aimed at helping Americans create wealth and establishing economic incentives for companies to help that goal, Reuters reported. The new policies come as undecided voters seek more information about how Harris would help them economically if elected president, the sources said.

A key issue in the Nov. 5 election is how Harris and former President Donald Trump plan to respond to the competitive challenge posed by China. The Biden administration has proposed banning Chinese software and hardware from connected vehicles on American roads on national security grounds.

Greenblatt, the basket maker, hopes for more aggressive action on trade, and not just against China.

“If they put in more rates, we would have more deliveries to our customers,” he said. “Instead, our customers are buying from countries that have allowed their currencies to be subsidized.”

“PROVOCATING IMAGE”

High interest rates make it more expensive to borrow or finance ongoing operations and are often cited as a major contributing factor to the broad slowdown in U.S. factories since early last year. After adding nearly 750,000 jobs in 2021 and 2022, U.S. manufacturers shed about 7,000 jobs in 2023 and this year, according to the Labor Department.

U.S. factory output rose in August, the Federal Reserve said, amid a recovery in auto output, but data for July was revised lower, suggesting output continued to flounder.

Meanwhile, a report last week from the Philadelphia Fed pointed to an increase in supply chain concerns and rising input costs that hit factories in their region in September.

“What the Fed can do is create expectations for near-term growth with a rate cut, which is powerful,” said Cliff Waldman, CEO of New World Economics, a Washington-based economic consulting firm that focuses on the industrial sector. Lower rates could encourage companies to move forward with new capital projects.

“But that’s only a small part of the challenging picture facing U.S. manufacturing,” Waldman said.

He noted that many manufacturers continue to fight among themselves over who will absorb the higher costs due to inflation. Add to that the disruption to global supply chains during the pandemic, which is still unfolding.

unexpected

For Kevin Kelly, the latest headache is an unexpected increase in electricity prices. Emerald Packaging (NYSE: ), his family business, makes plastic bags for manufacturing companies at its plant outside San Francisco and uses large amounts of energy to run huge printing machines that put labels and images on the bags.

Kelly said his electricity bill rose to $350,000 in June from $290,000 the previous month due to higher-than-expected summer rates. “I just didn’t see that coming,” he said. “We knew increases were coming and summer rates would be expensive, but we didn’t realize they would be this expensive.”

California’s utility rates are the second highest in the US after Hawaii, driven in part by the cost of strengthening the state’s power grid against wildfires.

Kelly is rushing to install solar panels that should help offset some of those increases, albeit after the high cost of installing the system. He also altered the factory’s working hours, shutting down large machines for two hours late in the day when rates are highest.

“We have people cleaning the presses, doing menial work around the plant in those two hours, so people are working, but it’s still reduced our production,” he said.

Another jolt could come from a major strike at ports on the East Coast and Gulf of Mexico, which could hit on October 1. Anything on the water could now get stuck on ships and force producers to look for alternative ways to transport goods, adding even more to costs.