Recently, Schwab's Liz Sonders commented that her favorite emerging market was Middle-America. Ms. Sonders believes that the resurgence of American manufacturing, the expansion of fracking in the natural gas industry and the re-emergence of a strong housing market are all expected to contribute to a re-awakening of the rust belt.
Ms. Sonders went on to say that for every 100 jobs created in the petroleum industry, nearly 1,200 are created in the downstream economy. Both the Boston Consulting Group and Ms. Sonders have noted that China's manufacturing advantage over the United States has been detoriating, fast. U.S. strengths include a high rate of productivity, the rule of law, relatively cheap real estate, low transport costs, low-cost energy and restrained labor costs (compared to abroad). Many U.S. manufacturers who shifted production to China are now looking at moving it back to the U.S.
In addition, housing inventories have fallen as prices and interest rates have remained low. Lower inventories and pent up demand are expected to spur new construction, boosting the fortunes of home builders.
The impact of a hotter housing market contains a multiplier effect. New home buyers often purchase furniture, carpeting, appliances, etc. for their new homes. This effect is expected to spur demand from many U.S. home products manufacturers.
Although the U.S. equity markets have recently made new highs, JP Morgan notes that there is still $10 trillion sitting on the sidelines in money losing savings accounts and money market funds. Much of this cash hoard represents balances removed from the stock market during the crash that have yet to be re-committed to equities. A hotter U.S. economy, led by the petroleum, housing and manufacturing sectors, could draw a significant percentage of this cash back into the equity markets.
All these factors bode well for Middle-America, the traditional cradle of American manufacturing and the heart of the petroleum industry.
Contributing Editor Robert C. Lawton is President of Lawton Retirement Plan Consultants, LLC a Registered Investment Advisory firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. Mr. Lawton has over 25 years of experience working with corporations on their retirement plans and is a Chartered Retirement Plan Specialist (CRPS) and Accredited Investment Fiduciary (AIF). He may be contacted at
