U.S. Manufacturing Rebound Is Narrow, Driven by AI and Energy Sectors

U.S. factory output rose 0.3% in September despite a 3% drop in auto production, and the Institute for Supply Management's manufacturing index showed a ninth straight month of expansion. But the recovery is concentrated in advanced industries tied to the AI and energy buildout, while traditional manufacturing lags. Manufacturers added a net 40,000 jobs in the 12 months ending in September, yet all gains came from advanced manufacturing—chemicals, machinery, computers and electronics, and transportation equipment—which added 56,000 jobs despite representing just 38% of factory employment, according to Burning Glass Institute chief economist Gad Levanon. Every other manufacturing industry combined lost 16,000 jobs. Employment outside advanced manufacturing is barely above its 2016 level. "So the manufacturing recovery is real, but it is narrow," Levanon wrote. ISM reported that five of the six largest manufacturing industries saw rising new orders last month, but only computers and electronics and transportation equipment reported increased employment. ING chief international economist James Knightley warns the Fed's tightening cycle could widen the divide, with higher borrowing costs pressuring labor-intensive producers and potentially the capital-dependent advanced sector.