According to Chris Gutierrez, president of KC SmartPort, approximately 75 percent of the area’s active projects now have a global face. Gutierrez said these companies are coming from Europe, Asia and a few from North America, and a majority of them are manufacturers in the battery supply chain, food and beverage, machinery and equipment and building materials.
KC SmartPort, the industrial-focused affiliate of the Kansas City Area Development Council (KCADC), hosted its annual industry briefing last week which focused on the Kansas City region as a center for global investment.
The Kansas City area market is a "Top 10" market for foreign direct investment.
“Global companies from Slovenia, Italy, Germany, China, and Japan have all selected the Kansas City region in the last six months. These companies tell us that our central location, transportation infrastructure, competitive cost structure, and our people are why they’re picking this market,” Gutierrez said.
Left: Chris Gutierrez, president of KC SmartPort on stage with Bernard Baumohl, chief global economist at The Economic Outlook Group, LLC at the KC SmartPort Annual Industry Briefing 2024. Photo credit Paul Andrews Photography
Bernard Baumohl, chief global economist at The Economic Outlook Group, LLC, shared insights on the world’s economy.
Baumohl said that the United States has bounced back faster than any other country and has experienced a quicker drop in inflation than most other countries. He predicts that inflation will continue to drop for the rest of this year.
“We’ve not seen this kind of strength in the last 50 years,” he said.
According to Baumohl, the United States is seeing a renaissance of manufacturing. But, as spectacular as that renaissance is, it’s also disconcerting.
“The reason manufacturing is coming more and more back to the United States is because of the confluence of some worrisome developments. Number one, because there’s a rise in geopolitical tensions. Supply chain disruptions are still taking place. There’s a threat to freedom of the seas now. And, we’re seeing an actual fracturing of global trade patterns. And, when you consider those, it’s really difficult to predetermine the course of the U.S. and international economy when you’ve got all those factors,” Baumohl said.
Concerning inflation, Baumohl predicts the Federal Reserve will begin to lower rates by summer.
“We’ll see three rate cuts—in June, July, and the third one will likely take place after the election. So a total of 75 basis points cut for the year, and we’re expecting about another four or five for 2025,” he said.
“Our position is that if the Fed does not lower rates this year, it could be somewhat catastrophic because there are some very serious areas in the economy that are hurting terribly from high-interest rates,” said Baumohl.
Baumohl cited two segments as being particularly impacted by high-interest rates. The first is the commercial real estate industry.
“Certainly there are sectors in the commercial real estate industry that are really in deep financial distress... Increases in delinquencies, increases in default in the sector, and they need to have some kind of relief,” he said.
The second sector particularly hurting is households. Credit card debt is at record levels, particularly among households making $40,000 or less, Baumohl said.
Because of the fragility of the current supply chain system, companies are seeking to reorganize it. They want greater simplicity, more dependability, and better control over it. As a result, Mexico, the United States, and Canada are beneficiaries.
Since 2022, Baumohl said there has been a 20 percent decline in imports to the United States from China. Mexico is now the United States’ number one trading partner, supplanting China.
Mexico, however, has issues, Baumohl said, including occasional disruptions in energy and water supplies. There’s also concern about the drug cartels that exert significant power and influence and can control some of Mexico’s critical roads.
Consequently, more and more manufacturing companies are trying to relocate to the United States for two reasons, he said. First, there’s new technology—artificial intelligence, robotics, 3-D printing and cloud computing—all of which can improve the productivity of companies operating in the United States. The second reason relates to the available incentives and subsidies to bring companies back to the United States.
“Right now, on average, we’re seeing firms spend $16.3 billion a month to increase manufacturing capacity in the United States,” said Baumohl.
Manufacturing employment in the Kansas City area hit more than 88,000 last year, the highest it has been in two decades.
Kansas City is well-positioned to benefit from the manufacturing boom.
“It’s situated in such a strategic part of the United States. You can have trucks get to pretty much every part of the United States within a two-day drive. You’ve got about six major class-one railroads with intermodal capabilities. You’ve got a large foreign trade zone here as well. And then you’ve got the Missouri River. So there’s a lot going for it,” Baumohl said.
David Hickey (on right), global managing director at Hickey and Associates, joined Elli Bowen (on left), vice president of KC SmartPort, on stage to continue the discussion. Photo credit Paul Andrews Photography
According to Hickey, the end is not yet in sight for mega projects, although he predicts there will be a slowdown of many such projects.
In addition, the available incentives won’t last forever, Hickey said.
“When we look at incentives on an annual basis, it was about $60 billion U.S. dollars that we would have incentives around the world on an annual basis. Right now, we’re at about $2 trillion annualized. The U.S. is not the only one leveraging these types of incentives. Europe has completely rewritten their rules on a temporary basis,” Hickey said.
When his clients are considering location sites, Hickey said one of the major considerations is power, looking at power generation capacity and potential demand as new projects come online.
“You can’t just open up a new power plant overnight. You can’t just put in transmission. On the transmission side, when you’re looking for switch gear, there’s some equipment where you have a two-year delay now,” said Hickey.
___________________________
Feature photos courtesy of Paul Andrews Photography.