PodcastThe Monetary Matters NetworkChris Semenuk

The Longest US Manufacturing Recession in History is Finally Over | Chris Semenuk

Policy — through CHIPS‑style supports, 'make here' mandates and tariffs (232/122/338) — has raised prices and helped crowd incremental capital back to U.S. manufacturing. The industrial cycle appears in its very early months: ISM moved above 50, detocking after roughly 36 months is over, and major firms report multi‑year backlogs (Caterpillar north of $60B; Vernova ~87B). Rising power demand (manufacturing cited at 26% of U.S. consumption; system growth ~2–4% with EIA 3–5% forecasts) and multi‑year grid lead times favor investments in short‑cycle equipment, regulated utilities and high‑voltage transmission. That backdrop could support large earnings inflections — the guest projects Caterpillar's annual EPS could roughly double to about $40 by 2029.

Trade PolicyInvestment StrategyEnergy Markets

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Key Takeaways

Bipartisan U.S. industrial policy — large direct checks (CHIPS‑style) under Biden plus 'make here' mandates, tariffs and trade tools (232/122/338) under the subsequent administration — has raised prices and 'crowded in' incremental capital, but speakers stress reindustrialization captures marginal new capex rather than one‑for‑one reshoring; the U.S. is already taking a greater share of global FDI (described as north of 20%), with foreign firms like ABB investing roughly $5B to produce locally.

The recovery is equipment‑led, not a return of low‑skill manufacturing jobs: after a 15‑year loss of roughly 7 million jobs, speakers expect production growth via automation and factory outfitting (fasteners, pneumatics, bearings, filters), supported by unusually large multi‑year order backlogs at incumbents and a reported end to the COVID detocking cycle as distributors begin reordering.

The fund manager targets short‑cycle factory equipment where order books are picking up because these businesses trade on lower multiples, have leaner cost bases post‑restructuring and can 'over‑earn' as revenue recovers — investors should therefore build proprietary three‑ to five‑year earnings forecasts rather than relying on depressed near‑term EPS.

Major industrials provide durable revenue visibility: Caterpillar reports a backlog north of $60B, Vernova reports equipment backlog of ~ $87B and a service backlog near $80B, and the guest forecasts Caterpillar quarterly EPS could rise from about $5.50 to at least $10 (implying annual EPS roughly $20 → $40) by 2029, creating potential for earnings‑driven rerating.

Manufacturing remains the dominant driver of U.S. power demand (cited as 26%), even as AI/data‑center consumption grows; speakers and EIA forecasts point to a step‑up in demand growth (~2–4% cited, EIA 3–5%), with large, concentrated rural loads (hyperscalers, memory fabs like Micron) creating localized needs for generation and grid access.

The grid — not generation alone — is the near‑term pinch point: utilities quote multi‑year connection lead times, suppliers require large deposits and have equipment deliveries out years (examples include turbine lead times into 2031), while PJM faces a material capacity shortfall with extreme auction price dislocations and price caps that mute investment signals.

GEO-POLITICS

Bipartisan onshoring — Policy is actively 'crowding in' U.S. manufacturing through direct incentives and trade tools. The Biden era used large direct checks (CHIPS‑style supports), while the following administration has pushed 'make here' as a mandate and deployed tariffs and trade actions (e.g., continued 232/122/338 tools). Speakers say those measures raised prices and helped drive incremental capital investment back to the U.S.

“So the government is saying look we're going to write big checks. We're going to help you. We're going to incentivize you to build here.”—

TECHNOLOGY

Humanoids & components — Speakers expect humanoids/robots to arrive sooner than many expect ('a couple of years'). That will create demand for component‑level parts — micro bearings, micro motors and actuators — and actuator manufacturing is concentrated among very few firms.

“the whole humanoid thing is coming like in a couple of years time it's coming okay.”—

ECONOMY

Order Backlogs — Large industrial firms report unusually large, multi‑year order backlogs — examples include Caterpillar (backlog north of $60B) and Vernova (backlog north of almost $90B). Those backlogs provide durable revenue visibility that underpins near‑term industrial activity.

“Just look at the unprecedented size of backlogs within you know household multi-industrial businesses whether that's GE GE Vernova companies like Caterpillar.”—

Early Recovery — Recent indicators point to the U.S. industrial cycle only beginning to turn: ISM PMI moved above 50 after a prolonged sub‑50 stretch and April industrial production rose ~1.7%. Distributors and OEMs report a pickup in orders after years of stagnation, which speakers call the very early months of a recovery.

“The score of sub50 is contraction. It's the longest contraction that the US manufacturing sector has had has experienced in the record of the entire survey…”—

Marginal Capital — Speakers frame reindustrialization as the U.S. capturing the incremental dollar of capital investment, not relocating every offshore plant one‑for‑one. Future growth therefore depends on where new capex is deployed.

“Look, re-industrializing or rebuilding the US industrial capacity to make things, if you will, is not not about taking a factory out of China or out of Thailand or out…”—

MARKETS

Short‑cycle Equipment — The manager positions the fund toward short‑cycle factory equipment where order books are picking up. These businesses trade on lower multiples, have leaner cost structures after recent restructuring, and can 'over‑earn' as revenue recovers.

“And as I said that's with inside the factory walls and these are shorter cycle…”—

Incumbent Industrials — Large, established industrials like Vernova and Eaton are cash‑generative businesses with experienced management and service backlogs. Investors can capture returns from these incumbents rather than seeking speculative microcaps.

“Like these are real businesses that are here today with great managements, great cash flow, great earnings and as an investor.”—

Crowded Sectors — Aerospace & defense and many construction‑exposed stocks have rerated to rich multiples after years of strong performance. The manager flags these areas as less attractive relative to short‑cycle industrial opportunities.

“The aerospace and defense industry has grown by leaps and bounds for the last five years and is still growing.”—

FORECASTS

Caterpillar Forecast — Speakers argue an earnings inflection could rerate some currently expensive stocks. As a concrete example, the guest forecasts Caterpillar's quarterly earnings could rise from about $5.50 to at least $10, implying annual EPS roughly doubling from ~$20 to ~$40 by 2029.

“But what you're saying is that we are entering this period where expensive becomes cheap because you're entering an inflection point in in sales and earnings.”—

Manufacturing Recession Ends

After a three‑year contraction ISM moved above 50 and detocking finished, marking the very early stage recovery in U.S. manufacturing demand and capacity.

Meet the Industrial Bull

Guest Chris Semenuk lays out his industrial bull case from Teima ETFs, managing reshoring and electrification strategies driven by order backlogs and policy support.

Proof Reindustrialization Is Real

Unprecedented order backlogs—Caterpillar north of $60B and Vernova near $87B—provide concrete evidence that reindustrialization is happening on the ground.

What Reindustrialization Really Means

Reindustrialization means incremental capital chooses to 'make here' for expansions, not moving entire Asian factories back to the U.S.; FDI share has risen materially.

Why Companies Build Here

Companies build in the U.S. to protect IP, reduce transport and working‑capital costs, access the large homogeneous market, and respond to tariffs and policy incentives.

Advanced Goods Not Old Jobs

The reshoring wave focuses on advanced manufacturing—communications, electrical equipment, semiconductors and utility gear—not a restoration of seven million low‑skill manufacturing jobs.

AI Hype Versus Reality

AI and data centers get headlines but manufacturing consumes far more power (roughly 26% of U.S. electricity); AI is growing but remains a smaller power driver.

Picking the Equipment Winners

Top investment winners are inside‑factory equipment and automation suppliers—short‑cycle makers of bearings, pumps, pneumatics, filters, machine vision and control equipment.

Inside Factory Wall Plays

Short‑cycle, inside‑factory plays—distributors and makers of routine but critical components—stand to benefit as factories are fitted out and order flow resumes.

Short Cycle Sequencing

The sequence matters: infrastructure spending enabled factory construction, and now factories are being kitted out with equipment—equipment demand is the current phase.

Destocking Rates Tariffs Fog

A three‑year detocking cycle, higher interest rates and tariff uncertainty delayed capex; with inventories worked down and tariffs manageable, investment decisions have returned.

Why Stocks Held Up

Stocks in infrastructure‑adjacent and aerospace/defense segments held up during the downturn, masking weakness in short‑cycle industrials that are now inflecting.

Valuing Cyclical Industrials

Valuations should be built on multi‑year earnings potential and DCFs for cyclical industrials, not near‑term consensus; trough earnings on trough multiples create opportunity.

Tariffs Drive Onshoring

Tariffs (232/122/338) and price pass‑through have raised U.S. prices, effectively driving incremental capital and onshoring by making domestic production more attractive.

Humanoids And Automation

Automation and humanoid robotics will substitute for low‑skill jobs; suppliers of actuators, micro‑motors and precision components (e.g., Timken, TX) are key beneficiaries.

Grid Demand Inflection

Electricity demand is inflecting after decades of stagnation; manufacturing, electrified transportation and data centers could push system growth toward EIA’s 3–5% forecasts.

Behind the Meter Reality

Behind‑the‑meter generation is expensive and a near‑term patch; hyperscalers and large loads prefer grid connection plus backup, so grid expansion remains the priority.

Rural Utilities Winners

Rural regulated utilities supplying large loads (Micron, hyperscalers) offer durable contracted earnings, multi‑year customer duration and attractive total‑return profiles for investors.

High Voltage Bottleneck

High‑voltage transmission is the critical bottleneck—765kV projects require specialist contractors and utilities (e.g., Quanta, AEP) poised to win multi‑billion dollar work.

Service Backlogs and Duration

Vernova and other suppliers not only have equipment backlogs (multi‑year) but even larger service backlogs, extending revenue duration and earnings visibility.

Secular Tailwinds Wrap Up

Secular onshoring and massive electrification needs create durable demand for equipment makers and regulated utilities, supporting multi‑year earnings inflections and attractive investment opportunities.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

No Guarantees: Past performance does not predict future results; investing carries risk.

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