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What’s the connection between domestic manufacturing output and consumer prices?

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Employees work as they make respiratory masks in a family-owned medical equipment factory in north Miami, Florida on February 15, 2021.

Two major roadblocks to manufacturing — supply chain snarls and hiring — have been easing lately. Chandan Khanna/AFP via Getty Images

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This week, President Joe Biden spoke about boosting the manufacturing sector in the U.S., which he said could help cool down inflation.

Manufacturing output has been improving in recent months. But whether that’ll have an effect on prices is another story. One of the biggest roadblocks to manufacturing output has been labor supply. Hiring in manufacturing has been picking up over the last few months, according to Tim Fiore with the Institute for Supply Management.

“You know, pay’s been going up. There’s even been talk about people coming out of retirement and going back to work,” he said.

Another roadblock for manufacturing has been the congested supply chain, but Fiore said that’s been easing up too.

“The transportation sector is showing some signs of improvement. A lot of that likely has to do with the fact that the ports are freeing up a little bit.”

But even if domestic manufacturing output continues to increase, we shouldn’t expect prices to fall, especially if it means re-tooling the global supply chain, said Teresa Fort, an associate professor of business administration at Tuck School of Business at Dartmouth College.

“Firms have developed these global supply chains precisely in order to find the lowest cost, most productive places,” she said.

So, the costs of bringing that production back to the U.S. would make manufactured goods more expensive, Fort added.

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