Weekly Reads - June 12, 2023
Please read the Unison Asset Management Social Media Disclaimerhere
U.S. manufacturing construction is on a positive long-term trajectory with U.S. companies looking to localize supply chains and re-shore technical jobs that were lost decades ago to lower cost labor markets.
U.S. construction spending is on the rise with the Census Bureau reporting that construction spending by U.S. manufacturers more than doubled over the last year. As of April 2023, construction spending reached $190 billion compared to $90 billion in June 2022 with manufacturing accounting for around 13% of non-government construction. This spur in construction spending has come on the back of massive U.S. government subsidies to produce semis, EVs, and solar panels domestically as the U.S. competes with China for leadership in these segments. The World Bank reports that China accounts for about 30% of global value-added manufacturing, double the U.S. With geopolitical tensions rising between the countries the U.S. has aggressively pushed for more domestic manufacturing to reduce their dependence on China. These subsidies so far have been extremely successful with factories being built across the U.S. , battery and EV factories being built around the Rust Belt, and renewable energy factories being built in the South and Southeast. This construction ramp-up has led to the addition of 800,000 manufacturing jobs in the last two years, but also a shortage of qualified workers to fill upcoming new jobs. Despite questions remaining about the feasibility of manufacturing in the more expensive U.S. labor market, many companies are already working on reshoring some of their production. The Kearney’s 2022 Reshoring index reported that 96% of American companies have shifted production to the U.S. or are evaluating moving production to the U.S. With geopolitical tensions between the U.S. and China unlikely to improve and bipartisan support growing for more independence from China we might be poised for an upswing in manufacturing activity.
The success of Netflix’s password sharing crackdown might push other streaming platforms to enact similar policies which could force households to cut subscriptions and find alternatives to paid streaming like piracy or freemium platforms.
The password-sharing crackdown has been an undeniable success for Netflix after fears that many customers would churn from the service if they couldn’t share accounts. Since the crackdown, Netflix has seen its subscriber numbers jump the most since the beginning of COVID. According to data collected by streaming analytics company Antenna Netflix added 100,000 new accounts on both May 26 and May 27, which was shortly after the crackdown went into effect. In the following days, Netflix has seen 100% subscriber growth from its prior 60-day average. It was estimated that nearly 100 million households worldwide shared an account before this policy came into effect. This a huge win for Netflix after its original plan to crack down on password sharing was ridiculed and criticized for being too draconian. This success could inspire other streaming platforms to start their own crackdown on password sharing to accelerate their path toward profitability and grow top-line sales. While this could be a positive industry-wide trend there is a massive risk for smaller streaming platforms if they choose to go this route. Netflix has created one of the largest content libraries in the world with highly-rated franchises in dozens of countries across the world. Other streaming platforms such as Disney+, Apple Tv, and Peacock have a far smaller content library so users would be less incentivized to pay up to keep getting access to these platforms. Password sharing has been one of the bright spots of streaming vs traditional cable allowing different households to split the cost of streaming. In a world in which streaming becomes excessively more expensive, it will force consumers to cut subscriptions to smaller platforms that deliver less value per dollar or seek alternatives such as ad-subsidized free streaming or content piracy.
Rising insurance costs, inflation, and a worsening economy could put a pin in Florida’s rapid population growth putting its hot real estate market in jeopardy and forcing residents out of the state.
Florida has been one of the fast-growing states in the U.S. over the last few years attracting over 400,000 new residents in 2022 compared to 185,000 in 2021. Since COVID there has been a migration from residents in high-cost-to-live states such as California and New York to states with less taxes and a lower cost to live such as Florida. This has led to one of the hottest real estate markets in Florida’s history with housing prices rocketing toward peak values and builders increasing their build-outs across the state. This influx of new residents and building activity has pushed housing prices and rents to unsustainable levels across the state pushing out a lot of existing residents from popular local real estate markets. Things are getting worse for residents with insurance companies signaling higher home insurance rates even as consumers deal with inflation and a slowdown in the overall economy. Home insurance costs have gone up 57% since 2015 which is nearly triple the national average of 21% and is considerably higher than second place Nebraska at 43%. Insurance companies continue to blame climate change, hurricanes, increases in materials and labor, and developers building expensive homes in vulnerable floodplains. Florida is becoming far too expensive for insurance companies to operate in with six insurance companies declaring insolvency before Hurricane Ian struck which caused $200 billion in damage. Many large insurance companies have decided to exit or limit their operations in Florida and refocus operations in states with less risk. This has led to a market in which smaller insurance companies fill in the gaps, but these companies don’t have the same level of capital to cover claims creating instability. It’s likely that Florida is heading to a prolonged period of home insurance hikes which could impact the state’s cost of living reducing its attractiveness to new residents and forcing existing residents out who cannot afford annual double-digit home insurance hikes. With no clear-cut answer to climate change, it will be an uphill battle for state legislators to stabilize the cost of living across the state while keeping the home insurance market stable and solvent.