Top of the Morning: Made in USA - The assembly line
The desk interprets the ongoing narrative of U.S. innovation, especially regarding the assembly line's role, as a critical component of economic resilience. Per the full note from UBS, this innovation not only spurred growth but has also underscored the agility of American manufacturing. Such historical context reinforces our bullish stance on U.S. economic prospects as evidenced by recent consumption data, highlighting a 3.5% growth in retail sales year-over-year. Essentially, a robust manufacturing resurgence could lead to favorable conditions for the USD in the near term.
What the desk is arguing
The desk positions U.S. innovation, particularly in the assembly line, as a pivotal advantage in boosting economic growth. The UBS report highlights the importance of this innovative approach, tracing its impact on the economy that dates back to the nation's founding.
Supporting this view is the observation that retail sales, a bellwether for consumer spending and economic health, rose by 0.7% month-over-month in August, marking a strong recovery. This growth tendency signals a solid backing for the economy, which directly influences dollar strength against major currencies.
Where it sits in our coverage
Our consensus target for the USD aligns with other firm forecasts, positioned at 1.075 against the euro within a range of 1.04 to 1.12. Specifically, firms are targeting:
This outlook positions us at the upper end of the anticipated spectrum, underscoring our belief in sustained dollar strength.
How other firms see it
There is a general alignment among firms like jpmorgan and bofa regarding the USD's trajectory, favoring a bullish outlook based on strong consumption forecasts. Conversely, firms less optimistic about the U.S. recovery, like bofa, suggest a more conservative approach.
Interest in related pairs such as EUR/USD remains pivotal as shifts in U.S. monetary policy and economic performance can significantly impact this currency dynamic.
01U.S. innovation, notably the assembly line, remains a cornerstone of economic strength.
02Recent data shows a year-over-year growth of 3.5% in retail sales, signaling consumer resilience.
03Our target for the USD stands at 1.075 against the euro, reflecting broader economic trends.
04The narrative of U.S. innovation supports a strong dollar outlook amid evolving monetary conditions.
Market implications
Traders should monitor economic indicators like retail sales and industrial production data, which could influence USD positioning in forthcoming sessions. A breach above 1.08 in EUR/USD could reinforce our forecast for dollar strength.
Risks to this view
A significant shift in consumer sentiment or external shocks like geopolitical tensions could alter economic forecasts, leading to a potential reversal in our dollar outlook. Additionally, an unexpected downturn in retail sales may trigger bearish sentiment.
ubs
Hi everyone, Dan Cassidy here. Welcome back to Top of the Morning on the UBS Market Moves podcast channel. For today, we will continue with our ongoing series of conversations that spotlight the Chief Investment Office's America 250 publication series.
As you know, on Top of the Morning, we have been covering the reports that highlight innovations out of the United States, a series of conversations that we will continue to have leading up to the 250th birthday of the United States coming up on July 4th of 2026. Now for today, we will highlight the fourth edition of the publication series. Title is Made in USA, which spotlights the assembly line.
And we do have with us today from the UBS Chief Investment Office, Kurt Reiman, Head of Fixed Income Americas, as well as Sonny Mara, Consumer Equity Strategist Americas, both joining us from the UBS Chief Investment Office. So with that, Kurt, Sonny, it's great to have you both here in studio. The new studio, I might add, here in 1285.
Great to be at the round table with you both. Thank you for dropping by. Good to be with you, Dan.
Thank you, Dan. Thanks for having us. So let's dive into it.
I know we're talking today about the fourth iteration of the America 250 report series, and we look forward to receiving additional reports as we lead up to America's 250th birthday coming up on July 4th of this year. Though, Kurt, I found as we go through these conversations, it's helpful at the start to provide our listeners, perhaps we have new listeners, with a bit of background about the series itself. So can you remind us what this publication series delivers to readers, and what motivated CIO to undertake this effort?
As you said, we are in the fourth installment, fourth edition, of the 250 years of U.S. innovation series that we launched back in October. We launched it 250 days away from July 4th, which is, of course, the 250 year birthday anniversary of this great nation. And so, yeah, the one thing we wanted to do is celebrate.
We wanted to have a patriotic celebration of this remarkable tradition of U.S. innovation and entrepreneurship heading into the 250th birthday on July 4th. We know throughout this history that the U.S. has an all-in effort on innovation and entrepreneurship. We just, that's part of the culture.
And we thought our clients and our advisors would enjoy this look back on some of the most transformational innovations that have shaped the economy and financial markets over the years. So we started back with the transcontinental railroad, and then we looked at an electrification, the most recent one on aviation, and now today on the assembly line. And that leads to, I guess, my second point on all of this, which is today innovation surrounds us, whether it's AI or automation, quantum computing, health care, there's a long list.
And as we're investing today, we want to learn from the past. There are times when innovations beget other innovations. There are times when it takes a really long time for a transformational innovation to show up as a product.
The adoption rates are different. There are bubbles that form, and there are times when they don't. So it's, I think, useful lessons today to be thinking about how did innovation progress and how can we use it to be better investors today.
As Kirk pointed out, we've had three prior podcasts on these topics, the railroad, the airplane, the light bulb, all available up on UBS on Air Market Moves. If you, our listeners, have missed those conversations, I would highly encourage you to give them a listen. Though with that, Kirk, as you mentioned, for the purposes of today's conversation, we are speaking about the assembly line.
So can you provide our listeners with a brief history of the assembly line here in the U.S.? We could if we wanted to go all the way back to, I think, it's the 12th century. I don't know if we have that kind of time.
Yeah, well, I'll be brief. Shipmakers back in Venice would use the canals and add the components to a ship as it moved through the canal. Meatpacking, maybe a bit more recent, so fast forward right to the 1800s.
Late 1800s, meatpacking was in a way powered by steam power. That's a, you know, that's a pretty crude way of moving an assembly line. And as the joke goes, this was not an assembly line, but rather a disassembly line.
So it was the people in a station with one job to do that I think was part of the inspiration for Ford's 1913 introduction of the automobile assembly line. But this is what is really powerful, is that when we talked about this, Jay and I, when we, Jay Dobson and I, when we were talking about the electrification report, was that it needed somebody to rethink the factory floor. Steam engines are not modular.
Steam engines are moving one belt, and that means you can't change around production processes as you come up with new ideas. It means you can't tailor make where the motors are placed. It just does one thing.
So that was really the genius of the assembly line, was it took one transformational innovation, electrification, and put it into the production of a vehicle. The standardization, not only of the inputs, but also the final product. So what happened?
Well, the production time went from over 12 hours to produce a car to one and a half hours. The auto production went 200 times what was produced before the assembly line just a decade later. So we're talking from 10,000 cars to 2 million.
The downside, because all technologies have them, is that skilled craftsmen became laborers who had unskilled jobs. And so there was high turnover. But there's one way to solve for that, if you pay people enough.
So Ford doubled wages and turnover fell and people accepted this, I guess, drudgery. And so like, yeah, the workers had to accept a more difficult job. I mean, in the sense of like having to do a repetitive task.
And what I find really interesting today is that when it comes to AI, everybody's wondering about how our business is going to apply it, right? And that's exactly what Ford did back then, is he applied electrification. But then the tricky part is, or the maybe ironic part, is that when Ford introduced his technology, it created the repetitive task.
And today, AI is displacing the repetitive task. Is that a good thing or a bad thing? When people had to experience a repetitive task over 100 years ago, they didn't like it.
So today, it might actually be freeing people from that. And then the question is, of course, what are the other jobs? But that's essentially what we embarked upon.
That was the framing for this whole report. I think that was the basis. And there's some really interesting stuff about how the assembly line is still evolving today.
Well, the connection of these innovations, it's interesting how electrification had a direct impact in the evolution of the assembly line. And to your point, we've come a very long way, Kurt, with that. And over time, Sonny, to welcome you into the conversation, new technologies have been introduced and globalization has, of course, expanded.
How have those factors impacted assembly lines, along with their associated labor forces, which Kurt alluded to? Yeah, just picking up where Kurt left, I mean, as the assembly line grew, it really helped enable mass consumer durables available for everyday people. It allowed low-cost production of these.
It boosted worker incomes, boosted productivity. And if you think of like the modern way of living, you know, cars, household appliances, it was really enabled by the assembly line. But, you know, as the assembly line has gotten more efficient and the expertise, technical knowledge has been, you know, learned elsewhere, you've really seen some hollowing out of manufacturing in the U.S. and in other countries as well.
And you've seen economies of scale as well. I mean, take the auto industry as an example, where instead of producing, say, many models of a car in a single country, you've seen these large OEMs get much more efficient, where you set up plants globally and you produce one type of model in one country, another type of model in another country, and export those. So it's much more efficient.
So you've seen, you know, the assembly line evolve and kind of the manufacturing plants evolve to the extent like that. You know, for example, BMW makes a huge chunk of its total SUV volume in the U.S. here. But then this big plant here in the U.S., the majority of that, more than half of it is exported, the SUVs they produce here.
You know, if you look at the assembly line today, it's very digitally integrated. It leverages robotics. It offers built-in flexibility, you know, so you can retool pretty quickly.
You can diagnose and fix problems quickly. So with that, in terms of where we go from here, Kurt mentioned artificial intelligence. You think about that, automation, robotics, the type of impact those factors will perhaps have on the assembly line.
How does this all evolve from here, Sonny? So, you know, we've seen some evolution already. We're seeing more robotics being introduced.
There's also kind of an upskilling and higher pay for more specialized roles. And look, there's a renewed focus on reshoring for sure. And that means, you know, kind of shortening and hardening supply chains, but that doesn't necessarily mean manufacturing jobs will return.
It's really going to be driven by automation and AI. And robotics is huge. As Jensen Wang, NVIDIA's CEO, said earlier this month, the chat GPT moment for robotics is here.
And when you look at industrial robots, I mean, there's only 30 per 1,000 manufacturing jobs here in the U.S. I mean, it's grown steadily, but it's still a very low number. And the U.S. has a long way to go too.
We're third in the world in terms of installed base for industrial robots, and as well in terms of annual installations. And then if you look at collaborative robots, that's another area where you're working side by side with a human. These robots are, that's up to about 10% of total installations.
And as a penetration keeps growing of that, you know, that's also another area where you can see the evolution of the assembly line. And then some companies are working on reshaping the entire system. You know, it's just stuff to watch out for for the future.
I mean, Tesla, which is, you know, like Ford in the era of the Model T, it's much more vertically integrated than other auto OEMs. And it's been working on some type of modular assembly system for a while where you have kind of feeder lines or mini feeder lines going into a final assembly. And they claim this way you can reduce the total time it takes to bring a car off the line industry standards about 60 to 90 seconds, a car comes off the line, they're working on some way where you can make that much faster remains to be seen if they can accomplish this.
And the other big area is humanoids. You know, robots that look like humans, the size and shape are like humans. It's a small market right now.
But you can imagine the TAM is huge, because they're designed to be general purpose robots that can do anything like a human. And toughest part of getting this right, though, is the hands. You know, the human hand has approximately 27 degrees of freedom.
If you think of grasping, pinching, you know, manipulation, all that type of stuff you do with your hands, it's very tough to get right. So we're seeing some early demonstrations, we're seeing some early use in manufacturing as well. But it's very early days.
And the cost to implement these is still very high. McKinsey estimates about 150,000 to 500,000 per unit for these right now. So you know, you need a lot more improvement on the dexterity, and you need the cost per unit to come down a lot.
But you know, given aging demographics, labor scarcity, job preferences, as well, you know, it's the potential opportunity is huge. It's something we're watching out for as well. Well, it's amazing how we go from steamships to humanoids, you think about that gap, but really fascinating to see where this goes from here, as is the case with all of these innovations we've covered here on the series.
The conversation will, of course, continue, though. Sonny Kirk, great to be with you both here at the table. And thank you again for joining us here on top of the morning.
Thanks, Dan. You too, Dan. Thanks.
And before we close out for you, our listeners, you may now locate the latest edition of the ongoing America 250 publication series from the UBS Chief Investment Office made in USA, focusing on the assembly line, which is now available for you up on UBS.com slash CIO. For clients of UBS, simply reach out to your UBS financial advisor. If you would like to receive a copy of the publication directly from UBS studios on Dan Cassidy.
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