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U.S. Manufacturing: The Reports Of My Death Are Greatly Exaggerated

There is endless commentary about the inevitable death of manufacturing in America. This is nothing new; such dire predictions began at least as early as the 1980s, when the Japanese industrial juggernaut appeared to be a dire threat.

This doomsday scenario is demonstrably untrue. But the picture isn’t entirely rosy either. Thanks to the Federal Reserve Bank of St. Louis, we have some excellent charts to illustrate the various aspects of this topic.

US manufacturing employment in absolute numbers grew strongly through WWII, then steadily for another few decades afterward, with recessions driving the only real hiccups. But total industrial employment hit a peak in the late 1970s, then began an accelerating forty year decline. This had a number of causes, including increasing use of automation, increasing imports, and strong labor productivity improvement.

Interestingly, though, since the Great Recession began to recede in 2010, US manufacturing employment has been on the uptick. This is at odds with what most people probably believe to be the case. It’s certainly been a slow recovery, however, and we’re nowhere close to the employment numbers at their peak.

Here the picture is decidedly worse. The red line above tells the story, with relative employment topping out during WWII then declining very steadily until the Great Recession. That increase in absolute employment mentioned above causes the line to nearly flatten for this decade.

What this means is that most of our employment growth since the middle of the last century has been driven by services. This is not a bad thing, as it indicates a robust economy and an ever more affluent population that is able to purchase leisure time, while also becoming more productive in manufacturing.

But this productivity improvement picture isn’t all positive.

For the latter part of the twentieth century, manufacturing labor productivity (the ratio of cost of labor to value of goods produced) increased steadily. But it topped our right after the millennium, and has now been in a general decline in this decade. This is surely part of the reason for the uptick in employment, though the productivity decline has been less severe the past five years or so. Most interesting is that it comes at a time when people believe there was increasing use of automation to replace workers; there may be some truth there, but the benefits to justify that automation seem to be lacking.

This productivity decline also coincides with the nearly universal adoption of Lean practices, which are supposed to improve labor productivity. So while there’s a whole lot to explore in this picture, what it paints is certainly not in keeping with much of the popular narrative.

Part of that narrative is that America just makes less stuff anymore.

That’s where the picture is brightest, though. In the past thirty years, a time during which lots of ink was spilled about American manufacturing disappearing, absolute output has risen almost nonstop. Again, the only real hiccups were during recessions, which is to be expected.

But surely growth in overall gross domestic product – GDP, the total of all goods and services produced – has far outstripped that in manufacturing, right?

Actually, no. Adding a GDP line (in red) to the previous chart shows that the two trends have tracked each other surprisingly closely for the past 30 years. While for the past two years manufacturing growth has lagged slightly, the overall picture is one of steady growth for both categories (though manufacturing clearly took the brunt of the Great Recession).

Why the doom and gloom? Again, while manufacturing output has steadily increased, manufacturing employment has declined, so what a lot of people feel and see in their communities hasn’t felt like growth. Corporate consolidation has reinforced this perception, with painful plant closures in communities that grew reliant on the jobs and business generated by those plants. Meanwhile, much of the latest and greatest of the manufacturing world, high tech, has very visibly been outsourced overseas. Finally, while manufacturing growth has been nearly constant, it’s only been at about half the rate of population growth (the output chart above shows about a 34% increase over three decades, while US population has grown by about 70% in the same time period.) So again, the public perception is of decline, even if many of the numbers belie that.

It’s undeniable that US manufacturing faces many challenges. Since manufacturing is seen as tied intrinsically to the health of the nation, we as a country have many decisions to make as a result. Do we continue to vigorously impose ever more costly safety, environmental and other regulations here at home, even though it means manufacturing competitors abroad who aren’t saddled with those rules become ever more economically attractive? Do we practice free trade while other countries impose barriers to our products? Or, on the other hand, should our trade policies be driven in part by protecting domestic manufacturers? Do we continue to shower public money (usually in the form of tax breaks) on companies for bringing manufacturing plants to our towns and communities, but have no penalties when those same companies shutter the plants and eliminate the jobs they promised?

Voters, public officials, and corporate leaders can best make those decisions with complete information. It’s high time to stop the fear mongering, and to take an honest look at both the ups and the downs of US industry.

Read the full article and check out the charts in Forbes.