U.S. Manufacturing is Dead: True, Myth, or Somewhere in Between?

You might think American manufacturing is dead, reading most of the nation’s editorial pages or watching the endless laments in the news that “nothing is made in America anymore,” and that manufacturing jobs have vanished to China, Mexico and South Korea, says Mark J. Perry, a professor of economics at the University of Michigan. Yet the empirical evidence tells a different story — of a thriving and growing U.S. manufacturing sector, and a country that remains the world’s largest manufacturer.

The truth is that America still makes a lot of stuff, and we’re making more of it than ever before.  We’re merely able to do it with a fraction of the workers needed in the past, says Perry. Critics view the production of more with less as a net negative — fewer auto plant jobs mean fewer paychecks, they reason.  Yet technological improvement is one of the main ingredients of economic growth…

In the article “U.S. Manufacturing — Losing Out?” by Clyde Prestowitz writes: Since manufacturing is about 11 percent of U.S. GDP, anyone who has been saying it’s dead has obviously been engaging in hyperbole. A large portion of U.S. manufacturing output is of non-tradable or not easily tradable goods, things like toilet tissue, ply-wood, soap, catalogues, and the like. This is the core of our manufacturing base and it will always be with us. It’s not dead and it’s not going to die.

For most of its history, America has also been a major producer of tradable goods – things like steel, airplanes, semiconductors, machinery, appliances, and so forth. Indeed, we still produce some of these things but far fewer than we used to. As a result, manufacturing as a percent of GDP has been in steady decline from about 25 percent in the early 1980s to today’s roughly 11 percent. This decline has been particularly precipitate in the past decade…

To some extent, this decline is natural and inevitable. Manufacturing as a percent of GDP tends naturally to decline in all economies as they develop and mature. This is even happening to China’s economy now despite its having become the workshop of the world. But the decline in the manufacturing share of the U.S. economy has been far more dramatic than in any other industrialized economy. Even in the UK which has long emphasized services as the core of its economy, manufacturing is nearly 13 percent of GDP. For Germany, Japan, France, Italy, and most other OECD countries the shares range from 15 to 25 percent. Since America has roughly the same or better manufacturing oriented resource endowments as these countries, one would expect its manufacturing share of output to be as high or higher.

For U.S., this is a major concern because manufacturing contributes disproportionately to support of R&D, product innovation, and to gains in overall economic productivity. In other words, if America is doing less manufacturing than it could competitively be doing, then it is underperforming in research, innovation, and productivity. This is the major issue…

In the article Why Manufacturing is Dead in America and Why That Shouldn’t Bother You writes: Manufacturing is dead in America: There, I said it. And it’s true. Our labor costs are simply too high when compared to labor overseas and the result is that we can’t compete on that basis anymore. The idea that manufacturing is dead in America shouldn’t bother you, since there’s a new set of rules: Like the character Ashley Wilkes in the book “Gone with the Wind”. You’ll recall that Ashley was determined to live in the past and, as a result, wilted away until he was a shell of a man.

The real hero of the story was the character Scarlett O’Hara, who took a more realistic, more pragmatic approach to life. Her attitude was, If the past is gone, then I’m going to adapt and adjust to my current situation and learn to prosper under the new set of rules.” America has transitioned from a country of “builders” to a country of “architects.” And that change is an opportunity, for those who choose to accept it. For argument’s sake, the “architects” are the idea people, the innovators and visionaries. The “builders” are the people who assemble the architect’s plans….

In the blog “U.S. Manufacturing Is Not Dead” by Hale Stewart writes:  There is a common theme across the internet: US manufacturing is dead and it’s never coming back. Well, there’s a big problem with that analysis: it’s not true. U.S. manufacturing is alive and well. The real issue is manufacturing employment, which is dropping like a stone. And the reason for the drop is an increase in productivity. Many people have a knee-jerk reaction to decline in manufacturing jobs and immediately blame outsourcing/imports for this decline. The linkage between increased imports and a decline in manufacturing jobs is virtually nonexistent.

What we clearly see is that imports increased quite dramatically over the last 30 years; while good producing jobs remained fairly level (dipping during recession and then recovering) until this last recession, which took a huge toll on manufacturing employment even though imports actually declined. This again plays much better to the argument that productivity increases are the greatest contributor to our decline in manufacturing employment than the outsourcing/imports argument…

The data appear to show that the real factor in goods job creation (or loss) is the relationship between productivity and production and just so we don’t define this as a U.S. problem; data also shows China’s loss of manufacturing jobs to productivity too.  Here are some general conclusions:

  • The U.S. still manufactures plenty of goods, including exports of industrial supplies, capital goods, autos, consumer goods …
  • While outsourcing does happen — it is not the primary cause of manufacturing job losses.
  • Higher education levels (college graduates…) were remarkably untouched in the latest recession while lower education levels (high school graduates…) had higher rates of unemployment…

In the blog “Is U.S. Manufacturing Really Dead, as Many Suggest?” by Mark Perry writes: “There are frequent claims that “nothing is made in America anymore,” because all of the manufacturing jobs and production have been outsourced to places like China, Mexico, and Korea. Such claims about U.S. manufacturing have been circulating so persistently and for so long, that most people now blindly accept these myths, even though empirical evidence provides a completely different story—a thriving and growing U.S. manufacturing sector.

“The decline, demise, and death of America’s manufacturing sector have been greatly exaggerated. America still makes a ton of stuff, and we make more of it now than ever before in history, but we’re able to do it with a fraction of the workers that would have been required in the past.

The U.S. is still the world’s leading manufacturing economy, thanks to the world-class productivity of American manufacturing workers, the most productive in the world. Instead of bashing China, Korea, and Mexico for competing against our manufacturing sector and exaggerating the decline of our manufacturing sector, Americans should take more pride and celebrate our status as the world’s leading manufacturer.”

In addition to America’s continued manufacturing strength, there is anecdotal evidence which suggests China’s rapid increase is slowing.  Other Asian nations such as Vietnam and Cambodia are starting to gain share.  It seems that Chinese companies are starting to design and innovate (like U.S. companies) and are “outsourcing” manufacturing to smaller Asian partners.

In the article Manufacturing Lies by Tom Granahan writes: When Mark Twain spoke of “lies, damned lies, and statistics,” he must have been talking with someone in the manufacturing industry. OK, maybe not. But it is fairly safe to say that the health of no major industry in U.S. is more misunderstood than that of manufacturing. (And we have the statistics to prove it.)

Like so many things that are wrongly portrayed in the mainstream media, the perception can often become the reality. It’s not too late yet, but if we’re not careful manufacturing is going to lose the hearts and minds of entire country, e.g.: myth:  U.S. Manufacturing Has Lost Its Significance — How many times have you heard, “Manufacturing is dead,” or “All the manufacturing jobs are being outsourced.”?

However, the facts are that manufacturing growth has grown significantly faster than the agriculture, mining and construction industries, according to data from the Commerce Department. Where the math usually gets fuzzy is in comparing manufacturing’s overall share of the U.S. economy.

It is indeed true that the industry’s piece of the pie has shrunk, but that’s a reflection of the phenomenal growth of the services industry…  Has “traditional” manufacturing in the U.S. suffered its fair share of blows? No doubt. But before sounding the death knell for U.S. manufacturing, remember this: There’s nothing we’re saying about China today that we didn’t say about Japan 20 years ago…

In the blog Is “U.S. Manufacturing Dying?” by Tom Grasson writes: William Strauss, senior economist and economic adviser for the Federal Reserve Bank of Chicago, points to the Federal Reserve Board’s monthly Industrial Index showing manufacturing-output growth has averaged more than 3.6% since World War II. This translates into nearly a 600% increase in manufacturing output or productivity over the same time period.

But what makes this productivity improvement even more remarkable is that employment has not changed dramatically — averaging between 15 and 20 million jobs over the past 60 years. Only true productivity and the amount of automated machinery used to produce an escalating amount of manufactured goods could lead to growth like this year after year.

In fact, over the past two decades, advancements in technologies like CNC, personal computers, multitasking machines, and more have increased productivity … According to Strauss, this strong growth in industrial production reveals the double-edged sword of trading employment growth for productivity gains.

On the other side of the coin, Richard E. Dauch, Chairman of the National Association of Manufacturers (NAM), believes manufacturers are caught between the proverbial rock and a hard place. Citing a recent NAM study that concludes that external overhead costs associated with taxes, regulations, rising energy prices, healthcare, pensions, and runaway litigation conservatively add 22.4% to the price of domestic production,

Dauch wants government at all levels, local, state, and federal to take action. He contends that the uneven playing field that U.S. manufacturers are forced to compete upon must be fixed not winked at. We must correct illegal trade barriers, abnormally high tariffs and taxes to U.S. products, and the engagement of currency manipulations. “Manufacturing must become a high-level national priority and government needs to take steps to buttress a future of U.S. manufacturing…

In the blog The Myth of the Manufacturing Recovery by Robert E. Scott writes: Some bloggers and many others claim that productivity growth is responsible for manufacturing job loss, but they’ve got it wrong. Growing manufacturing trade deficits from 1998 to 2006, and the worst recession since the 1930s are responsible for the vast majority of all manufacturing job loss.

We can reclaim a large share of these jobs by shrinking the trade deficit and putting this recession behind us. Productivity is not the culprit. Productivity has always grown rapidly in manufacturing–there was no big upsurge in the past decade. The recent uptick in productivity occurred in other sectors of the economy, which does help explain why job growth economy-wide was so terrible early in the decade. With manufacturing, the story is simple.

In the past, we had high growth in real output and high output growth in manufacturing leading to stable employment. Then, after 2000, productivity growth continued but output growth flat-lined and manufacturing employment collapsed. The reason: a soaring trade deficit in manufacturing products. People kept buying more manufactured goods; they just bought them from China and other exporters, not from U.S. manufacturers…

In the past, employment and the trade deficit in manufacturing were roughly stable from the late 60s through the late 90s. Then the Asian financial crisis hit in 1998. The value of the dollar soared along with the manufacturing trade deficit. Manufacturing employment fell like a rock, with a lag of about 2 years. The manufacturing trade balance did start to improve in 2007, but the big drop in the deficit came in 2008 and 2009, and was caused by the recession. The recession was also responsible for the loss of about 2 million of the 5.7 million manufacturing jobs lost since 1998…

In the blog The Mismeasure of Manufacturing by Natasha Chart writes: Using statistics primarily sourced from the Federal Reserve, we are repeatedly told that manufacturing isn’t dead, just manufacturing employment, due to all our productivity gains. I must disagree that it’s all about productivity, as did a group of economists who met last November to discuss government productivity measures, Louis Uchitelle of the New York Times reporting (via Curious Cat blog) writes:

… The fundamental shortcoming is in the way imports are accounted for. A carburetor bought for $50 in China as a component of an American-made car, for example, more often than not shows up in the statistics as if it were the American-made version valued at, say, $100. The failure to distinguish adequately between what is made in America and what is made abroad falsely inflates the gross domestic product, which sums up all value added within the country.

American workers lose their jobs when carburetors they once made are imported instead. The federal data notices the decline in employment but fails to revalue the carburetors or even pinpoint that they are foreign-made. Because it seems as if $100 carburetors are being produced but fewer workers are needed to do so, productivity falsely rises — in the national statistics. …

Therefore, since the share of imports from developing countries has been going up, and the prices of those imported manufacturing inputs has been dropping relative to equivalent inputs from developed nations, the cost of inputs to manufacturers has also been underestimated.  In other words, the U.S. is taking China’s productivity gains and adding them to its own productivity balance sheet, falsely inflating both manufacturing productivity and GDP…

As tragic as the loss in manufacturing jobs has been for many, this is how the economy is supposed to work over time. Technology improves, businesses find ways to do things with fewer people, and the world goes on — changed, but better. In 1900, 44% of all jobs were in agriculture. Tremendous improvements in farm productivity pushed that number to 2.4% by 2000. We could, as we do with manufacturing jobs, become nostalgic about the days when farm jobs were aplenty. Don’t.

Those who would have once plowed fields now work in more productive endeavors — programming computers, curing cancer, building roads, what have you. A perfect hell is going back to a world where half our labor is devoted to wielding a hoe. Think of manufacturing jobs the same way.  An even better example comes from 18th-century economic god Adam Smith, who once wrote about the production of metal pins: “One man draws out the wire, another straightens it, a third cuts it, a fourth points it, and a fifth grinds it.” Today, a machine does it all, and those five people work elsewhere…. maybe designing machines that make pins.