I recently read an article in CNNMoney  (Made in the USA is not Dead) about the manufacturing sector in the US and the fact that manufacturing is booming in this country, several sectors are producing record outputs and foreign companies are investing heavily in US manufacturing, even if the conventional wisdom suggests otherwise.
Chad Moutray, Chief Economist for the National Association of Manufacturers is quoted as saying “We made $2.1 trillion worth of products in 2015. There are sectors that are doing really well.”
According to the Federal Reserve’s inflation-adjusted measure of manufacturing, “US factories are producing three to five times more output than in the early 1950s to mid-1960s, when America was the globe’s manufacturing powerhouse.”
So this got me thinking. What sectors are doing well and what sectors are not? And why are we quick to point to manufacturing as a declining segment of our economy? I believe there are several factors that contribute to this. One is that robust manufacturing, at least that which is most visible to the general public, seems to be isolated to a few high-profile sectors, while others have suffered. Another is that, while US manufacturing productivity may be strong in certain sectors, it has not translated into jobs.
Three growth sectors are cited in the CNNMoney article: aircraft, automotive and chemical production, all large, big-ticket sectors. Boeing leads domestic aircraft production which, at an all-time high, is buoyed by Airbus and Embraer plants in Alabama and Florida, respectively. As pointed out in the article, US automobile production has been growing steadily since 2009 and is currently operating at only 7% below record levels. And the chemical industry hit a production record last year, up 30% in the last ten years. This is all good news, but what of the myriad other manufacturing sectors that have suffered declines in productivity over the past decade or more? To what extent have their declines been offset by growth in the three sectors cited above?
The other issue has to do with relatively weak jobs growth in manufacturing. According to the Bureau of Labor Statistics (BLS), manufacturing employment was 12.3 million in September of this year, down 37% from its peak of 19.6 million jobs in 1979. There are glimmers of hope in that net jobs have steadily been added over the past 5 years, but manufacturing employment still lags way behind the levels we enjoyed three decades ago. We all know the reasons for this. While many jobs have undoubtedly been lost to outsourcing, other declines have resulted from automation and enhanced efficiency. As a result of these latter two factors, the gap between manufacturing productivity and employment will continue to widen.
So I struggle a bit with two traditional paradigms that seem to be working against each other. For many years we have taken pride in the US as a country that “makes things.” At the same time, there has been an acknowledgement that our economy is largely driven by small and medium-sized businesses. The macro statistics suggest that we still enjoy robust manufacturing productivity. But if this productivity is largely isolated to a few big-ticket industries, how does this square with the role played by smaller business in driving the economy? And what does all of this mean if job growth is not commensurate with productivity growth. Again, according to the BLS, the unemployment rate in manufacturing in September was 4.2%, which seems reasonably low, unless one takes into consideration a portion of the labor pool that has dropped out of the employment market or perhaps migrated to non-manufacturing sectors.
I would be delighted to hear others’ perspectives on these issues. Please drop me a line and let me know what you think and what you believe the future holds for manufacturing in the US.
 CNNMoney, October 20, 2016