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Manufacturing Day

Monday, October 2, 2017

 

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1. US Manufacturing Output vs. Employment. The  chart above shows annual measures of US manufacturing output (based on the BEA’s GDP by Industry data here) and US manufacturing employment (based on BLS data here) from 1947 to 2014. In inflation-adjusted constant 2014 dollars, US manufacturing output has increased more than five-fold over the last 67 years, from $410 billion in 1947 to a record-setting level of output last year of $2.09 trillion (see brown line in chart). Although we frequently hear claims that the US manufacturing sector is dying or in a state of decline, manufacturing output in the US, except during and following periods of economic contraction like the Great Recession, has continued to increase over time, and reached the highest level of output ever recorded in 2014.

What has been in a steady state of decline is the number of manufacturing workers needed to produce the increasing amount of manufacturing output as the blue line in the chart above above shows. From a peak of nearly 19.5 million US factory workers in 1979, the number of manufacturing employees has steadily declined to a recent low in 2010 of 11.6 million workers before rebounding to slightly more than 12 million employees last year.

Comment: The ability of the US manufacturing sector to produce increasing amounts of output with fewer and fewer workers should be recognized as a sign of economic strength and vitality, not economic weakness. Thanks to advances in technology, the factory floor today is one with modern, advanced, state-of-the-art equipment that requires fewer employees, but with greater skills and training than in the past. The trend in US manufacturing over the last 30 years – more and more output with fewer and fewer workers – is exactly like the transformation that revolutionized US farming over the last 100 years or more. With fewer than 2% of America’s workers, we produce more agricultural output today in the US than when much greater numbers and much higher shares of the nation’s employees were working on farms. And yet when have you ever heard anybody say that “America just doesn’t grow anything anymore”? The fact that we frequently hear that “America just doesn’t manufacture or produce anything anymore” isn’t consistent with the reality that US factories produce more output today than at any time in US history.

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2. Manufacturing Output per Worker. The  chart above shows the dramatic increases over time in the amount of manufacturing output produced per US worker, which more than doubled in the 42 years between 1955 and 1997 from $40,000 to $85,000, and then more than doubled again in only 13 years between 1997 and 2010 to about $171,000 (all figures are expressed in constant 2014 dollars). Manufacturing output per employee last year of $171,538 established a new all-time record for the productivity of the American factory worker, measured in manufacturing output per factory worker.

3. Manufacturing Fact: The US produced slightly nearly $2.10 trillion of manufacturing output last year. Considered as a separate country, the US manufacturing sector would have been the 9th largest economy in the world in 2014, ahead of No. 10 India’s entire economic output (GPD) of $2.05 trillion and slightly behind No. 8 Italy’s $2.14 trillion of GDP last year.

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4. International Perspective of US Manufacturing. Another way to grasp the enormous size of the US manufacturing sector is illustrated in the graph above. Based on United Nations data currently available through 2013, the US produced almost as much manufacturing output in 2013 ($2.03 trillion) as the combined manufacturing output of the six countries of Germany, South Korea, France, Russia, Brazil and the UK ($2.14 trillion). Think of that international manufacturing comparison the next time you hear that “America’s manufacturing sector is dying” or that “America just doesn’t produce anything anymore.”

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5. US Manufacturing Profits. When assessing the size, strength and health of America’s manufacturing sector, what ultimately matters is not the amount of output produced or the number of factory workers, but the amount of profit being generated by US factories. By that measure, US manufacturers as a group have never been bigger, stronger and healthier than in recent years, as the chart above shows. In each of the last four years (2011-2014), annual manufacturing profits have averaged nearly $600 billion (in constant 2014 dollars), which is more than 20% above the annual average of $494 billion in the four years before the Great Recession (2004-2007) and nearly double the average annual manufacturing profits generated during the 1993-1999 period of about $306 billion. Another profit-related indicator of manufacturing strength is the fact that manufacturing profits remained relatively high in 2008 and 2009 during and after the Great Recession, especially when compared to the much greater reduction in profits during the 2001 recession.

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6. The Miracle of Manufacturing. As US manufacturing has become more technologically advanced and efficient, the price of manufactured durable goods has fallen in relation to both: a) other consumer products and services, and b) Americans’ after-tax disposable personal income. The chart above shows how much Americans collectively spend annually on four manufactured categories of consumer products: food, cars, clothing, and household furnishings like home appliances, as a share of national after-tax disposable income from 1947 to 2014. In 1947, Americans spent more than 42% of total after-tax personal income on those four categories of manufactured consumer products. As manufactured goods fell in price over time due to production efficiencies, technological advances, and greater worker productivity; and as personal income grew, the share of Americans’ disposable income spent on food, cars, clothing and household furnishings gradually and consistently fell to about 15% in each of the last 7 years. In relation to other goods and our income, manufactured goods have never been more affordable.

Bottom Line: As we celebrate Manufacturing Day on Friday, we can be thankful that America’s manufacturing sector has never produced more output or been more profitable than in recent years. Further, factory worker productivity has never been higher and the affordability of manufactured goods as a share of disposable personal income has never been greater. That’s a lot to be thankful for, so let me express my gratitude and thanks today to US world-class manufacturers and America’s factory workers.

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