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Is Decline of U.S. Manufacturing Exaggerated?


We usually think of America as a has-been in manufacturing, so the graph below may come as a surprise to some readers. It was sent to us by our friend Brad, who likes to play devil’s advocate whenever we go over-the-top with some outlandishly bearish prediction about the economy.  The graph itself accompanied a recent article in National Affairs, “Keeping America’s Edge,” by Jim Manzi.  America’s apparent decline in manufacturing is a claim that has been repeated so often that few would think to challenge it. The U.S. used to make real “stuff,” according to this argument, but now it no longer does. What this graph shows, according to comments at Manzi’s blog,  “is that this claim is at best exaggerated, and almost certainly wrong.”


Can this possibly be true? It certainly appears that way. “The huge (and hugely disruptive) surge in manufacturing productivity in the last sixty years has dramatically reduced the share of American workers employed in manufacturing, but manufacturing’s share of GDP has barely budged,” notes a blogger at Manzi’s site. “The decline in US manufacturing labor has created a sense of crisis in manufacturing, but it mostly means that labor productivity has risen sharply.  That is unquestionably a good thing,” he continued.   

China No Job-Killer 

“Unfortunately, fears about America’s decline in manufacturing have unnecessarily complicated discussions about China’s rise in the US, and created more worry then is merited.  China’s growth is not hollowing out U.S. manufacturing.  There are certainly problems with imbalances that need to be addressed, but they need to be addressed rationally with a clear understanding of the difficult issues each country faces within the relationship.”

Our initial reaction was disbelief. How, we wanted to know, do these figures account for offshore manufacturing by U.S. companies, and what is their impact on personal income?  Surely the huge sums earned by service-industry financiers dwarf the earnings of manufacturing-sector employees?  And, do these statistics recognize the fact that the only successful car manufacturers in America are foreign-owned?

Readers, we invite your comments.  Does the U.S. have a future in manufacturing that we erroneously wrote off long ago?  And will our prospects be limited by a lack of good jobs for manufacturing workers who have been replaced by machines?  

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  • mike roach January 20, 2010, 11:22 pm

    What effect will Scott browns election have on gold and silver? If any at all. Thank you mike

  • Andrew January 2, 2010, 6:55 pm

    I think ‘we’ are Slowly waking up. ( I Do think many in the US still don’t realize something Really serious is ‘up’.
    We see ‘my’ job is gone, ‘my’ city is ‘gone’.
    Try this;
    What was the first country to land men on the moon?
    In 200 years, when the textbooks are written in China, the US landing on the moon will be like Leif Erickson’s (and American Indian’s) ‘discovery’ of America – forgotten.
    America is going to have the Russians launch our astronauts??
    We need not just honest money, honest jobs, but access to them.
    I think this is a BIG event.
    What is it ‘we’ are producing? I can’t believe it is good jobs, research.

  • r December 30, 2009, 4:05 pm

    Anyone who will visit what used to be prosperous manufacturing towns like Lansing, MI or Flint, MI and see what it now is will know that the article leaves out other factors, as many posters have already noted. And it’s not just that GM has lost market share, though that’s part of the reason. It’s not only because of their unions, though that’s another factors as well. It’s also because the jobs have gone and won’t be coming back.

    I highly doubt that ‘manufacturing’ jobs at burger joints pay as much as the old production line jobs did.

  • Charles VanHook December 30, 2009, 6:33 am

    The blue line going down is our 17% + unemployment. The other line showing steady productivity is partially true because a lot of the parts I use in my manufacturing busiess comes from China. We could eventually end up at 35% unemployment and still have a steady rate of productivity.Wake up, what good is productivity if you are the one without a job?

  • Howard December 30, 2009, 5:18 am

    For what it’s worth, I do not think we have ever adapted to the industrial revolution. The old econonomic models simply don’t work anymore.

    Of course, there is no cure for our modern economies regardless, as all our money is created as debt, (why commentators on Japan, USA, UK et. al. ignore this fact is incomprehensible to me ??).

    We still use pre-industrial-revolution economic models.
    Obsolete by any measure.
    This, imo, is (1 reason) why governments have had to take up the slack and why we have such bloated public service sectors.

    It goes w/o saying that exporting even more jobs is insane.
    I suppose one either thinks those in charge are complete imbeciles, or there is an entirely different agenda being played out…

    That said, modeling a new economy based on (true) credit rather than debt would go a long way towards long term viability, but a new economic understanding would still be required to deal with the not-so-new but ever increasing technological advances and the resultant increases in productivity.

    Re. Dusty’s comment: The only thing that America is good at manufacturing is “money”, it’s a great line, but totally false. The US borrows money from a private banking cartel – all our money is debt.

    But what do I know?
    I only use logic to think these things through…

  • brutlstrudl December 30, 2009, 4:19 am

    Hey johnjay, back in the 50’s nd 60’s my town was a powerhouse too. Schenectady, New York was the home of GE and American Locomotive. Nobody could move when the shifts changed. Now it’s just a Project.

  • Rich December 30, 2009, 2:08 am

    Speaking of who manufactures iPhone:
    Of course knowledge workers claim the ultimate capital is intellectual property as in design and software like Google. Not so sure. Strategically, we still need to eat and use essential things like heat, safety, shelter, toilet paper, secure communications and reliable transportation. Being dependent on the Middle East or China for our energy or things is ultimate suicide or war as the Japanese found out when we blocked their supply lines prior to WWII.
    One major reason WEB does not invest in much technology, other than LVLT, is that it is easy to knock off high tech leaders with new inventions, why Andy Grove at Intel had for his motto: Only the Paranoid Survive….

  • johnjay December 30, 2009, 1:19 am

    For what it is worth, I grew up in Bridgeport, Connecticut in the 1950’s and 60’s.
    That city was a manufacturing powerhouse, with factories churning out quality products and employing thousands of honest hardworking Americans. It is now Detroit in miniature.
    Below is a list of the factories that shut down or moved away. Free Trade in action!
    Bridgeport is now broke because it no longer serves any useful purpose.
    Here is the list for Bridgeport/Stratford of vanished manufacturing capacity.

    Acme Shear
    American Chain and Cable
    Avco Lycoming
    Bassick Caster
    Bead Chain Company
    Bridgeport Brass
    Bridgeport Machine
    Bryant Electric
    Carpenter Steel
    Columbia Records
    Contract Plating
    General Electric
    Handy and Harmon
    Harvey Hubbell
    Jenkin’s Valves
    Manning, Maxwell, and Moore
    Metropolitan Body
    McKesson and Robbins
    Producto Machines
    Raybestos Brakes
    Remington Arms
    Remington Electric Shaver
    Singer Sewing Machines
    Sprague Meters
    Tek Bearings
    Tilo Roofing

  • Rick Ackerman December 29, 2009, 11:29 pm

    The following was posted by Rick for Steven George Fair:

    The chart on manufacturing was interesting. Let us look at reality.

    At Government Motors GM produces a car for $50,000.00 which is sold on credit allowing $50,000.00 GDP and $50,000.00 in manufacturing data.

    However, only $10,000.00 of that $50,000.00 is ‘Real’ U.S. Manufacturing.
    $40,000.00 of the manufacturing was done in China, and the Labor costs Real GDP going to China.

    With this single model I have explained the Problems with REAL GDP, and the loss of all lower level labor and manufacturing gains. Everything ‘natural’ is obtained from a mine in Canada, or China, or some other 3rd world country, ie; iron ore from over there, steel from here, rolled metal from somewhere, and fenders manufactured in Mexico.

    We used to make everything here in the united States. Now we import deflation, and assemble a few things on GM’s assembly line, or Dell, or whomever. The majority of all ‘labor’ gains stay offshore, and the bean counters provide charts to show manufacturing levels steady. Yep ! GM produced a $50,000.00 car, and the Bankers suck up the labor of some schmuck working for $12.00 an hour.

    All of the Men working Iron Ore in the united States are on unemployment, and looking for a new government job – which is nothing more than welfare – government jobs produce nothing of value, gain to an actual economy.

    This is the grandness of Corporate CEO’s exporting labor, importing deflation, and lining their pockets at the expense of the American Worker.



  • Eric December 29, 2009, 10:13 pm

    I believe that the federal government has re-defined manufacturing in recent years to include fast food preparation (ala burger king) as manufacturing. If this is so, many of our families are still involved in manufacturing. If so, perhaps we could export those nice warm whoppers to pay for our imports?

  • C. Dee December 29, 2009, 10:00 pm

    Just an observer and reader.. a goldbug, not investor, here. I think you are overlooking the fact the the Goverment redefined manufacturing a few years back. The one change that most impressed me — a change that involved a friend who owns her own coffee shop — is that my friend had to reclassify her sandwich-makers from service workers to manufacturing workers because they were “assembling” sandwiches. The same goes for hamburger “manufacturers.”

    You might want to factor in some of these changing goverment definitions, since they alter the daya that underlie charts like the one you’ve published.

  • Dusty December 29, 2009, 9:50 pm

    The only thing that America is good at manufacturing is “money”. They have printed more money in the past 2 years than 300 years of accumulated federal debt. I want to invest in the company that is supply ink and paper to those printing machines!


  • Cutting Oil December 29, 2009, 9:49 pm

    I am not sure what to believe. I have been a Machinist for 25 years building tooling ,molds , aircraft parts. There has been a huge increase in productivity with the advent of computers and computer controled production machinery. I check country of orgin when I buy something most stuff is made in China now. I think Boeing and the Defense Department are the the only thing keeping most machine shops alive.

  • ERWIN December 29, 2009, 9:29 pm


  • CC December 29, 2009, 9:29 pm

    “Unfortunately, fears about America’s decline in manufacturing have unnecessarily complicated discussions about China’s rise in the US, and created more worry then is merited. China’s growth is not hollowing out U.S. manufacturing. There are certainly problems with imbalances that need to be addressed, but they need to be addressed rationally with a clear understanding of the difficult issues each country faces within the relationship.”

    Great piece of CYA and gobbledegook right there.

    Tell you what, how about an experiment? How about a grab-bag of anecdotal evidence that any of us can gather over a period of 30 days.

    It starts at Costco.

    Then to Orchard Supply.

    Then to Lowes.

    Then to… Walmart.

    Take a look at just about anything (non-food related) textiles that you use or need for everyday living.

    – Furniture
    – Clothing
    – Plastic manufactured goods
    – Tools
    – Even items like portable generators and such

    After reviewing closely where these items are made, are you prepared to defend an argument that says we still ‘manufacture’ here – at least to any degree that could measure up against one of our ‘off-shored’ hot houses?

    I know we still manufacture locomotives and rail cars outside of Boise Idaho (I think…)

    And I know I buy my socks from Wigwam (definitely mfg’d in America)

    But take for example, my mock turtleneck merino wool sweater I’m wearing right now. It’s a Pendleton… You know, Pendleton Woolen Mills up there in Oregon. Rustic ads and flyers showing the long history of the Pendleton Mill – the rodeo, Cowboys, etc. Wow. Talks about America, right? Now guess where my sweater is made. Don’t strain too hard…

    I’ve got a rather simpleton argument I use in discussions regarding ‘what will it take’ for the U.S. to regain a strong manufacturing role. I tell people to begin by looking down at their feet, and simply progress from there all the way to the top and then into the house, pantry and garage. When a majority of those items are again designed, manufactured, distributed and sold in America and/or exported to countries abroad, then we will have the beginnings of a return to the prominence we once held and a foundation upon which a strong middle class can grow.

    What – is there something shameful about having a few 200k sq. ft. warehouses that take in raw materials at the front end and pop out a fully manufactured good at the back end? Is it inconceivable that perhaps hundreds or thousands of ‘factory workers’ should arrive at said locations to take part in meaningful employment as a team effort making ‘stuff’?

    Now this may all sound simplistic, given the fact that we are now a ‘technology’ or ‘knowledge’ based economy. Really? Weren’t we the FIRE economy (or perhaps still are)?
    If Rich is correct, and we spiral south again, what will bring us out? iPhone 4G…?

    If a country can’t manufacture the most basic of goods/textiles, where then does manufacturing begin again?

  • ERWIN December 29, 2009, 9:27 pm


  • Rich December 29, 2009, 9:11 pm

    Rick’s timely topic hit a raw nerve for a lot of US on vacation reflecting on the theft of the American economy and our future. Mr Market will not forever ignore fundamentals.
    Many profound ideas here today that Wall Street Fed DC masters of the universe seem to have somehow overlooked while politicians take foreign emolument bribes from corporate lobbyists who pay less than 1/5th of all income and payroll taxes and expect American taxpayers to spend untold unproductive man hours to pay the lion’s share of costs with a red tape Federal Register longer than the Bible.

    We no longer have a Free Democratic Republic, but Corporate Monopoly Government robbing Americans blind and killing civilians around the world with high technology.

    The law of government subsidies with unintended consequences destroyed the American economy, now with a higher ratio of rich to poor and more capital flight than 1929 to 1949 leading to World War III.

    Subsidized US Sicko Healthcare is the most expensive in the world, while American infant morbidity fell to around Bosnia’s. Thank banker lawyer politicians who did not produce anything, but took an enormous toll from the economy.

    Patriot Act, Carbon Tax and 0Care are expensive rationing of freedom with endless unproductive litigation giving more of our prosperity to Big Sister PC Czars like Janet Napolitano, Carol Browning and Kathleen Sebelius, grinning and warming their musical hotseats. There are suckers born every minute.

    Taxpayer subsidized education awarded up to half of all American graduate engineering degrees to foreigners who went back home to outproduce American law graduates who outnumbered productive American engineers thirty years ago or became rich terrorists funded and trained by petrodollars and unwitting taxpayers to export death squads to Africa, Asia and South America.

    As Robert Reich, Ron Paul and Jack Kemp observed, government cannot outproduce manufacturing, create productive jobs or pick winners.
    NeoKeynesians on Wall Street and in DC crippled America with defaulting debts, deficit spending and kleptocracy.

    Government industrial trade policy failed for most Americans who saw real wages drop since 1984, when real annual GDP growth peaked in 1984 at +7% before dropping to -6% this year. Real unemployment bottomed in 2000 around 10% before more than doubling t0 22% now. Is this a great country or what?



    No blue chip company like GE, GM or GS fixed this by buying politicians and their offices. The invisible hand of the market reached its verdict by dropping prices.

    The only real solution to profligacy is higher savings and productivity that are accomplished by reducing deficit costs and the spending of gargantuan government.

    Government currently faces $604 T in derivatives, $106 T in unfunded agency mandates and $13 T in insolvent Treasuries that may put it out of business on a county, state and national level, thus liberating We The People, defacto revolution by default.

    Real employment and productivity solutions come from closely-held dividend discount companies that outperformed like those on our TopTen Seasonal List, the very same companies Cash for Clunkers, Cash for Caulkers, 0Care, Pork Barrel Earmark Infrastructure Politics, PPIP, red tape, TARP, TELF and special interest tax credit subsidies harm.

    What we all require for prosperity is our freedom to keep our productivity with less deficit government theft.

    Replacing unProductive income taxes with the Constitutional uniform 1% Temporary Transparent Tobin Total Transaction Tax allows Americans to keep 99% of what they produce, spend and invest, as opposed to present government tax, spend and borrow behaviours destroying our economy.

    For those screeching TT may destroy American financial markets, TT worked from 1914 to 1966 and still works with real property and SEC security transfer taxes today. During the Great Depression, the transaction tax was doubled to pay down government deficits…

    Best wishes*Rich

  • market ace December 29, 2009, 8:19 pm

    Anyone can see that “manufacturing” in the US has declined over the years. Even to the point that the Gov’t has had to reclassify cooking food as manufacturing. It would also be interesting to see how much manufacturing activity during the past 8 years is military equipment used for our unending wars and how that has boosted the stats in the graph.

    A news release today says more than some questionable gov’t stat.

    “The US manufacturing sector has taken a dive in December to a 28-year low amid a deepening recession now embracing the once superpower.

    Figures released by the Institute for Supply Management (ISM) suggest that the United States manufacturing output has now contracted for five months in a row, with activity declining to 32.4 percent in December from 36.2 percent in October.”

  • jeff poppenhagen December 29, 2009, 8:07 pm

    We admit that we can’t accurately account for imports in GDP stats. We massively overstate the manufacturing capabilities in the U.S.:


  • cp December 29, 2009, 7:52 pm

    I’m surprised more people other than photradarscam haven’t brought up a very basic comment/question. What constitutes “manufacturing? Remember when some administratin tried to reclassify fast food burgers as Manufacturing? Afterall, I’m sure the reasoning went, hamburgers are being “made”. It’s necessary in this discussion to start with an accurate breakdown of honest
    manufacturing figures. Furthermore. as others have noted, what percentage of a product is actually made here and not overseas? Sorry, but it seems like BS to me.

    Why is John Williams listened to if we don’t believe in governmnet numbers?

  • Robert December 29, 2009, 7:47 pm

    I completely agree with John’s comment above. Many US “manufacturers” are in reality just sales and marketing presences pushing Asian built product, yet they include this offshore productivity as part of their manufacturing output…

    Many US companies declare that since they own the intelectual property, that they can report the output, yet their Chinese outsource providers also report that output- the end result being a double accounting of manufactured goods: once by the Asian company that created the junk, and again by the US company that contracted them to create the junk.

    Make no mistake about it however: US Semiconductor chip manufactureres are not manufacturing chips at the same level they were in 2001 – they are reporting the yield of Asian sub-contractors as part of their output.

    In my opinion, The percentage of US manufacturing output as a percentage of GDP reflected in that graph is a shadow statistic at best, and an outright numerical fabrication at worse.

  • CC December 29, 2009, 7:29 pm

    “These are all reactive economies but US will always be in forefront for finite number of years in creating a proactive atmosphere about new products and making people experiment their life style with innovation.”

    Yes indeed, the caveat emptor (‘for finite number of years’)…

    And what do you think might prompt those ‘finite number of years’?

    Gee, do you think it might be an over-intrusive GOVERNMENT…?


    And what loyalty to the tenets of Washington, Madison, Adams and Locke do the Brain-trusts from India and China, that fuel much of our ‘innovative’ domestic manufacturing, have here that would keep them from going back to ‘innovate’ in their home countries who are now experiencing a transformation to a more modern economy?

    Would it be the tenets of our Founding Fathers, our would it be the scratch of higher-valued Rupees or Yuan?

    Yeah, I know it sounds all Ron Paul-ish and jingoistic. But it just happens to be true.

    Watch it play out.

  • Bruce December 29, 2009, 6:21 pm

    Interesting graph. Conspicuous by its abscence are the last 8 years of data however.

  • Mark December 29, 2009, 6:17 pm

    The future of manufacturing both low and high ASP (average selling price) products in volume is no longer applicable to the US. From 1979 to 2002, I worked in Colorado with Hewlett Packard, Storage Technology, Seagate, Maxtor, Digital Equipment, both in manufacturing, engineering and purchasing. Luckily we didnt have a union workforce that commanded more $$ for less work, higher overheads, etc.. but manufacturing and engineering costs are too high to be competitive in the world market place. Let’s face it we are now best able to service the economy by creating paper, destroying most manufacturing jobs and supporting a parasitic government job creation.

  • Rich December 29, 2009, 6:15 pm

    Looks like Fed realized King dollar important to US Future.
    3 month T Bill launched up today to 125 basis points off just 5 BPs six weeks ago, possibly headed for 131 BP breakout. So much for quantitative easing.
    Last time T Bills did this a year ago, Mr Market had another big leg down with painful incendiary devices burning those without protective stops.
    Short-term Timing tricky, so we trust Rick; pays to be prepared.
    Could add GD from 35 to 105 and ICXT from 3.60 to 10.75 as other areas where USA leads the world, as well as AAPL 78 to 231 and AMZN 35 to 176.
    Seeing Tylenol contamination recall today remindful of Rick’s astute SmithKline Contac rat poison Put sleuthing that led to $200,000 reward.
    9-11 Alex Brown DeutscheBank Airline and Insurance put buyers still not publicly identified; head of AB did direct a certain clandestine agency.
    BTW, Cliff Bar referred to black candlestick tipping point with higher high and lower close, perhaps presaging Mr Market going over a Cliff. More Cliff Bars lately.
    Low Stock Volume with seasonal bullishness also possible warning.
    Morningstar showed $66 of bond funds bought for every $1 of stock funds in 2009, higher i Rate risk warning if we observe lemming cliff theory.
    Yes, it’s profitable, tough and unpopular to go against the crowd.
    Big4 new Short CO2 with COP15 collapse and new Longs Cocoa, Pound and Swiss Franc. Still short Bonds, Notes, Commodities, Gold, Silver, Big Stocks.
    58 other key asset allocation proprietary positions for subscriber profits with moneyback guarantee, [email protected]
    Happy New Year for Prosperous Trading. Regards*Rich

  • David Sakmar December 29, 2009, 5:55 pm

    Measuring labor productivity in the US reminds me of college football. I do believe we are packing more punch per hour worked, just like I believe that Urban Meyer did, indeed, pack 30 years of coaching success into 9 years of coaching. But at what cost? He’s a forty year old man who just about died of a heart attack, and has the health issues of someone twice his age, unfortunately. Similarly, if we’re prepared to treat workers as interchangeable parts, perhaps we can keep it up. Just keep replacing the dead guys with fresh troops. But its not clear to me this type of labor “productivity” is sustainable in the long run. If it is, then you still want to be an owner of capital, relaxing on ur boat while capturing the gains of someone else’s life-killing labor. Cruel reality inside seemingly benign numbers.

  • Jason December 29, 2009, 5:41 pm

    I recall reading an article about productivity. There is no way to distinguish whether a product is manufactured in USA or overseas. For example, a company with 2000 USA employees moves manufacturing overseas and reduces USA employees to 1000. They still sell the same amount of widgets with 1000 employees; thus, productivity is up.

    In the graph above and the reported productivity numbers, they appear to be an indicator of the extent of outsourcing.

  • Al December 29, 2009, 5:40 pm

    Richard Russell has quoted different figures for many years: in the late 1960s 55% of the profits on the NYSE were derived from manufacturing companies while today that percentage has dropped to 9%. That coincides with my own observations that most heavy manufacturing has moved offshore, first to Japan, then to Korea/Taiwan and most recently to China. I saw a Wall Street Journal article which claimed that 87% of manufacturing remaining within the US was defense related. This is corroborated by my own trips to Walmart where virtually no manufactured goods are for sale that are produced in the US. Elsewhere I saw a new Caterpillar machine, with the manufacturer’s information affixed to it: Made in China.

  • photoradarscam December 29, 2009, 5:07 pm

    If the chart is true, then how come you can’t hardly find anything in Walmart that’s made in the USA? How come my company is taking every opportunity it can to fire Americans and move production overseas? The one thing the chart doesn’t address is what exactly is defined as manufacturing output? The chart also ends around 2005, and the offshoring movement accelerated in the past 5 years. I’m not buying it…

  • DonF December 29, 2009, 4:43 pm

    My daughter in high school statistics class knows that a statistician can create a graph or chart to make whatever point is currently in vogue. From life experience, I see that my REAL wages buy much less than they did in 1970.

    My REAL share of GDP has gone down since 1970. So, whose REAL share of GDP has gone up since 1970?

    It doesn’t matter how much manufacturing the US has if the upper management is the only class that benefits, in REAL wealth terms, from the increased productivity of the workers.

    When a class removes more wealth than it returns, society has a problem, an increasingly serious problem. Is this what is happening in the US since 1970?

    If our country is to return to solid footing economically, then the workers need to take back what is theirs, the fruits of their labor. In the last 30 years, the upper management in ALL sectors, in concert with our corrupt government, has become entrenched in their philosophy of robbing from the masses in more and more diabolical ways. They won’t willingly change. History has proven that!

    Will decreased outsourcing and less offshoring bring back the good life? Ha ha!
    Will increased exports bring back the good life? Ha ha! Will Americans technical innovation and creativity bring back the good life? Ha ha! Will addressing trade imbalances bring back the good life? Ha ha!

    Will American workers REAL wages going up bring back the good life? YES! YES! YES!

    How can we raise REAL wages? By pleading with our leaders to stop plundering the masses? Ha ha!

    Many Americans have the Spirit of ’76!

  • CHuck Griffiths December 29, 2009, 4:19 pm

    Hi Rick- I’m afraid your pal is whistling past a graveyard. The chart shows a fairly steady 13% of GDP . Our past GDP’s have been 5%, present GDP 2%.If you take 13% of each you will see that Mfg. has fallen off by 1/3.
    If you just considered the manufacturing portion of GDP (most GDP is consumer spending) the comparison would be much worse. Also consider that GDP and Mfg. are both measured in Dollars. The dollar has fallen in value about 20% over the last year. Consequently it takes 1/5th more dollars to buy the same item. Or, to phrase it another way Mfg. has increased by 20% without creating one more doo-dad

  • Zgartz December 29, 2009, 3:59 pm

    Sorry Brad but all BLS statistics are suspect these days. They must include the manufacture of red tape.
    The present administration will continue to introduce red tape so that small manufacturers will fold and new ones will choose the government handouts instead of taking entrepreneurial risk. So the USA will look like Europe, then China, if the 2010 elections don’t change the composition of Congress and the Senate. After all, over 50% (I hear 70%) of those members are lawyers. They manufacture red tape and if that’s not in your stats, they’ll fall off a cliff.

  • Eugen December 29, 2009, 3:52 pm

    I believe the data in the graph is flawed. Im involved with US and China manufacturers and there is a trend that has occurred. Just about all US manufacturers now buy thier parts in China and other low labor cost countries and then assemble the completed product here in the US. THis registers as GDP on the US part for the entire cost of the product when in reality a higher percentage of the product is actually made over seas. The blue line speaks the truth.

  • ray December 29, 2009, 2:05 pm

    As manufacturing jobs chase the cheapest locations around the globe to perform such, this will remain. Eventually everyplace has a minimum price that one will perform such a job, the question is how close are we to that point. As standards of living rise throughout the world, this scenario (of running out of cheap places) gets closer.

  • Gary Paul December 29, 2009, 11:20 am

    Daman Prakash is absolutely right and he shows excellent understanding. One of the best comments I have ever read.

  • watcher7 December 29, 2009, 10:26 am

    Below is Peter Ducker’s take on the future of manufacturing from “A survey of the near-future – The Next Society”, economist.com, November 1, 2001, that may be of interest. The information Age proper will begin after the next Great Depression just as the Manufacturing Age proper began after the Great Depression of the 19th C.

    The manufacturing paradox

    How to get far more output with far fewer workers?

    In the closing years of the 20th century, the world price of the steel industry’s biggest single product——hot rolled coil, the steel for car bodies——plunged from $460 to $260 a ton. Yet these were boom years in America and prosperous times in most of continental Europe, with automobile production setting records. The steel industry’s experience is typical of manufacturing as a whole. Between 1960 and 1999, both manufacturing’s share in America’s GDP and its share of total employment roughly halved, to around the 15% mark. Yet in the same 40 years manufacturing’s physical output doubled or tripled. In 1960, manufacturing was the centre of the American economy, and of the economies of all other developed countries. By 2000, as a contributor to GDP it was easily outranked by the financial sector .

    The relative purchasing power of manufactured goods (what economists call the terms of trade) has fallen by three-quarters in the past 40 years. Whereas manufacturing prices, adjusted for inflation, are down by 40%, the prices of the two main knowledge products, health care and education, have risen about three times as fast as inflation. In 2000, therefore, it took five times as many units of manufactured goods to buy the main knowledge products as it had done 40 years earlier.

    The purchasing power of workers in manufacturing has also gone down, although by much less than that of their products. Their productivity has risen so sharply that most of their real income has been preserved. Forty years ago, labour costs in manufacturing typically accounted for around 30% of total manufacturing costs; now they are generally down to 12-15%. Even in the car industry, still the most labour-intensive of the engineering branches, labour costs in the most advanced plants are no higher than 20%. Manufacturing workers, especially in America, have ceased to be the backbone of the consumer market. At the height of the crisis in America’s “rust belt”, when employment in the big manufacturing centres was ruthlessly slashed, national sales of consumer goods barely budged.

    What has changed manufacturing, and sharply pushed up productivity, are new concepts. Information and automation are less important than new theories of manufacturing, which are an advance comparable to the arrival of mass production 80 years ago. Indeed, some of these theories, such as Toyota’s “lean manufacturing”, do away with robots, computers and automation. One highly publicised example involved replacing one of Toyota’s automated and computerised paint-drying lines by half a dozen hairdryers bought in a supermarket.

    Manufacturing is following exactly the same path that farming trod earlier. Beginning in 1920, and accelerating after the second world war, farm production shot up in all developed countries. Before the first world war, many Western European countries had to import farm products. Now there is only one net farm importer left: Japan. Every single European country now has large and increasingly unsaleable farm surpluses. In quantitative terms, farm production in most developed countries today is probably at least four times what it was in 1920 and three times what it was in 1950 (except in Japan). But whereas at the beginning of the 20th century farmers made up the largest single group in the working population in most developed countries, now they account for no more than 3% in any developed country. And whereas at the beginning of the 20th century agriculture was the largest single contributor to national income in most developed countries, in 2000 in America it contributed less than 2% to GDP.

    Manufacturing is unlikely to expand its output in volume terms as much as agriculture did, or to shrink as much as a producer of wealth and of jobs. But the most believable forecast for 2020 suggests that manufacturing output in the developed countries will at least double, while manufacturing employment will shrink to 10-12% of the total workforce.

    In America, the transition has largely been accomplished already, and with a minimum of dislocation. The only hard-hit group have been African Americans, to whom the growth in manufacturing jobs after the second world war offered quick economic advancement, and whose jobs have now largely gone. But by and large, even in places that relied heavily on a few large manufacturing plants, unemployment remained high only for a short time. Even the political impact in America has been minimal.

    But will other industrial countries have an equally easy passage? In Britain, manufacturing employment has already fallen quite sharply without causing any unrest, although it seems to have produced social and psychological problems. But what will happen in countries such as Germany or France, where labour markets remain rigid and where, until very recently, there has been little upward mobility through education? These countries already have substantial and seemingly intractable unemployment, eg, in Germany’s Ruhr and in France’s old industrial area around Lille. They may face a painful transition period with severe social upheavals.

    The biggest question mark is over Japan. To be sure, it has no working-class culture, and it has long appreciated the value of education as an instrument of upward mobility. But Japan’s social stability is based on employment security, especially for blue-collar workers in big manufacturing industry, and that is eroding fast. Yet before employment security was introduced for blue-collar workers in the 1950s, Japan had been a country of extreme labour turbulence. Manufacturing’s share of total employment is still higher than in almost any other developed country—around a quarter of the total—and Japan has practically no labour market and little labour mobility.

    Psychologically, too, the country is least prepared for the decline in manufacturing. After all, it owed its rise to great-economic-power status in the second half of the 20th century to becoming the world’s manufacturing virtuoso. One should never underrate the Japanese. Throughout their history they have shown unparalleled ability to face up to reality and to change practically overnight. But the decline in manufacturing as the key to economic success confronts Japan with one of the biggest challenges ever.

    The decline of manufacturing as a producer of wealth and jobs changes the world’s economic, social and political landscape. It makes “economic miracles” increasingly difficult for developing countries to achieve. The economic miracles of the second half of the 20th century – Japan, South Korea, Taiwan, Hong Kong, Singapore – were based on exports to the world’s rich countries of manufactured goods that were produced with developed-country technology and productivity but with emerging-country labour costs. This will no longer work. One way to generate economic development may be to integrate the economy of an emerging country into a developed region – which is what Vicente Fox, the new Mexican president, envisages with his proposal for total integration of “North America”, ie, the United States, Canada and Mexico. Economically this makes a lot of sense, but politically it is almost unthinkable. The alternative – which is being pursued by China – is to try to achieve economic growth by building up a developing country’s domestic market. India, Brazil and Mexico also have large enough populations to make home-market-based economic development feasible, at least in theory. But will smaller countries, such as Paraguay or Thailand, be allowed to export to the large markets of emerging countries such as Brazil?

    The decline in manufacturing as a creator of wealth and jobs will inevitably bring about a new protectionism, once again echoing what happened earlier in agriculture. For every 1% by which agricultural prices and employment have fallen in the 20th century, agricultural subsidies and protection in every single developed country, including America, have gone up by at least 1%, often more. And the fewer farm voters there are, the more important the “farm vote” has become. As numbers have shrunk, farmers have become a unified special-interest group that carries disproportionate clout in all rich countries.

    Protectionism in manufacturing is already in evidence, although it tends to take the form of subsidies instead of traditional tariffs. The new regional economic blocks, such as the European Union, NAFTA or Mercosur, do create large regional markets with lower internal barriers, but they protect them with higher barriers against producers outside the region. And non-tariff barriers of all kinds are steadily growing. In the same week in which the 40% decline in sheet-steel prices was announced in the American press, the American government banned sheet-steel imports as “dumping”. And no matter how laudable their aims, the developed countries’ insistence on fair labour laws and adequate environmental rules for manufacturers in the developing world acts as a mighty barrier to imports from these countries.

    Smaller numbers, bigger clout

    Politically, too, manufacturing is becoming more influential the fewer manufacturing workers there are, especially in America. In last year’s presidential election the labour vote was more important than it had been 40 or 50 years earlier, precisely because the number of trade-union members has become so much smaller as a percentage of the voting population. Feeling endangered, they have closed ranks. A few decades ago, a substantial minority of American union members voted Republican, but in last year’s election more than 90% of union members are thought to have voted Democrat (though their candidate still lost).

    For over 100 years, America’s trade unions have been strong supporters of free trade, at least in their rhetoric, but in the past few years they have become staunchly protectionist and declared enemies of “globalisation”. No matter that the real threat to manufacturing jobs is not competition from abroad, but the rapid decline of manufacturing as a creator of work: it is simply incomprehensible that manufacturing production can go up while manufacturing jobs go down, and not only to trade unionists but also to politicians, journalists, economists and the public at large. Most people continue to believe that when manufacturing jobs decline, the country’s manufacturing base is threatened and has to be protected. They have great difficulty in accepting that, for the first time in history, society and economy are no longer dominated by manual work, and a country can feed, house and clothe itself with only a small minority of its population engaged in such work.

    The new protectionism is driven as much by nostalgia and deep-seated emotion as by economic self-interest and political power. Yet it will achieve nothing, because “protecting” ageing industries does not work. That is the clear lesson of 70 years of farm subsidies. The old crops—corn (maize), wheat, cotton—into which America has pumped countless billions since the 1930s—have all done poorly, whereas unprotected and unsubsidised new crops—such as soya beans—have flourished. The lesson is clear: policies that pay old industries to hold on to redundant people can only do harm. Whatever money is being spent should instead go on subsidising older laid-off workers, and retraining and redeploying younger ones.

  • John December 29, 2009, 8:25 am

    I highly doubt that this chart adequately captures outsourcing and offshoring effects. As someone that worked 15 years in a Fortune 500, high tech ‘manufacturing’ company, I can tell you that even though our revenues rose considerably, there was less and less actual manufacturing being done. Even engineering was being extensively offshored. In fact, the US operations became increasingly a sales and marketing operation with some final assembly and testing (we were even trying to eliminate final assembly and testing). I never saw a good breakdown of onshore vs offshore content of our products, so I doubt that government numbers can break this down accurately. From my experience, I would say that the big productivity gains are almost certainly due in large part to offshoring and outsourcing.

  • Keith December 29, 2009, 7:21 am

    If the U.S. doesn’t become a net exporter of goods in the future then what future do we have? The trade imbalances can’t go on forever. It’s only natural that the U.S. must increase it’s output. I don’t see the chart as a rosy picture at all for two reasons. First, if manufacturing has become more efficient then workers should be earning a higher real wage which isn’t the case. Second, I’d like to see the chart next to one that shows the output of the rest of the world. It would be sad and would only show the U.S. having no real growth. If the U.S. is flat and the rest of the world is increasing production then why is that supposed to be hailed as such a good thing?

  • Daman Prakash December 29, 2009, 4:12 am

    Mr. Brad is right. US will retain edge. Analysts in US can be extremely critical of their own country. Most of the countries in the world do not allow such criticism.

    BRICS countries have cheap labor and many consumer articles are manufactured in these countries. In innovations, research and creative freedom US always stands apart. BRICS can at best give what consumer already needs in daily life at much cheaper price. These are all reactive economies but US will always be in forefront for finite number of years in creating a proactive atmosphere about new products and making people experiment their life style with innovation.

    My personal experience as physical gold trader in India vindicates my belief. India has been world’s largest consumer of physical Gold but is never able to set terms as a price maker. Traders here will start buying/selling only during US market hours, willing to work as if they are part of US.

    US has the strength of astute investors and traders to set price of any commodity in genuinely open market. Rest of the world just follows. Tell me one exchanges outside US which reaches even 20% of turnover recorded at US exchanges, be it equity or commodities or other products/ services.

    US people and analysts love their freedom of expression. This attribute can be both best and worst. Critical review reforms but excessive criticism can raise despondency.

  • Rich December 29, 2009, 3:18 am

    We worried about the Japanese economic miracle in 1989 before they lost two decades by going down the same neoKeynesian road as the USA and refusing to let failed businesses go. Similar may happen to China. Central command economies do not work long. The USA still leads the world in energy and tech. Three examples might be PCX, TEG and ASEI on pullbacks, targeting 22, 90 and 100…


    QID might be an interesting trade from 18 to 30…

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