EconSouth (Second Quarter 2006)
|John C. Robertson is vice president over the regional group of the Atlanta Fed’s research department.||Putting U.S. Manufacturing in Perspective|
When I think about the state of U.S. manufacturing, at least two images come to mind: headlines announcing layoffs at manufacturing plants and the “Made in China” label on most nonfood goods purchased at my local discount store. Both of these images are reality. Since 1990, employment in the U.S. manufacturing sector has declined from almost 18 million to around 14.2 million today—a 24 percent decline. This decline is in sharp contrast to the 23 percent increase in employment in the private sector as a whole in that time. Over the same period, the share of domestic spending on manufactured goods accounted for by imports has risen from 38 percent to 45 percent.
What might come as more of a surprise to many is that despite these unsettling trends, the U.S. manufacturing sector is producing more goods today than at any time in the past, and the growth in manufacturing output has generally matched the growth of the U.S. economy overall. Manufacturing output has almost doubled in the past 15 years, and as a consequence the United States remains the largest manufacturer in the world, maintaining its more than 20 percent share of total world production despite the rapid growth in recent years of the developing nations’ manufacturing sectors.
Some U.S.-made goods continue surging
The overwhelming price competition from foreign companies that are able to make the same products with much cheaper labor has forced U.S. manufacturing to shift away from labor-intensive endeavors and toward capital- and technology-intensive types of production. At the individual plant level, investment in new technologies often leads to lower per-unit production costs. These lower production costs in turn contribute to a lower price for the product, thus improving the firm’s competitive position. For manufacturing as a whole, lower prices have contributed to higher demand for U.S.-made goods, both domestically and internationally. Investment in new technologies has also tended to increase worker productivity, and in most manufacturing industries this development has translated into the ability to produce more goods with fewer workers.
As gains in worker productivity continue to outpace demand growth, U.S. manufacturing will not be a significant source of net job growth in coming years. Nonetheless, the changing nature of production processes will generate job opportunities. The ongoing transformation of the U.S. manufacturing sector involves investment in new technologies, equipment, and also a skilled workforce that is able to operate ever more complex industrial equipment. As a consequence, the typical manufacturing worker today is much more technologically sophisticated than his counterpart of just 10 years ago, and this trend is likely to continue.
Changes reverberate widely
For some, the scenario described here may sound familiar. In fact, it is. The U.S. agricultural sector experienced a similar transformation, but over a much longer period of time. Agricultural employment is now only a small fraction of total employment, yet U.S. agricultural production continues to rise, and agricultural prices remain relatively low. Just like agriculture, U.S. manufacturing is not going away, but neither is the relentless pace of change.