Saturday, February 21, 2009

Made in USA Is Alive and Well: Manufacturing Goes High-End and the USA is Still the Global Leader

Despite downturn and dire outlook for factories, value of American-made goods still leads world.

WASHINGTON(AP) -- It may seem like the country that used to make everything is on the brink of making nothing. In January, 207,000 U.S. manufacturing jobs vanished in the largest one-month drop since October 1982 (see chart above). Factory activity is hovering at a 28-year low. Even before the recession, plants were hemorrhaging work to foreign competitors with cheap labor. And some companies were moving production overseas.

But manufacturing in the United States isn't dead or even dying. It's moving upscale, following the biggest profits, and becoming more efficient, just like Henry Ford did when he created the assembly line to make the Model T.

The U.S. by far remains the world's leading manufacturer by value of goods produced. It hit a record $1.6 trillion in 2007 -- nearly double the $811 billion in 1987. For every $1 of value produced in China's factories, America generates $2.50.

So what's made in the USA these days?

The U.S. sold more than $200 billion worth of aircraft, missiles and space-related equipment in 2007. And $80 billion worth of autos and auto parts. Deere & Co. sold $16.5 billion worth of farming equipment last year, much of it to the rest of the world. Then there's energy products like gas turbines for power plants made by General Electric, computer chips from Intel and fighter jets from Lockheed Martin. Household names like GE, General Motors, IBM, Boeing, Hewlett-Packard are among the largest manufacturers by revenue.

Several trends have emerged over the decades:

• America makes things that other countries can't. Today, "Made in USA" is more likely to be stamped on heavy equipment or the circuits that go inside other products than TVs, toys, clothes and other items.

• U.S. companies have shifted toward high-end manufacturing as the production of low-value goods moves overseas. This has resulted in lower prices for shoppers and higher profits for companies.

• When demand slumps, all types of manufacturing jobs are lost. Some higher-end jobs -- but not all -- return with good times. Workers who make goods more cheaply produced overseas suffer.

Once this recession runs its course, surviving manufacturers will emerge more efficient and profitable, economists say. More valuable products will be made using fewer people. About 12.7 million Americans, or 8% of the labor force, still held manufacturing jobs as of last month. Fifty years ago, 14.6 million people, or 28% of all workers, toiled in factories.

MP: Using slightly different data than the AP article, the chart above shows U.S. Manufacturing Output (Gross Value) from The Federal Reserve, and U.S. Manufacturing Payroll Employment from the BLS (via Economagic), monthly from 1972-2009. In the last 37 years, manufacturing output in real dollars has more than doubled, while manufacturing employment has dropped by more than 26%, resulting in an almost tripling of the amount of manufacturing output per manufacturing worker in the U.S., from less than $80,000 in 1972 to almost $240,000 per worker today (see chart below).

It's certainly the case that the U.S. leads the world in overall manufacturing output, and it's probably the case that when it comes to manufacturing output per person, nobody in the world comes close to the U.S.


You hear from a lot of people that the U.S. can't be a job-creating, world-class economy without a thriving and expanding manufacturing sector. In fact, except during recessions, the U.S. continues to produce more and more manufacturing output year after year. But because of increases in worker productivity year after year, we can produce more output with fewer workers.

It's a lot like the trend in agriculture that took place starting in the 19th century. We produce more and more food every year with fewer and fewer farm workers, due to increases in productivity. Instead of bemoaning the loss of manufacturing or farm jobs, we should be celebrating the increasing productivity of the American worker!


Thanks to Bob Wright.

36 Comments:

At 2/21/2009 11:13 AM, Blogger spencer said...

There is an important difference between losing manufacturing and agricultural jobs.

As you very correctly point out manufacturing jobs are very high productivity, high value jobs.
So when a manufacturing employee loses his jobs what happens it that that employee typically shifts from a high productive, high paying job to a low productivity, low paying job.

The classic example is a manufacturing worker losing a $20/hour job and taking a $7.50/hour job at Wal Mart.
This is not a knock on Wal Mart,
it just reflects the fundamental difference between manufacturing and retail productivity.


In contrast, even after decades of very strong growth, agriculture is still a low productivity, low paying job. So typically, when an employee leaves the agricultural sector they shift from a low productivity to a higher productivity job. So when the agricultural worker goes from a $5/hour job to a $7.50/hour job at Wal Mart it is an improvement in contrast to the lose when the manufacturing worker takes the same job.

So you can see that the economic impact of eliminating manufacturing jobs is very different than the impact of eliminating agricultural jobs even though in both cases output continues to grow.

 
At 2/21/2009 11:32 AM, Blogger lineup32 said...

The current system as you point out will generate a better mouse trap but high tech manufacturing for defense, space exploration, medical products all require direct government spending to keep the factories operating. This means taxes on somebody and that somebody needs a job! Manufacturing automation is great but how to divide the economic pie?

 
At 2/21/2009 12:23 PM, Anonymous Anonymous said...

"Manufacturing automation is great but how to divide the economic pie?"

I've worked on factory automation projects. This is a way to make the economic pie a helluva lot bigger than you can imagine.

On site with one of my projects I had time to do some back of the envelope numbers on what it would take to duplicate the production of the automated system with the manual technology of the '50s.

It worked out to two football fields of floor space for the equipment and 150 people for three shifts.

The automated system had one quarter the floorspace and needed 18 people to cover three shifts.

As to how to divide the resulting pie, it self divides along the lines of how much anyone put into making the pie.

 
At 2/21/2009 1:02 PM, Anonymous Anonymous said...

So apparently spencer would like to build a way-back machine so that the U.S. can go back in time to some idealized point in the past where all things were good and everyone had a job.

Or else spencer would like to build some kind of ray gun that suspends time so that nothing in life ever changes - nothing improves, no new machines are built, no new conveniences are invented. Just pull the trigger and - blasto - every one who has a job now will always have that same job - and once again, life will be perfect. All the jobs that existed in a factory in 1905 will still be there today. Geez; if only life would be so good.

Imagine, all the kids who picked cotton in the 30s could go back to working in the cotton fields instead of working at Taco Bell.

Maybe spencer could organize a rally down at the local auto factory where young people with sledge hammers could smash a machine built by Anonymous 12:23 out in the parking lot.

Maybe a bunch of young people from Iowa could gather down at the local John Deer dealership and smash a new combine or tractor. Think of how many people were put out of work when the modern combine was invented.

The possibilities are endless.

Workers of the world unite!

 
At 2/21/2009 1:38 PM, Blogger hydrogenmaker said...

Never left a remark here before, so let me start off by saying thank you Mark for your blog. I enjoy reading it everyday. Now, for this, I have only this to say, again, thank you. It is very easy to find points of view that are negative these days, so I appreciate reading something positive every now and then. This is something positive, to me at least.
Respectfully,
Lee

 
At 2/21/2009 1:43 PM, Anonymous Anonymous said...

"Think of how many people were put out of work when the modern combine was invented."

Indeed. As late as the thirties, fifty per cent of the population was engaged in agriculture in some way. Today, at most four per cent are in agriculture using the widest net possible.

Today's combine with its air conditioned cab, stereo system, and adjustable sixteen ways to forever air cushion seat also has GPS, sensors, and computerized logging. So, for example, as the field as harvested the crop (corn, soybeans, whatever) is bounced off a plate as it leaves the chute and goes into the truck. The plate is connected to sensors and a computer that integrates the force on the plate to gauge the weight of the harvest on a continuous basis. This is logged along with the GPS data to produce a map of the yield across that field. That map can be used to plan how much fertilizer to use next year and how to apply it.

This is modern high tech, high productivity farming.

 
At 2/21/2009 2:11 PM, Blogger bob wright said...

Machines replace human workers in a menial, repetitive task.

But other humans are put to work designing and building the machine that replaced the first worker.

And this new machine can then be sold all over the world in today's global economy.

repeat.

 
At 2/21/2009 2:13 PM, Blogger bob wright said...

So, the "classic example" would seem to be a manufacturing worker loses a $20/hr job to a machine and another manufacturing worker is hired at $22/hr to build the machine that replaced the $20/hr worker.

 
At 2/21/2009 4:12 PM, Blogger spencer said...

Sorry Bob, under your scenario manufacturing employment does not fall while in reality it is falling.

Try again.

and as far as anonymous trying to put words in my mouth, nothing anonymous says makes any sense.

I wrote absolutely nothing like anonymous is trying to claim I said.

 
At 2/21/2009 5:14 PM, Blogger PeakTrader said...

The only way to move from one economic revolution into the next is through efficiencies. The U.S. leads the world in the Agricultural-Industrial-Information-Biotech Revolutions. It's all interrelated.

Currently, about 3% of the U.S. labor force works in agriculture. However, that small workforce produces more than enough food to feed the entire country. Less than 15% of U.S. labor works in manufacturing. Yet, it's most productive. High productivity in agriculture and manufacturing allowed the U.S. to free-up limited resources for the Information and Biotech Revolutions, where the U.S. leads the rest of the world combined.

It's inevitable less than 1% of the U.S. workforce will be needed for agriculture and less than 5% for manufacturing. It's only a question how fast a country wants to shift into new economic revolutions. There are only four economic revolutions today. Eventually, there will be hundreds.

 
At 2/21/2009 6:20 PM, Blogger QT said...

One aspect that has not been touch upon is workplace safety. Significant reductions in workplace injuries and deaths has coincided with the shift to white collar service jobs.

Spencer,

The classic example is a manufacturing worker losing a $20/hour job and taking a $7.50/hour job at Wal Mart.

Do we really know this with any degree of certainty? Wouldn't it be equally possible that such a worker might adapt to a similar occupations like small engine repair, landscaping, or construction with similar wages?

A retail customer service environment would not seem to be the best fit with the skills and experience of the worker.

 
At 2/21/2009 6:34 PM, Blogger bob wright said...

QT, to your point: I am familiar with a man who quit GM where he worked sa an hourly employee on the assembly line and became an emergency room nurse [RN] in one of the three local hospitals.

spencer: you seem to be tilting at windmills my friend.

Don't just curse the darkness. Light a candle.

 
At 2/21/2009 9:56 PM, Blogger lineup32 said...

anon:`12.23
Sounds great..but as someone who had been in manufacturing for 25 years as an owner of a medium size company that went to the bank and put my house and other assets up as collateral for business loans and made payroll while buying the latest equipment for greater productivity etc, I can tell you that my bottom line got worse and worse, Why, well my competitors bought the same equipment so we continued to need more and more volume to feed the machines but due to falling prices and low margins we constantly looked for more and more volume. Then money winds up being spent for additional sales people, marketing and advertising so the bottom line gets worse not better , finally either you buyout a competitor or you get bought.
Once you buyout a competitor layoffs occur equipment gets sold etc. Rather then producing products one becomes a giant accounting box but at the end of the day its all about cash flow and automated high tech manufacturing has many problems and the biggest one of all is the high volume it creates while that sounds odd just think about selling with adequate margin what these machines can output year in and out and each year the company you bought the equipment from has newer faster machines that your competitor buys. Not sure at the end of the day its worth all the hassle in fact I made the most money early in my career when skilled labor was a bigger factor in making the product generating a higher barrier to entry for competitors and better margins.

 
At 2/22/2009 12:03 AM, Blogger QT said...

Just attended a seminar where the presenter told us that several studies have indicated laid off workers often end up with jobs within a 10% of their previous salary. One does need to verify such information however, it did strike me as interesting.

From my own contacts, I know a number of manufacturing workers who have been bridged to pension that have subsequently sought a lower paying part-time job to supplement their income but this is not really comparable to a worker who does not have pension income. Also know a number of former manufacting employees who have transitioned to construction, firefighting, secretarial, equipment sales or private consulting.

From my own observations, such workers are not relegated to entry level minimum wage positions because they possess marketable skills that can be migrated to other industries and positions. Just an observation. Would be interested if anyone has run across data to see what is happening here.

 
At 2/22/2009 12:08 AM, Blogger PeakTrader said...

Lineup/Anon, profit maximization is where marginal revenue equals marginal cost. Are you saying people were better off when they earned more money and there were fewer goods to buy?

 
At 2/22/2009 1:41 AM, Blogger bob wright said...

lineup: what kind of parts were you making?

 
At 2/22/2009 4:08 AM, Blogger 1 said...

"Sorry Bob, under your scenario manufacturing employment does not fall while in reality it is falling"...

Sorry spencer, I don't how it is in your world but here in the St. Louis area the, 'bob wright' scenario happens all the time as does your WalMart scenario...

It all depends on the skill sets and drive of the individual being impacted, doesn't it?

 
At 2/22/2009 9:16 AM, Blogger PeakTrader said...

High-skilled immigration also made the U.S. the global leader (partially from article/study):

H-1B visas may not be a good proxy for skilled immigrant income, given average income of only $71,000 in 2007, and "research shows that technology companies hire five new workers for each H-1B visa for which they apply" is also likely understated compared to jobs created by skilled immigrants. However, importing the top 1% of workers from the rest of the world will create jobs:

"Over the past 15 years, immigrants have started 25 percent of U.S. public companies that were venture-backed, a high percentage of the most innovative companies in America."

"Immigrant-founded venture-backed companies are concentrated in cutting edge sectors: high technology manufacturing; information technology (IT); and life sciences."

"As evidence of how important immigrant entrepreneurs have been to the U.S. technology base, the study found 40 percent of U.S. publicly traded venture-backed companies operating in high-technology manufacturing today were started by immigrants."

"The largest U.S. venture-backed public companies started by immigrants include Intel, Solectron, Sanmina-SCI, Sun Microsystems, eBay, Yahoo!, and Google."

If high or low skilled immigrants drive down wages, they'll also drive down prices and drive up profits. Ultimately, you want to maximize the quantity and quality of output per capita at a sustainable rate.

"It costs, on average, roughly $100,000 to provide 12 years of elementary and secondary education, another $100,000 to pay for a college degree," and even more for a graduate degree. The U.S. can import that human capital for free.

The U.S. has been moving faster into emerging industries than workers are able to acquire needed skills. So, the best foreigners should be imported to either close that gap or accelerate the shift into emerging industries.

Differences in education:

The New York Times
November 30, 2006

A College Education Without Job Prospects

MUMBAI, India, Nov. 29 — The job market for Indian college graduates is split sharply in two. With a robust handshake, a placeless accent and a confident walk, you can get a $300-a-month job with Citibank or Microsoft. With a limp handshake and a thick accent, you might peddle credit cards door to door for $2 a day.

India was once divided chiefly by caste. Today, new criteria are creating a different divide: skills. Those with marketable skills are sought by a new economy of call centers and software houses; those without are ensnared in old, drudgelike jobs.

But the chance to learn such skills is still a prerogative reserved, for the most part, for the modern equivalent of India’s upper castes — the few thousand students who graduate each year from academies like the Indian Institutes of Management and the Indian Institutes of Technology. Their alumni, mostly engineers, walk the hallways of Wall Street and Silicon Valley and are stewards for some of the largest companies.

In the shadow of those marquee institutions, most of the 11 million students in India’s 18,000 colleges and universities receive starkly inferior training, heavy on obedience and light on useful job skills.

But as graduates complain about a lack of jobs, companies across India see a lack of skilled applicants. The contradiction is explained, experts say, by the poor quality of undergraduate education.

A lack of communications skills may be the most obvious shortcoming, but it is not the only one. A deeper problem, specialists say, is a classroom environment that treats students like children even if they are in their mid-20’s. Teaching emphasizes silent note-taking and discipline at the expense of analysis and debate.

 
At 2/22/2009 3:08 PM, Anonymous Anonymous said...

Once again I come here to learn that the U.S. economy is doing great and that the majority of laid off manufacturing workers are actually finding better paying jobs in the high tech manufacturing sector.

 
At 2/22/2009 3:23 PM, Blogger QT said...

Peak,

Thanks for the interesting info. Do you have a link to the article?

The following is a link to lessons in HTML in case you need some help with creating a link to an internet site (see item 8). A recent comment left me with the impression you might need some tips on HTML. Pardon me if this is not the case.

 
At 2/22/2009 3:52 PM, Blogger PeakTrader said...

QT, thanks for the HTML information. I'll look into it. One article can be found typing: nvca impact of immigrants (nvca.org). Another article is found typing: More H-1B Visas, More American Jobs, A Better Economy (heritage.org). Also, you can find the NY Times article typing the title.

 
At 2/23/2009 11:12 AM, Blogger @sethstorm said...


H-1B visas may not be a good proxy for skilled immigrant income, given average income of only $71,000 in 2007, and "research shows that technology companies hire five new workers for each H-1B visa for which they apply" is also likely understated compared to jobs created by skilled immigrants.

They're highly abused in the current form to bypass citizens - nothing else. They only justify 5 more H1/L1's.

Fix the law to close the loopholes. I'd start by killing the entire H1/L1 issue until our economy has some solid growth. Reform it to focus the benefit on citizens.



Once again I come here to learn that the U.S. economy is doing great and that the majority of laid off manufacturing workers are actually finding better paying jobs in the high tech manufacturing sector.

No, they're not if that wasn't sarcasm.


"It costs, on average, roughly $100,000 to provide 12 years of elementary and secondary education, another $100,000 to pay for a college degree," and even more for a graduate degree.

Then pay the citizens for it and foot the bill on immigrants. Don't give them a loophole.

Besides, IBM's Project Match already says that we have the talent. That's right - we have the talent, just not in the Third World.

 
At 2/23/2009 12:28 PM, Blogger @sethstorm said...


Maybe spencer could organize a rally down at the local auto factory where young people with sledge hammers could smash a machine built by Anonymous 12:23 out in the parking lot.

I'd welcome the sledging of a wingless, stock CVCC of present day.

Does that also include the actions of Richard Ebens and Michael Nitz of Chrysler history?

 
At 2/23/2009 12:30 PM, Anonymous gettingrational said...

China has about two trillion dollars in their Soverign Wealth Fund. This is wealth that can buy anything in the world BUT it should be used to buy goods Made in USA. Our bizarre trade relationship with the Chinese has hollowed out our economy. If China is our trading partner then their dollars should be used to purchase U.S. made finished goods that create jobs. Their investment in Treasuries should be drawn down to Buy American.

 
At 2/23/2009 2:14 PM, Blogger PeakTrader said...

The best outcome for the U.S. is China never buying U.S. goods (i.e. its paper wealth continues to lose real value). So far, so good.

 
At 2/23/2009 2:48 PM, Anonymous gettingrational said...

Peak Trader's comments are just mental shortcuts leading to intellectual cul-de-sacs. Two trillion dollars in the China Sovereign Wealth is a gigantic amount of wealth. All the mercantile trade barriers that China has erected to U.S. goods except for high profile jet and tractor deals is a losing trade deal. How does China holding on to this enormous wealth and not buying U.S. goods (resulting in U.S. jobs) make any sense? It is only an argument for the degradagtion of the U.S. economy

 
At 2/23/2009 3:16 PM, Anonymous Anonymous said...

NASA Space equipment and DoD defense equipment don't count because they are paid for by the US taxpayer. We need to make stuff that individual consumers want to buy.

 
At 2/23/2009 3:34 PM, Blogger PeakTrader said...

Gettingrational, I've explained it before. If you don't believe me, perhaps you'll believe Adam Smith, who sums up China's economy well:

"Wealth of Nations represents a highly critical commentary on mercantilism, the prevailing economic system of Smith's day. Mercantilism emphasized the maximizing of exports and the minimizing of imports. In Wealth of Nations, one senses Smith's passion for what is right and his concern that mercantilism benefits the wealthy and the politically powerful while it deprives the common people of the better quality and less expensive goods that would be available if protectionism ended and free trade prevailed."

NewWorldEncyclopedia.org

 
At 2/23/2009 8:52 PM, Anonymous gettingrational said...

Peak Trader, break out of your intellectual laziness and be relevant. Let's not speculate on what Adam Smith's treatsie might have to do with the Chinese trade situation (scam?). Maybe the promise of billions of consumers for U.S. made goods will be made whole by the Chinesen(even a couple hundred million. If they do not then the tremendous possibilities are over and done. We have learned a painful lesson that will take many years to recover from.

 
At 2/25/2009 5:09 PM, Blogger OBloodyHell said...

> it just reflects the fundamental difference between manufacturing and retail productivity.

It also reflects the reason why a manufacturing worker might consider it a good idea to develop some actually usable skill instead of being limited to working at Wal Mart.

No, that's not always easy, but it's also a given that anyone making 20/hr in a manufacturing job is probably vastly overpaid, and probably ought to be planning for a second career at some point by picking up additional abilities while he/she is rolling in it.

> So you can see that the economic impact of eliminating manufacturing jobs is very different than the impact of eliminating agricultural jobs even though in both cases output continues to grow.

And yet... it still needs to be done.

 
At 2/25/2009 5:13 PM, Blogger OBloodyHell said...

> Don't just curse the darkness. Light a candle.

He's too busy fuming in the dark to go find a match.

 
At 2/25/2009 5:23 PM, Blogger OBloodyHell said...

> in fact I made the most money early in my career when skilled labor was a bigger factor in making the product generating a higher barrier to entry for competitors and better margins.

lineup, the natural tendency of the market, as efficiencies increase, is towards lower and lower margins.

This was so with regards to ag products, which has forced the "small farmer" out of business for the most part in favor of large corporate farms (most small farms stay in business now with niche specialty products, like ginseng or so-called "organic" foods).

Manufacturing is following suit -- the smaller companies get eaten up by the larger ones, until there are far fewer of them around, and each one has a large enough piece of the pie to weather various downturns and problems which occur. If a small manufacturing firm is to stay in business, it needs to do so by finding a niche it can do well in -- otherwise it's better off getting the f*** out by selling to a bigger company.

This country, for the most part, should not be in manufacturing. Most of the manufacturing should be done by robots, while humans do what robots can't do -- think and act as independent entities.

The factory of the future can be seen in the movie Minority Report, where Tom Cruise gets a car actually built around him as he attempts to get away from his pursuers on the assembly line. At the end, Cruise drives the car away.

The real money to be made in the future is in IP and Services -- creating something or doing something with talent that someone else can't do as effectively.

 
At 2/25/2009 5:31 PM, Blogger OBloodyHell said...

> They're highly abused in the current form to bypass citizens - nothing else. They only justify 5 more H1/L1's.

SETH: You're an ignorant twit. Figure it out, learn to shut up and stop proving it.

I've worked for a company with 500 employees which did, in fact, hire a Romanian programmer, because he graduated from the nearby college and they could not find anyone else (despite the local university being an "elite" IS school) with both sufficient experience and the necessary knowledge to do the job.

In order to hire him, it required not less than TWO FULL EMPLOYEE DAYS of paperwork, phone calls, and various back and forth to get the necessary permissions to hire him at the exact same rate they were offering other US employees.

Most companies with less than 500 employees would not be able to justify the expense of having one of their highly paid HR employees "shut down" for two full days as far as productivity solely to justify hiring a "cheap" foreign worker. Thee money saved just isn't worth it.

 
At 2/25/2009 5:37 PM, Blogger OBloodyHell said...

> We need to make stuff that individual consumers want to buy.

We do. It's called Music, Movies, and Patents.

Amazingly, we're far and away the world leader at producing these things, and, I'd argue, if all the pirated IP were priced at an actual market value (i.e., what people in various locales would "actually pay", as opposed to whatever idiot price was "demanded" by half-wit corporate flacks), then there likely would not even BE a trade deficit, or, if there were, it would be one hell of a lot lower.

 
At 2/27/2009 12:07 AM, Blogger @sethstorm said...

OBloodyHell:

Remove a few of the requirements until you have a citizen that could meet it.

They most likely evaded laws to get that person.

 
At 3/04/2009 5:56 AM, OpenID trade-shows-usa said...

Good information for the analysts of market, but an analysis can it was be conducted bollee detailed

 

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