Wednesday, December 23, 2009

Manufacturing Employment Falls to Record Lows, But Productivity Soars to Record High Levels

Here’s some pretty grim news about U.S. manufacturing -- employment in that sector fell below 12 million this year for the first time since 1946, and is now at the lowest level (11,648,000 manufacturing jobs in November) since March of 1941 (see chart, BLS data here). Since the onset of the recession in December 2007, manufacturing employment fell for 24 consecutive months, as the U.S. economy shed an average of 89,000 manufacturing jobs each month for the last two years.

From the peak manufacturing employment of 19.55 million jobs in 1979, the American manufacturing workforce has shrunk by more than 40%, as almost 8 million manufacturing jobs have been eliminated over the last thirty years, with almost 6 million of those losses taking place just since 2000. And there’s nothing to suggest that the trend won’t continue, so we can expect a continued contraction of U.S. manufacturing employment.

See related story here about
Michigan's population falling below 10 million.

But what about manufacturing output? That news is a little better. The chart below shows the decline in manufacturing employment plotted against the Gross Value of Final Products and Nonindustrial Supplies (in billions of constant 2000 dollars), as calculated by the Federal Reserve (
data here). In the thirty year period between 1977 and 2007, U.S. manufacturing output doubled from $1.5 trillion to $3 trillion, before dropping to a ten-year low in June 2008 of $2.6 trillion, from the contractionary effects of the recession. Manufacturing output has been rebounding lately and it increased in four out of the last five months, after falling in ten out of the previous 11 months, signalling that the economy moved from recession to expansion in the middle of the year.

Pretty grim so far, but here's where the news about the manufacturing sector gets better. According to the Federal Reserve, the dollar value of U.S. manufacturing output in November was $2.72 trillion (in 2000 dollars), which translates to $234,220 of manufacturing output for each of that sector’s 11.648 million workers, setting an all-time record high for U.S. manufacturing output per worker (see chart below).


Workers today produce twice as much manufacturing output as their counterparts did in the early 1990s, and three times as much as in the early 1980s, thanks to innovation and advances in technology that have made today’s workers the most productive in history.

Bottom Line: At the same time that manufacturing employment has been declining to record low levels, manufacturing output keeps increasing over time (except during recessions of course), and the amount of output that each manufacturing worker produces keeps rising almost every month to new record high levels. Manufacturing productivity has never been higher, and that's good news.

See related Enterprise post here.

32 Comments:

At 12/23/2009 1:21 PM, Anonymous gettingrational said...

Record level productivtity should mean less foreign components in U.S. assembled finished products. U.S. produced components would also be made at record high productivtity levels. U.S. sourced components (inputs) would be a return to a sounder mixed economy for the U.S.

 
At 12/23/2009 1:42 PM, Blogger QT said...

Doesn't it also mean that manufacturing is not going to be a major job generating area of the U.S. economy going fwd irregardless of China, foreign inputs or any other red herring.

Isn't it fair to say that manufacturing employment has been declining for decades due to mechanization not competition? Isn't it fair to say that U.S. homes are more dangerous now than U.S. workplaces? Isn't it fair to say that manufacturing only represents about 10% of the workforce....unless the other 90% are on the dole, which they don't seem to be, what is the problem?

 
At 12/23/2009 1:43 PM, Anonymous Anonymous said...

Gee, let's raise the minimum wage again...!!

 
At 12/23/2009 1:57 PM, Blogger Realist Theorist said...

In the title, the word "but" should be replaced by "therefore".

 
At 12/23/2009 2:02 PM, Blogger PeakTrader said...

Yes the U.S. does still manufacture things
February 17, 2009

Washington — It may seem like the country that used to make everything is on the brink of making nothing.

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 United States 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 United States 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., best known for its bright green and yellow tractors, sold $16.5 billion worth of farming equipment last year, much of it to the rest of the world. Then there are 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 and Hewlett-Packard are among the largest manufacturers by revenue.

High-end products

-- 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 the TVs, toys, clothes and other items found on store shelves.

-- 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.

My comment: U.S. firms produce increasingly higher quality goods, e.g. Caterpillar tractors, Gillete razors, new drugs and medical equipment, high-tech components, etc. Many U.S. firms have no real foreign competitors, e.g. Microsoft, Google, Apple, Cisco, Intel, Walmart, Amgen, etc. Wall Street helped create and capture trillions of dollars of capital, in the global economy, which was distributed to the U.S. masses. Less than 3% of the U.S. workforce produces more than enough food to feed the entire country. U.S. firms have market power (see Johnson & Johnson, Disney, Coke, 3M, United Technologies, etc.), while U.S. energy firms are some of the largest in the world (see Exxon, Mobil, Chevron, etc.).

 
At 12/23/2009 2:52 PM, Blogger juandos said...

Yet another sign of the times...

Last GM big block engine rolls off the line

'Naturally, the death of the big block brings with it other casualties as well, such as the 150 laid off hourly workers that are hoping GM sees fit to bless them with a new powerplant to build along with the RV and marine industries'...

 
At 12/23/2009 3:26 PM, Anonymous Anonymous said...

How much of the productivity gain is due to off-shoring? Is this taken into account when the productivity/output is calculated?

 
At 12/23/2009 3:56 PM, Blogger PeakTrader said...

Anon, U.S. multinationals offshored their high cost or heavy goods, imported them at lower prices and at higher profits, and shifted the freed-up inputs into more high-quality U.S. "core" goods with market power and into U.S. emerging industries. The productivity gains in more higher value goods tend to be high, while the productivity gains in emerging industries tend to be low initially.

 
At 12/23/2009 4:51 PM, Blogger juandos said...

Emerson Electric Votes With Its Feet, Saying The Goverment Is Destoying American Manufacturing

The federal government is "doing everything in [its] manpower [and] capability to destroy U.S. manufacturing," says David Farr, chairman and CEO of Emerson Electric Co., in a presentation at the Baird 2009 Industrial Conference in Chicago Ill., on Nov. 11. In comments reported by Bloomberg, Farr added that companies will continue adding jobs in China and India because they are "places where people want the products and where the governments welcome you to actually do something. I am not going to hire anybody in the United States. I'm moving. They are doing everything possible to destroy jobs."...

 
At 12/23/2009 5:38 PM, Blogger sethstorm said...


Emerson Electric Votes With Its Feet, Saying The Government Is Destroying American Manufacturing

He just wants pliant yes-men of dictatorships that he can buy out. Mr. Farr is the one for whom wishes to destroy manufacturing with his spiteful move to the Third World; he made the reaction, the US Government did not.

Secondly:
David Farr should not underestimate the ability of our law enforcement, military, and intelligence departments of a government he hates. If he chooses to tread the thin line between dislike and treason, I am not party to stop him. With that in mind, he should be aware of the consequences of a nation that he wishes to forsake.

With that said, Farr should beware using easily corruptible yes-men of Third World countries. They really don't want his products, they just want another cash cow.

 
At 12/23/2009 6:06 PM, Anonymous Anonymous said...

It now might seem like a good idea to move manufacturing of consumer goods overseas - clothing, computers, washers and kitchen appliances - but what happens when oil becomes more scarce, more expensive? Are we going to be able to outsource oil production to China? Not likely: China has less oil now than the US currently has nearly 40 years after its peak - and she herself expected to peak next decade, with plenty more appetite to come.

This makes me think of one of the problems Russia faced after the Soviet Union went bust: before hand, Russia focused on heavy industry while her satellite states focused on consumer goods; but when everything went belly up, Russia suddenly faced a dilemma of obtaining basic consumer goods (well, she always had trouble obtaining consumer goods, but one gets the idea...).

Regardless of how crappy Soviet-made consumer goods were, Russia's citizens still needed the stuff... in one form or another.

 
At 12/23/2009 8:00 PM, Blogger sethstorm said...

"The US is producing higher quality goods and.."

Why not produce here and dispense with spiting our nation? Why is it that mere mortals have to contend with Third World junk from thugs like the Chinese or their other Asian despotic counterparts like Vietnam, Thailand, and Myanmar? Never mind the same requests from narcostates like Colombia, Mexico, Panama, Brazil, and Venezuela.

Why do we send the low cost stuff to those despotic nations and forsake our own people? Oh, wait- they just want a more compliant workforce with the ability to crush dissent and corrupt however they please.

 
At 12/23/2009 8:38 PM, Blogger juandos said...

"He just wants pliant yes-men of dictatorships that he can buy out. Mr. Farr is the one for whom wishes to destroy manufacturing with his spiteful move to the Third World; he made the reaction, the US Government did not"...

Well of course sethstorm you have a CREDIBLE source for that statement, right?

"David Farr should not underestimate the ability of our law enforcement, military, and intelligence departments of a government he hates"...

Yet another statement sans any credible source for it...

BTW what was your opinion of President Carter when he allowed the maquila program to go forward?

"If he chooses to tread the thin line between dislike and treason, I am not party to stop him"...

Well now sethstorm that has to be one of the dumbest statements I've ever read coming from you and you have been a font of them...

The really sad part in all this is that you have absolutely no idea Farr is alluding to...

Its the excessive cost of doing business in this country due to a myriad of inane laws and expensive tax programs...

Now that we have Obama and Democrat controlled Congress the writing on the wall is in very big letters and it isn't good for business...

 
At 12/23/2009 9:31 PM, Blogger QT said...

sethstorm,

yeah...why not bring back low paying slave labour jobs in the garment industry?

why does the phrase "empty cans make the most noise" seem to spring to my mind?

 
At 12/24/2009 2:15 AM, Anonymous Mr Econotarian said...

"Why do we send the low cost stuff to those despotic nations and forsake our own people? "

Minimum wage laws push the low-skill, low value-add jobs out of the US. If we made it illegal to do so, no doubt we'd just replace them with US-based (though perhaps Japanese-built?) robots. That may sound good, but it means likely reducing economic growth outside the US, which reduces our foreign market for thing like iPhones (that US humans design) and "Avatar" (that US humans write), without doing much to employ many more US workers

Then there is the fact that countries which trade together more have been proven to be less likely to engage in war.

 
At 12/24/2009 2:28 AM, Blogger sethstorm said...

juandos:
You only need to look at the governments for which are receiving jobs, not just the ones that are shedding them. The way for which he says what he wishes to do reflects a desire to forsake the United States for more corruptible countries.

For the record, I oppose cap and trade as well as about every single environmentalist measure.

QT:
Slave labor has been largely priced out and regulated away in the United States. What statistical minority remains is acknowledged as illegal in some form or another.

I hope your question was an honest one.

 
At 12/24/2009 3:05 AM, Blogger sethstorm said...


If we made it illegal to do so, no doubt we'd just replace them with US-based (though perhaps Japanese-built?) robots.

Then the natural thing is to retrain them in the robotics profession and allow them to keep their jobs.




That may sound good, but it means likely reducing economic growth outside the US

Not our problem.


which reduces our foreign market for thing like iPhones (that US humans design) and "Avatar" (that US humans write), without doing much to employ many more US workers

I favored the RDA in that movie and their actions. They should have been more resourceful and used something that put them at less danger.

Merely designing a product and sending it off to the Third World only guarantees that you have knockoffs and cut-quality originals .

Lastly, explain how goods designed in the First World end up being made for the Third World, then localized for the First World(instead of the other way around)? It results in junk.

Then there is the fact that countries which trade together more have been proven to be less likely to engage in war.

That's due to regulatory capture and evasion working its course - to the medium-term detriment(multiple generations) of the more developed countries involved.

 
At 12/24/2009 3:33 AM, Blogger PeakTrader said...

I wouldn't say an imported microwave oven, for example, that works well for 10 years and sells for $100 is "junk."

However, when they say "the rise of China," what they're really saying is the rise of the Chinese government or the rise of communist elitists. The Chinese masses are being exploited. Many American businessmen approve, because it means huge profits.

Resources are limited. So, the only way a country can move from one economic revolution into the next is through efficiencies of production, including using fewer domestic inputs to produce more domestic output and offshoring high cost or less profitable goods.

Offshoring benefits U.S. consumers through lower prices, benefits U.S. borrowers through lower interest rates, benefits U.S. workers through higher paid jobs, and benefits U.S. firms through higher profits.

On the production side in 2007, 20% of U.S. households earned over $100,000 a year, while U.S. median household income was over $60,000 a year, including over $50,000 in wages and salaries. There remains a shortage of high skilled workers in the U.S., although it has the largest and most highly skilled workforce in the world.

 
At 12/24/2009 4:04 AM, Blogger sethstorm said...


There remains a shortage of high skilled workers in the U.S., although it has the largest and most highly skilled workforce in the world.

Flat-out lie.

They just want them for Third World wages and/or with skills not present in the US (if the skillsets for which they ask actually exist in the timeframe that they give). Don't be surprised if there's complaints of a "shortage".


Offshoring benefits U.S. consumers through lower prices, benefits U.S. borrowers through lower interest rates, benefits U.S. workers through higher paid jobs, and benefits U.S. firms through higher profits.

That presumes an honest process, for which never has happened with offshoring. If it is so good of a process that benefits US citizens, then why do companies have to lie about it and/or hide the fact that they are offshoring? Nobody has given me a direct answer.


I wouldn't say an imported microwave oven, for example, that works well for 10 years and sells for $100 is "junk.

I call it an exception rather than the rule. They can have some rare good days.

 
At 12/24/2009 4:21 AM, Blogger PeakTrader said...

Obviously, there's a shortage of MDs in the U.S., and if there were more microbiologists, biochemists, etc., the U.S. lead in the Biotech Revolution would be even greater.

Many people like stable 9 to 5 grossly overpaid jobs. So, of course, they're against offshoring.

U.S. consumers wouldn't buy trillions of dollars of imports if they were junk. They buy them, including through debt, because they're bargains.

 
At 12/24/2009 8:37 AM, Blogger sethstorm said...


Many people like stable 9 to 5 grossly overpaid jobs. So, of course, they're against offshoring.

...and you only find some way to dodge the question. You ignore the willingness for citizens to step up to the task if they were not being targeted by offshoring.

You can't answer the question without finding some way to accuse the citizen of a problem. Why is it that difficult to answer the question regarding the lack of honesty?


U.S. consumers wouldn't buy trillions of dollars of imports if they were junk. They buy them

...because there isn't any way they can buy anything else. The quality of construction(or lack thereof) is why they're junk.

 
At 12/24/2009 12:16 PM, Anonymous Karl said...

Doesn't this analysis disregard the "phantom value-added" in the GDP statistics due to falsely attributing to U.S. workers the offshored content of manufacturing. Here's an excerpt from one article on this from Business Week: http://www.businessweek.com/magazine/content/07_25/b4039001.htm

"But new evidence suggests that shifting production overseas has inflicted worse damage on the U.S. economy than the numbers show. BusinessWeek has learned of a gaping flaw in the way statistics treat offshoring, with serious economic and political implications. Top government statisticians now acknowledge that the problem exists, and say it could prove to be significant.

The short explanation is that the growth of domestic manufacturing has been substantially overstated in recent years. That means productivity gains and overall economic growth have been overstated as well. And that raises questions about U.S. competitiveness and "helps explain why wage growth for most American workers has been weak," says Susan N. Houseman, an economist at the W.E. Upjohn Institute for Employment Research who identifies the distorting effects of offshoring in a soon-to-be-published paper.

FLY IN THE OINTMENT
The underlying problem is located in an obscure statistic: the import price data published monthly by the Bureau of Labor Statistics (BLS). Because of it, many of the cost cuts and product innovations being made overseas by global companies and foreign suppliers aren't being counted properly. And that spells trouble because, surprisingly, the government uses the erroneous import price data directly and indirectly as part of its calculation for many other major economic statistics, including productivity, the output of the manufacturing sector, and real gross domestic product (GDP), which is supposed to be the inflation-adjusted value of all the goods and services produced inside the U.S. (For a detailed explanation of how import price data are calculated and why the methodology is suspect, see page 34.)

The result? BusinessWeek's analysis of the import price data reveals offshoring to low-cost countries is in fact creating "phantom GDP"--reported gains in GDP that don't correspond to any actual domestic production. The only question is the magnitude of the disconnect. "There's something real here, but we don't know how much," says J. Steven Landefeld, director of the Bureau of Economic Analysis (BEA), which puts together the GDP figures. Adds Matthew J. Slaughter, an economist at the Amos Tuck School of Business at Dartmouth College who until last February was on President George W. Bush's Council of Economic Advisers: "There are potentially big implications. I worry about how pervasive this is."

 
At 12/24/2009 2:21 PM, Blogger QT said...

"That is a lie"...got something to back that up? When you accuse another poster of dishonesty, you should at least have the courtesy to support your statements with evidence.

"That presumes an honest process, for which never has happened with offshoring."...another assumption without the benefit of supporting evidence.

"You ignore the willingness for citizens to step up to the task if they were not being targeted by offshoring."...now we're assuming that the citizenry is being intentionally targetted by evil corporate miscreants...any evidence for that?

Obviously, you have concerns about this issue which are not shared by some of us. It would be helpful to know what sources you have seen that have lead you to very different conclusions from say, myself or Peak.

 
At 12/24/2009 3:55 PM, Blogger PeakTrader said...

Karl, the gains of U.S. trade increased, not decreased, in the 2000s (which implies the gains of trade of U.S. trading partners decreased). Volume needs to be taken into account with price. The U.S. made up in value what it lost in volume, while U.S. trading partners had to make up in volume what they lost in value.

That explains why U.S. consumers continued to buy imports, because they became cheaper and cheaper. Falling prices offset diminishing marginal returns. It reached almost to the point where U.S. consumers wouldn't buy anymore imports unless they were sold at cost.

 
At 12/24/2009 4:19 PM, Blogger PeakTrader said...

Sorry, I meant to say diminishing marginal utility instead of returns.

 
At 12/24/2009 4:40 PM, Blogger sethstorm said...


"That is a lie"...got something to back that up? When you accuse another poster of dishonesty, you should at least have the courtesy to support your statements with evidence.

Grigsby & Cohen in their speech on how to avoid US citizens for work as well as job postings that cannot be filled by any person (much less a US citizen) not enough for you? They describe a general practice in their industry.

Secondly, what of Hyatt saying they were adding "supplemental workers" then lying about it?


...now we're assuming that the citizenry is being intentionally targetted by evil corporate miscreants

Every answer I get to ask about the dishonesty that seems to accompany outsourcing and offshoring, I get an attack that doesn't answer the question, you included.

 
At 12/24/2009 7:26 PM, Blogger QT said...

Sethstorm,

Thank you for providing some examples. Helpful to know precisely what you are talking about.

WRT IT professionals, I would have to agree with you that there are plenty of skilled workers in the U.S. and that the video of a seminar given by Grisby & Cohen I would agree is very unethical.

I understand that there are, however, shortages of skilled blue collar labour in many trades ie. welding, tool & die. The average age of a welder is 54 for example. Do you disagree with this or are you looking only at this issue from the standpoint of H-1B.

The number of H-1B visas is very small in comparison to the total number of workers engaged in manufacturing. How can H-1B account for millions of job losses in the manufacturing sector?

I could not find any information about the Hyatt incident. Could you provide a link or some details?

You have made referece to a question several times. Since the subject has jumped all around the map, I am at a loss to understand what this might be. Could you be more specific?

 
At 12/24/2009 7:38 PM, Anonymous Anonymous said...

In that it is Christmas Eve I don't have the time to go deeper into the subject but having done some research on mfg employment a lot of the "lost jobs" really weren't lost at all they were re-classified. For example a cafeteria worker at GM was at one time considered by Census as a 'factory worker.' The switch to NAICS codes in the early 90's moved many support people from manufacturing to service even though they remained as part of the parent company's workforce. With apologies to Mark Twain, the death of manufacturing employment is perhaps exaggerated.

 
At 12/24/2009 7:49 PM, Blogger PeakTrader said...

Seth, there's no lack of honesty in my statements. QT is correct that you should support your statements.

Your Grigsby & Cohen "proof" doesn't prove anything. The way the labor market works is firms want the best workers at the lowest prices, while workers want the best jobs at the highest prices. An equilibrium is set based on supply and demand.

If a U.S. firm can hire a better Indian engineer at a lower price than an American engineer, then what's wrong with that? Of course, the average American engineer is more qualified or more competent than the average Indian engineer. However, if a firm had a choice between a top Indian engineer who's slightly better than an American engineer and willing to work for a little less, why shouldn't the firm hire the Indian engineer?

 
At 12/25/2009 12:09 AM, Blogger sethstorm said...

QT:
Since I don't know what kind of source you might want, here's a Google search that should bring some light to the subject:

http://www.google.com/search?q=hyatt+outsourcing+boston.

The short of it is that they were replaced with an outside firm that was said to be "additional help".

I included it to suggest that the honesty issue with outsourcing & offshoring is more widespread than just IT.




If a U.S. firm can hire a better Indian engineer at a lower price than an American engineer, then what's wrong with that?

There are some regulations that require that you look for the US Citizen first. Unfortunately, there is a lack of enforcement to ensure that citizens are protected under this regulation. Also of note, the qualifications from that subcontinental Indian are more likely to be a lie to get the job.




WRT IT professionals, I would have to agree with you that there are plenty of skilled workers in the U.S. and that the video of a seminar given by Grisby & Cohen I would agree is very unethical.

The problem is that it is accepted practice and happened when the economy was on the upswing.



I understand that there are, however, shortages of skilled blue collar labour in many trades ie. welding, tool & die. The average age of a welder is 54 for example. Do you disagree with this or are you looking only at this issue from the standpoint of H-1B.

My standpoint is that when there is a decision to outsource(or go offshore), the affected people only hear about it at the exit interview. External customers only hear about it when they note a drop in service for which they have been accustomed to receiving.

I can't really say much about the welders other than there being a stigma that is carried across "blue-collar" professions.

 
At 12/25/2009 3:23 PM, Anonymous Benny The Man said...

In the private sector, output per worker soars.
In the US military, hardware and equipment costs more and more every year, and we spend more and more per soldier. We get less output per year.
I wonder when AEI or Cato or Heritage or whoever, all orgs that profess to hate government excess, will look int this.
My guess is never.

 
At 12/25/2009 4:00 PM, Blogger QT said...

Sethstorm,

Thank you for providing a link to the Hyatt story although one notes that it does not relate to manufacturing employment in the U.S.

The following passage also gives the economic context of the Hyatt decision which is worth noting:

"Like many hotels in the Boston area, the Hyatt has struggled this year, as a recession has caused people to cut down on their travel plans. Boston area hotels experienced a 21 percent drop in revenue per available room in June compared to the year before, according to PKF Hospitality Research, and 10 percent in July. Chicago-based Hyatt reported revenue fell 18 percent to $1.6 billion in the first half of this year.

The Hyatt was doing what just about any firm in this position would do...try to low variable costs. You and I may not like it but outsourcing provides greater flexibility to manage variable costs. As a result, the hotel chain can respond very quickly to ups & downs in the hospitality market.

Like it or not, this business must compete in a highly competitive industry and attract and retain capital by providing a better return on investment than its competitors. Financial performance is not optional but essential to attracting and retaining capital financing.

 

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