Tuesday, January 31, 2012

Based on Record Profits, U.S. Manufacturing is Alive and Well and Had Its Best Year Ever in 2011

The chart above compares data in 1995 and 2011 for: a) inflation-adjusted manufacturing profits (2011 dollars, Census data here), and b) average manufacturing employment levels.  The year 1995 was selected as a representative year during the period when U.S. manufacturing employment exceeded 17 million workers and inflation-adjusted profits were typical for a non-recession year in the era of what might be considered the "golden age of American manufacturing."  It was definitely well before the unprecedented contraction in manufacturing employment that started in about 2001, and by the time it ended in 2009 resulted in the elimination of more than five million factory jobs over a short eight-year period, possibly the greatest loss of jobs in one U.S. industry in such a short period of time ever in American history.  And it was that period of major job losses in the American manufacturing sector that stoked frequent media stories about the "decline, demise, or death of U.S. manufacturing," which continue today.

We've heard countless stories about the manufacturing job losses, but haven't heard much about the major rebound and renaissance of profitability in American manufacturing, which likely surged to all-time historical levels in 2011.  Although fourth quarter data are not yet available, projections based on profits through the third quarter suggest that the after-tax profits of American manufacturing corporations exceeded $600 billion last year for the first time in history, and will be more than double the profits in 1995.  Thanks to investments in advanced technology and major improvements in efficiency, the American manufacturing sector will be more than twice as profitable in 2011 as in 1995, adjusted for inflation.  And part of that surge in manufacturing profitability to record highs is a direct result of the reduction in staffing levels by 5.5 million workers between 1995 and 2011.    

Bottom Line: The true economic measure of the success of any company or industry is not the number of workers, the amount of output, or the level of sales revenue, it's the level of profitability.  Based on that measure, American manufacturing is alive and well, and doing better than ever before.  

45 Comments:

At 1/31/2012 9:46 PM, Blogger Tom E. Snyder said...

Will the record profits continue? If so, why? Are they getting government protection from competition?

 
At 1/31/2012 9:58 PM, Blogger kmg said...

The profits have to be adjusted to be a % of GDP (or at least adjusted for inflation) for the chart to not be misleading.

Manufacturing profits as a % of GDP are the same as 1995, as the GDP has also doubled.

 
At 1/31/2012 10:05 PM, Blogger Mark J. Perry said...

Opening sentence: The chart above compares data in 1995 and 2011 for: a) inflation-adjusted manufacturing profits.

 
At 1/31/2012 10:53 PM, OpenID arbitrage789 said...

It would be nice if the various pundits weighing in on the subject of manufacturing jobs could agree on a definition of what it means for a company to BE a manufacturer... or at least, they should be much more open about their semantic disagreements.

 
At 2/01/2012 12:14 AM, Blogger Benjamin said...

Fantastic--and yet. The profits per worker have exploded. Through the roof, and I am happy for that.

But worker pay?

At what point do even "pro-business" types begin to wonder what is the point of the economy and business arrangements? Ever more profit per worker, but ever lower pay?

And at what point do employees come to regard ever higher profits but stagnant pay as an imbalanced deal?

 
At 2/01/2012 6:46 AM, Blogger Larry G said...

the GDP vs JOBs chart that was posted a few days ago seems to say that even though manufacturing is alive and well that manufacturing jobs are not.

one explanation might be that manufacturing companies have rapidly automated and computerized their operations.

with such a high unemployment rate - you'd think that demand for manufactured products would not be at record levels though.

as usual the snapshot charts don't quite explain all of it and actually appear to be contradictory at times.

can anyone explain why manufacturing is UP and jobs DOWN?

 
At 2/01/2012 9:32 AM, Blogger Jon Murphy said...

can anyone explain why manufacturing is UP and jobs DOWN?

That's easy: capitalization. Factories are more machines now than man (forgive the Star Wars reference). It's hardly a new trend.

Remember guys, the goal is not, nor should it be, to create jobs. If it were, we just pass a law banning all labor saving devices from factories. The goal should be to create value. From value comes jobs. A firm that does not make anything valuable cannot earn a profit. A firm that does not make a profit will shut down. A firm that has shut down offers no jobs.

Let me ask you this: which is better for the US economy: 100 men digging ditches and filling them back in or 10 men making cars?

 
At 2/01/2012 9:57 AM, Blogger Larry G said...

" 100 men digging ditches and filling them back in or 10 men making cars? "

true. but the 100 men not working are not going to be buying cars either, right?

 
At 2/01/2012 10:06 AM, Blogger Jon said...

It's funny how rich people deliver what they think is good news to the ordinary American and they don't recognize that this is good only for these very rich people. It means nothing to the ordinary American.

Ordinary people earn money by working and being paid a salary. Rich people, like Mitt Romney, earn money by doing nothing. The guy doesn't even manage his own trust fund. He pays someone else for that. He makes money due to profits generated by the work of others.

So Mitt Romney is really happy when profits are up. He gets paid more and he didn't do a single thing. It's important to Mark that Mitt is happy. Mark doesn't seem to care that unemployment is really high in this country. That means suffering for ordinary Americans, not rich people. So it's irrelevant.

 
At 2/01/2012 10:32 AM, Blogger Jon Murphy said...

This comment has been removed by the author.

 
At 2/01/2012 10:46 AM, Blogger Paul said...

Jon,

"Rich people, like Mitt Romney, earn money by doing nothing."

So do most "poor" people. Mitt Romney is 64 years old. He spent a lifetime investing his money that was already taxed once, and now he's reaping the rewards. Only petty little Marxists like you would have a problem with that.

"Mark doesn't seem to care that unemployment is really high in this country."

I guess you're able to read between the lines better than I can. Would it make you feel better if Mark put an "I really care about the people suffering under Obama's policies" asterisk at the end of every post? Would that help?

 
At 2/01/2012 10:47 AM, Blogger Jon Murphy said...

true. but the 100 men not working are not going to be buying cars either, right?

They may be. Who knows? Maybe one of those men invents a new widget. Maybe one of those men are retired. Maybe one of those men decides to be a stay-at-home dad. Maybe one of those men opens a new restaurant.

The implicit assumption with the unemployed is that they are idle. That may be true, but is not always. If our goal was to just create jobs and not value, then the 100 men digging a ditch are actually a drain of society; they are wasting resources and time that could be better devoted to more useful endeavors.

Look, I want people to have jobs. But I want them to produce useful things! We know the problems involved with assigning people busywork. Just look at China during the Cultural Revolution or even our own country before & during WWII.

 
At 2/01/2012 10:51 AM, Blogger Larry G said...

right.. is this the part that "agrees" with the DOE and and CSR:

" Thus it perhaps falls to a friend of the US (i.e. me) to state that if the White House is in any way serious about impacting the economic Black Hole that is the burgeoning national debt, reinvigorating business big-time, creating real jobs and restoring ebbing national wealth, the best shot by a distance if you’re American ... well, you’re standing on it, or rather above it.

While love, spiritually speaking and in fiction, may make the world go around, it is energy – and mostly hydrocarbon energy – that actually drives it. As blockbuster thrillers sometimes put it, “Who will tell the President?”

Political pantomime

From over here, the lack of a comprehensive US energy policy and the incoherence of President Obama’s political take on energy, reminds me of a pantomime I saw last Christmas, Aladdin. The cave is full of energy riches, but ‘Emperor’ Obama – or is it Wishy-Washy? –refuses to allow the words “open sesame” to be spoken."

this is not facts..this is editorial blather..

should we RELY on it for facts?

only if you don't really care about facts and are more interested in propaganda.

 
At 2/01/2012 10:55 AM, Blogger Buddy R Pacifico said...

Benji wonders about workers pay and corporate profits, so that's why companies have profit- sharing.

Here's what Ford paid to assembly workers in 2011:

"Ford said it is making profit-sharing payments to about 41,600 U.S. hourly employees under its collective bargaining agreement with the UAW. The workers are receiving about $6,200. Based on the company’s financial performance during the first half of last year, the workers received $3,750 each in December. Now they will get an additional $2,450 each based on the financial results of the second half of the year."

Profit-sharing is incentive based compensation, and not just getting paid for showing up or not.

 
At 2/01/2012 10:59 AM, Blogger Larry G said...

" Look, I want people to have jobs. But I want them to produce useful things! We know the problems involved with assigning people busywork. Just look at China during the Cultural Revolution or even our own country before & during WWII."

oh I agree 1000% but every guy that loses a job to automation is a guy not working and getting entitlements - AND not buying stuff that in turn - USED to produce more jobs but now it just adds more automation....

the jobs that are available now days takes much more than what your basic factory jobs required.

we have a crap-load of people whose education limits them to basic factory jobs that are fast disappearing.

20% of them can't even qualify for the lowest skill jobs in the military anymore.

 
At 2/01/2012 11:27 AM, Blogger morganovich said...

"can anyone explain why manufacturing is UP and jobs DOWN?"

perhaps you noticed the same thing happen in farms over the last 100 years?

that's productivity and automation for you.

perhaps you noticed how the us going from 90% agricultural workers to 3% did not harm the economy or our well being one bit but, in fact, enhanced it?

that's productivity and automation for you.

declines in manufacturing workers are just the same as those in farming:

it will drive prosperity.

complaining that one guy can now make 6 toasters an hour instead of 2 as it creates job losses and guts us is absurd.

by that logic we ought to ban steamshovels and even hand shovels and make everyone dig ditches with their hands to create prosperity.

hell, we could double that by making them dig one handed, right?

oh how the good times would roll then.

 
At 2/01/2012 12:16 PM, Blogger Benjamin said...

Buddy-

You raise a good point, and I wish profit-sharing was the norm. In some regards it is anyway, if people own stock (if management doesn't rip off shareholders).

 
At 2/01/2012 12:17 PM, Blogger morganovich said...

"we have a crap-load of people whose education limits them to basic factory jobs that are fast disappearing."

fortunately, we have a service sector to absorb them.

you want fries with that?

 
At 2/01/2012 1:01 PM, Blogger Hydra said...

At what point do even "pro-business" types begin to wonder what is the point of the economy and business arrangements? Ever more profit per worker, but ever lower pay?


=============================

Oh C'mon Ben. Get with the program.

What other point is there?

 
At 2/01/2012 1:07 PM, Blogger Walt G. said...

Don't underestimate the potential jobs and pay in the service industry: it's not just fries anymore. I teach the core courses in our new bachelor of service management degree. A lot of excellent jobs are just waiting for the people with the skills to fill them.

 
At 2/01/2012 1:09 PM, Blogger morganovich said...

"true. but the 100 men not working are not going to be buying cars either, right?"

but 100 men not working are far better than 100 men working at somehting with negative value. japan showed us this.

their endless "stimulus" projects of bridges to nowhere and useless airports destroyed their economy.

the value of a guy doing nothing is 0.

the value of a guy getting paid $1 to build something worth 30 cents is -70 cents.

further, a guy getting paid to create negative value tends to stay there and keep doing it.

a guy not getting paid tends to look for a way to get paid and to the extent he finds one creating positive value, contributes again.

this has serious implications for these massive extensions of welfare benefits.

people are being paid to produce nothing. this saps money from useful ends. why work when you can get paid not to? it's a huge negative value trap for the economy and is the precise reason why keynsianism never works.

taking dollars to create 40 cents worth of value and calling ti stimulus makes us worse off, not better.

this is a fantastic piece laying out how that works.

worth a read.

http://news.investors.com/Article/599064/201201261809/government-investing-private-sector-prosperity.htm

 
At 2/01/2012 1:10 PM, Blogger Hydra said...

This comment has been removed by the author.

 
At 2/01/2012 1:12 PM, Blogger Hydra said...

So, you have a statistical distribution of IQ, Education, Ability.

Fewer and fewer jobs are available for those on the low end of the scale.

Service sector does not need them all, either.

90% of former farmers left farming for some other sector. If we have the same success in all the other sectors, where will all those people go, finally?

At that rate, We will need 99 entirley new business sectors.

 
At 2/01/2012 1:16 PM, Blogger morganovich said...

walt-

i was mostly being snarky.

service jobs, by and large, pay a ton more than manufacturing.

almost 100% of top paying jobs are in service.

around here, a masseuse at the montage resort makes a helluva lot more than a gm line worker does.

but there are also lots of low pay/low skill service jobs. this notion that "jobs for the bottom 10% are gone" is just not true.

but those jobs are not that different in pay than they ever were. look at the guy behind the counter at the airport burger king. ask "could he ever have gotten a job building cars"? likely no.

for most of history, manufacturing jobs were brutal, long, and low paid. the only period this was not that case was 1946-60 and mostly only in the US. we had the only industrial base in the world that was intact. demand was nearly infinite and supply very limited so prices and wages were very high.

look at manufacturing in the 20's, a period of economic boom. you didn't build fords and have money to buy a house and a car and send you kids to private school. you likely were not even a single breadwinner.

we romanticize the 50's and think of them as "normal" but they weren't. they were a one time aberration that will never be repeated.

 
At 2/01/2012 1:25 PM, Blogger morganovich said...

hydra-

that's a ridiculous analysis.

no where for them to go? what? there are not loads of service jobs? the richer other sectors get, the more service is required.

if you have the money, you hire people to do other work and free up time, perhaps to work where you have comparative advantage.

i pay people to clean my house. not glamorous, but it pays pretty well. $150 for a crew of 2 for about 2.5 hours. that's $30/hr/person. not a terrible wage. with a 40 hour week, that's something like $60k a year.

what, you telling me that you need tons of skills for that? no. you just need to be conscientious and reliable. if you are not, well, what right do you have to expect people to want to hire you?

you makes this baseless assumption that we need a new sector to take over from service, but that's not true at all. even people in the service sector need people in the service sector. maybe my housecleaner uses a drycleaner or an accountant or an auto mechanic.

unlike manufacturing and farming, where you rapidly hit need saturation from productivity gains, the service sector can expand nearly forever driven by specialization and wealth.

i think nothing of hiring many kinds of service professionals that my parents would never have considered. they learned to fix their own lawn mower. i view it as a total waste of time i could better use elsewhere.

your whole premise is flawed from the start and the conclusions from it are invalid.

 
At 2/01/2012 1:27 PM, Blogger Walt G. said...

morganovich,

I can watch a robot do what I used to do: pick up a 60 pound part from the floor and hang it on a moving hook 180 times per hour (that's moving 5.4 tons of steel an hour). Mr robot can have that job. No one should aspire to do a mindless robot job even if pays very well, which it doesn't anymore.

 
At 2/01/2012 1:33 PM, Blogger morganovich said...

walt-

yup. i hear you. sounds like a long, hard day.

probably saved you money on a gym membership though...

 
At 2/01/2012 1:54 PM, Blogger Walt G. said...

When you work 12-hours-a-day, 7- days-a-week there is no time for a gym even if you were still able to go after work (at $4.37 per hour pay in 1973) :)

The good old days are now for me!

 
At 2/01/2012 2:08 PM, Blogger Jon Murphy said...

90% of former farmers left farming for some other sector. If we have the same success in all the other sectors, where will all those people go, finally?

That argument wasn't true when the Luddites made it in the 1800's and is still not true today.

If your analysis were true, then we'd reach 100% unemployment. Not there. Not even close.

 
At 2/01/2012 2:15 PM, Blogger juandos said...

"The guy doesn't even manage his own trust fund. He pays someone else for that. He makes money due to profits generated by the work of others"...

Well "duh!" jon...

Guess who else does the very samething jon, everyone with a 401K, IRA, or some sort of retirement fund that has market investments...

 
At 2/01/2012 2:53 PM, Blogger Walt G. said...

Everyone's financial goal should be to have their money eventually work for them instead of working for their money. That does not happen automatically for those of us who have no inheritance. I don’t care for some of Mitt Romney’s political positions, but I don’t begrudge him for his wealth or his federal income tax rate.

 
At 2/01/2012 2:54 PM, Blogger Jet Beagle said...

I also believe that American manufacturing is alive and well. But I'm not certain the data presented here tells the whole story.

The profits of American manufacturers shown in the charts seems to represent not just the operations of American factories. I reviewed the instructions for corporations which complete the Census Bureau's Quarterly Financial Report survey. Companies report not just sales and expenses for U.S. operations, but sales and expenses for global operations.

As I see it, the simultaneous reduction in American jobs and increase in profits of American manufacturers has more than one explanation. If General Electric offshores production of a profitable product, it could increase profit while reducing U.S. jobs.

 
At 2/01/2012 3:01 PM, Blogger Jet Beagle said...

Walt G: "Don't underestimate the potential jobs and pay in the service industry: it's not just fries anymore. "

I agree, but I'll go further. The service sector was NEVER just fries. Physicians, lawyers, architects, electronic repair technicians, computer consultants, plumbers, CPAs, auto mechanics, insurance adjusters, and many other well-paid workers were always primarily employed in the service sector.

 
At 2/01/2012 3:04 PM, Blogger morganovich said...

jet-

that's a valid point.

this category also includes a large number of companies that i would not consider to be in manufacturing at all.

companies like IBM (now almost entirely services) or apple (all but completely outsourced manufacturing and assembly) or even semiconductor companies like PMC sierra (no manufacturing at all, ever, has been wholly outsources since day 1) get lumped into "manufacturing" because the category itself is badly outdated.

many of the most profitable companies in the US are platform companies. they do design and sales and marketing, but don't actually build the stuff. it's been a key trend in US business for 15-20 years, perhaps THE key trend.

apple may still refer to itself as a "manufacturer" but they aren't. they manufacture nothing. they have no factories, no assembly lines. why would they? it's low margin low value add activity. they are happy to let foxcomm do it.

 
At 2/01/2012 3:26 PM, Blogger kmg said...

The chart above compares data in 1995 and 2011 for: a) inflation-adjusted manufacturing profits.

Ok, that is somewhat better, but not as accurate as a % of GDP (since salaries are expected to rise above inflation).

 
At 2/01/2012 3:53 PM, Blogger Jon Murphy said...

Guess who else does the very samething jon, everyone with a 401K, IRA, or some sort of retirement fund that has market investments...

Not to mention everyone who buys vegetables from a grocery store, buys music, goes to a restaurant, or does anything else for that matter. We all profit from the work of others. That's what economics is all about! Individuals, with no goal other than to better themselves, through their individual actions, better society. To somehow claim that is a bad thing is a fundamental disbelief in the human condition.

 
At 2/01/2012 4:07 PM, Blogger Jon Murphy said...

I finished my post with "a fundamental disbelief in the human condition." What I should have said is "a fundamental disbelief in Nature."

 
At 2/01/2012 4:49 PM, Blogger juandos said...

hydra wallowing in crocodile tears says: "Fewer and fewer jobs are available for those on the low end of the scale"...

Hence the reason for the coming Soylent Green factories...

Ha! Ha! Ha! Ha! Ha!

 
At 2/02/2012 3:23 AM, Blogger Ron H. said...

Jon: "It's funny how rich people deliver what they think is good news to the ordinary American and they don't recognize that this is good only for these very rich people....blah, blah, blah"

Oh, Hi Jon, glad you're back. this blog has been pretty gloomy lately, and I need something to laugh about. I'm sure you have something to offer that will do the trick.

 
At 2/02/2012 3:43 AM, Blogger Ron H. said...

juandos: "Hence the reason for the coming Soylent Green factories...

So THAT's what Obama means when he talks about green jobs.

 
At 2/02/2012 11:31 AM, Blogger morganovich said...

ron-

i don't think it's the poor people obama plans to run through the factories.

 
At 2/02/2012 12:38 PM, Blogger Tom said...

Manufacturing salaries are up since 1995. Median family income, too. The goods they make are cheaper than ever, as is food, etc., especially as a percent of income. Manufacturing jobs are not fun.

Everything is better, except for the government-ruined economy. The answer? More government. Blame the private sector. Pretend things are worse and blame the successful. Punish success and subsidize everybody else.

 
At 2/02/2012 2:18 PM, Blogger morganovich said...

tom-

lots of things are not cheaper, even as a % of income.

gasoline and food are notable there. so is rent.

food was in a downtrend for a long time, but the last few years have shown a big jump in prices (with no end in sight).

 
At 2/03/2012 2:41 AM, Blogger Ron H. said...

morganovich: "i don't think it's the poor people obama plans to run through the factories."

You're right! They voted for him.

Hmm. I guess I'll avoid driving through tunnels from now on.

 
At 2/03/2012 11:15 AM, Blogger VangelV said...

I am sorry to bring this up but has anyone mentioned the damage done to the pension plan balances for companies with defined benefit plans? By keeping rates artificially low the Fed will require that many of these companies take serious write-offs and reduce future profits by a substantial amount.

 

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