Friday, May 18, 2012

American Manufacturing Has Been at the Forefront of U.S. Economic Growth for the Last 15 Years



For the last year or so, I've made the case (along with others) that the U.S. manufacturing sector is at the forefront of the economic expansion based on all relevant measures of economic performance: profits, output, employment and unemployment.  For each of those variables, the U.S. manufacturing is leading the overall economy with greater growth in after-tax profits, greater growth in after-profits per employee, greater output growth, greater employment growth, and a lower unemployment rate.  

Using annual data from the BEA series "Real Value-added by Industry" (in constant 2005 dollars) through 2011 (and estimates for 2012), I'm now reporting that the U.S. manufacturing sector has actually been leading the overall U.S. economy for at least the last 15 years, based on annual growth rates in inflation-adjusted output growth. My estimates in growth rates for 2012 are 4% for real manufacturing value-added and 2.2% for real GDP. 

The top chart above shows that in each of the 13 non-recessionary years since 1997, the real growth rate in manufacturing output was greater than the growth rate of real GDP!  Only in the three recessionary years of  2001, 2008 and 2009 was manufacturing growth below real GDP growth.  Over this 16 year period, the average growth rate in real manufacturing output was 3% compared to the average growth of 2.3% for the overall economy.  

The bottom chart compares the level of inflation-adjusted output for the manufacturing sector to the level of real output for the overall economy (GDP) from 1997 to 2012 (estimated), when both series are set to equal an index value of 100 in 1997.  With an estimated growth rate of 4% this year for U.S. manufacturing, U.S. factory output in 2012 will be above the pre-recession 2007 level by about 3%, and it's highly likely that manufacturing output in the first four months of 2012 is already ahead of the 2007 peak.  On a cumulative basis since 1997, manufacturing output this year will be above the 1997 level by 47.5%, compared to a cumulative growth in real GDP of only 38.2%.   

Bottom Line:  The U.S. manufacturing sector isn't just at the forefront of the current economic expansion, it's been at the forefront of economic growth in the U.S. economy in every non-recession year for the last 15 years, and by a non-trivial difference of 0.7% higher growth per year on average. 

Update: Both manufacturing output and GDP are measured in constant, 2005 chained dollars using the BEA series "Real Value Added by Industry." 

8 Comments:

At 5/18/2012 7:50 PM, Blogger Buddy R Pacifico said...

Is not 2007 the top year for manuafacturing by Chain-type value added?

It looks to be that 2012 will top it, but we need to get to year end.

Am I looking at the wrong figures?

 
At 5/18/2012 9:02 PM, Blogger Mark J. Perry said...

See updates to post, both manufacturing value added and overall GDP are measured in real, inflation-adjusted constant 2005 dollars.

 
At 5/18/2012 9:04 PM, Blogger Mark J. Perry said...

Note that the post indicates that the data are available through 2011 and I am estimating growth rates and values for 2012.

 
At 5/18/2012 10:38 PM, Blogger tdsevern said...

I work as an Engineer at a specialty automotive parts manufacturer (Muth Mirror Systems). We design and manufacture the illuminating icon in most new vehicle blind spot mirrors. Looking at our forecasts, manufacturing in the Midwest is about to explode.

Tim
Faktics | Infographics

 
At 5/19/2012 3:22 AM, Blogger PeakTrader said...

U.S. exports became a larger share of U.S. GDP, particularly since 2003 (which the second chart suggests).

 
At 5/19/2012 6:50 AM, Blogger Larry G said...

when we measure Manufacturing output in various metrics - do we ever measure manufacturing output vs manufacturing jobs?

As pointed out by skeptics, it's hard to reconcile "record" manufacturing output with tepid, at best, employment figures.

Is there a way to graphically illustrate how even as manufacturing expands that manufacturing employment is not?

Typically - in the past - manufacturing production was also used as a proxy for employment but hasn't that game changed a lot?

so how do we calibrate manufacturing employment these days?

 
At 5/19/2012 10:22 AM, Blogger VangelV said...

LOL

'Real' is only real if the BLS numbers are any good. But the people who predicted the IT bubble, the housing bubble, and the current debt bubble have pointed out that the true inflation rate has been much higher. That probably makes the 'real' manufacturing growth and the 'real' GDP negative.

 
At 5/20/2012 7:21 PM, Blogger morganovich said...

this seems like a very misleading way to cherry pick data.

gdp is held back by lots of stagnant industries like utilities, mining, etc.


finance and insurance grew far more both in % terms.

why not single that out as the leader?

the category of finance, insurance, real estate and leasing grew more in % terms and in actual dollars?

perhaps that was leader? surely the case for that is stronger than the case for manufacturing.

trade in information increased vastly more than manufacturing in % terms as did health care and social assistance.

in fact, if we take the aggregate codes of
private goods producing industries we get a 1.89 tn level in 1998 and a 2.82tn in 2011. that's 930bn in growth or 49%.

private service producing industries went from 5.80 to 10.27tn growth of 4.72tn or 77% growth making manufacturing a laggard in both dollars and in % terms.

in light of that, i do not see how one could call manufacturing the leader over that period when services grew more in absolute chained dollars and in % terms.

that crown belongs to services.

you yourself have pointed out on several occasions that manufacturing as a % of us gdp has dropped from about 17% in 1998 to about 12% now.

in light of that, it is mathematically impossible that it is growing faster than gdp and any group that has to carry "government" with it for value add loses.

but if you look at services head to head with manufacturing, it clearly dominates.

 

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