Saturday, April 25, 2009

Manufacturing Jobs As Percent of U.S. Payroll Employment Fall to Record Low of 9.25% in March

In today's NY Times, Floyd Norris reports that:

The current recession has become the second-worst in the last half-century and is close to surpassing the severe 1973-75 downturn, according to the Index of Coincident Indicators, based on government data and compiled each month by the Conference Board. Unlike the more widely followed Index of Leading Indicators, which is supposed to help forecast changes in the economy, the coincident index is aimed at simply recording how the economy is doing now.

The index is based on four elements, covering different aspects of economic activity. The two areas in which this is already the worst recession since 1960 are employment and industrial production. The 15.4% fall in industrial production, while worse than in previous recessions, is better than in some countries.

Industrial production is also one of the main variables used by the NBER to determine recessions:

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

MP: But is industrial production still as relevant as an economic indicator as it used to be? Probably not, since industrial production is a measure of manufacturing output and manufacturing jobs as a percent of total payroll employment have declined significantly from 26.5% in 1969 (more than 1 out of every 4 jobs was in manufacturing) to the lowest-ever level of only 9.25% (about 1 in 11 jobs is in manufacturing) in March 2009 (see chart above, data are from the BLS via Economagic).

Since fewer than 10% of all U.S. jobs are now in the manufacturing sector, should we continue to rely on industrial production as a key economic variable, when the manufacturing share of overall employment continues to decline to record low levels? Probably not. While it might have made sense to rely on industrial production as a key economic indicator in the 1960s and the 1970s during the Machine Age, it probably doesn't make sense any longer in the Information Age.

To replace or supplement industrial production, what about some alternative Information Age measure of economic activity that might include web traffic, web pages, internet connections, software sales, online retailing activity, etc.?


At 4/25/2009 5:13 PM, Anonymous ListenEllipse said...

"second-worst in the last half-century and is close to surpassing the severe 1973-75 downturn"

It's not the worst since the Great Depression?! And all this time I thought we were in Great Depression 2.0. What have politicians and media been telling me?!

At 4/25/2009 9:25 PM, Blogger David Foster said...

What precisely defines a job as being "in the manufacturing sector?" Obviously, direct-labor jobs in a factory. But how about the engineers who design the product and the sales & marketing people who get it sold? Are they counted?

In other words, is this a functional measurement, or a SIC-code-based measurement?

At 4/26/2009 5:50 AM, Blogger bob wright said...

I guess the answer to your question depends on whether the NBER considers the employment in manufacturing, the output of the manufacturing sector, or a combination of both. I believe that manufacturing output as a percentage of the total economy has been mostly level over the last 40 to 50 years.

At 4/26/2009 5:56 AM, Blogger juandos said...

"In other words, is this a functional measurement, or a SIC-code-based measurement?"...

Hmmm, isn't that being replaced with the North American Industry Classification System (NAICS)?...

None the less that's a good question David, just exactly what is a manufacturing job now a days?

At 4/26/2009 6:57 PM, Blogger glenzo said...

seems like manufacturing jobs as a percent of total employment is going the same way as rural farm jobs did 70-80 years ago or so. As far as I recall, we did not all starve to death back then.


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