Wednesday, June 15, 2011

Manufacturing Productivity Has Improved Our Lives

In a comment on this CD post about the dramatic gains in U.S. manufacturing productivity, JoeMac asks an important question: "How have these gains in productivity improved the lives of Americans?"

The chart above displays the share of Personal Consumption Expenditures represented by three categories of manufactured consumer goods that are most important to U.S. households: a) food and beverages consumed at home, b) clothing and footwear, and c) furnishings and durable household equipment (BEA data here).  In the late 1940s, it required almost half (41%) of consumer expenditures to provide for the household basics: food, clothing and home furnishings, which are all manufactured goods.  

As a direct result of the significant improvements in manufacturing productivity, manufactured goods have become cheaper and more affordable over time, resulting in a declining share of total consumer expenditures required to furnish our homes, and cloth and feed our families.  By 1985, the share of consumer spending on household basics was only 20%, or less than half of the 41% share in 1948.  For each of the last five years since 2006, the share of consumption expenditures on food, clothing and household furnishings has been below 14%, and was only 13.5% in 2010.  

For every $100 of consumer spending today, only $13.50 is spent on food, clothing and household furnishings and $87.50 is spent on everything else.  Contrast that to 1948, when it took $40 of every $100 of spending for the basics, leaving only $60 to spend on all other goods and services.      

Bottom Line: Without the major productivity gains in the manufacturing sector over the last fifty years, it would still require almost half of consumer spending just to furnish our houses, and feed and clothe our families.  The standard of living for the average American household has improved significantly over the last 50 years, and keeps getting better all the time, thanks in large part to greater manufacturing productivity.  

Here's the proof that productivity gains have improved our lives: Would you be willing to exchange your computer and laser printer for an old manual typewriter?  Would you be willing to exchange your cell phone or iPhone for an old rotary phone?  Would you be willing to exchange your big-screen color TV for an old black and white TV?  Would you be willing to trade your iPod and iTunes for an old phonograph and 45 RPM records?  Would you be willing to trade your modern refrigerator, washing machine or dishwasher for appliances from the 1950s?  I think most rational people would much prefer today's manufactured goods to those from past eras, and we can thank manufacturing productivity for lower costs and greater variety, and for better quality and more energy-efficient products.          


At 6/15/2011 8:38 PM, Blogger Stephen said...

Is there data available showing the median household percentage of consumption expenditures spent on these items over time, as opposed to avereage?

At 6/15/2011 9:30 PM, Blogger Michael E. Marotta said...

"In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity — the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce. " - The Communist Manifesto.

They are never happy, are they?

At 6/15/2011 10:51 PM, Blogger Benjamin Cole said...

This chart absolutely crushes any arguments foisted off by Chicken Inflation Littles.

Cluck, cluck, cluck and squawk.

At 6/16/2011 2:30 AM, Blogger juandos said...

"This chart absolutely crushes any arguments foisted off by Chicken Inflation Littles"...

A stunningly inane comment for sure...

Priced In Gold, The Median Home Price Is Down 80% In The Past Decade

At 6/16/2011 8:30 AM, Blogger morganovich said...

"This chart absolutely crushes any arguments foisted off by Chicken Inflation Littles."

oh really bubble baby, how's that?

share of income says nothing about inflation.

it just shows we are getting wealthier.

if income were up 90% and prices were up 88%, that chart would look much as it does.

that would not be low inflation and would murder you if you had savings.

seriously, do you even consider checking your units before you open your mouth?

you seem to have no idea what inflation is, much less how to measure it.

admit it, you got your "econ degree" from the back of mad magazine.

no one with even a high school econ education would make the sort of ludicrous mistakes you do on a regular basis.

At 6/16/2011 8:34 AM, Blogger morganovich said...

here's an interesting think to look at.

in the productivity charts you have posted, there is an inflection point around 1992 where suddenly, productivity increases.

it is absent in this chart. it actually looks to be flatteneing.

granted, that has to do at least to some extent with logarithmic issues, but it's s bit odd to see an inflection point in one and not the other.

that would seem to shed further doubt that the post 1992 productivity surge has been real as opposed to just mislabeled inflation.

At 6/16/2011 1:04 PM, Blogger Jet Beagle said...

Sorry, morganovich, but I don't see the inflection point which you observed. It does appear that the rise in productivity slowed down from 1988 to 1982, and then resumed its fairly orderly increase.

As you pointed out, use of a logarithmic scale would better represent the data visually.

At 6/16/2011 1:14 PM, Blogger Jet Beagle said...

I followed the link to the real manufacturing output data. The real growth in the "Computer and Electronic Products" industry was striking. Over the past two decades, that industry alone accounted for 54% of the growth in real manufacturing GDP.

In 1989, "Computers and Electronic Products" represented 0.7% of U.S. manufacturing GDP. By 2009, that industry held a 20.0% share.

If output per worker in "Computers and Electronic Products" is much greater than in the industries which lost share, that would explain much of the manufacturing productivity growth since 1989.

VangeIV argued it was the loss of low productivity indutries which drove productivity gains. Based on the data I viewed, I think it is instead the absolute gains in high productivity industries.

At 6/16/2011 1:34 PM, Blogger Jet Beagle said...

I am arguing that a shift in industries accounts for much of the gains in manufacturing productivity. On the other hand, I believe it is the adapting of computers and automation to the much larger service sector which has driven overall U.S. productivity. That would include such machines as ATM's, automatic french fries cookers, radiologic digital imaging, automated aircraft maintenance equipment, and much more.

At 6/16/2011 2:09 PM, Blogger Jet Beagle said...

"Based on the data I viewed, I think it is instead the absolute gains in high productivity industries."

Sorry, I should have written:

"I think it is also the absolute gains in high productivity industries"

i agree with VangeIV that offshoring of labor-intensive industries such as textiles and apparel manufacturing have accounted for some of the overall gain in manufacturing productivity.

At 6/16/2011 7:00 PM, Blogger Benjamin Cole said...

The reason this crushes the Chicken Inflation Little crowd is that the Littles have been saying inflation is much higher than reported.

That should result in lower, not higher living standards.

Obviously, we are experiencing higher living standards, as shown by this chart.

The risk now is we do a Japan. They have had long-term deflation there, with horrible results.


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